0000820027-01-500435.txt : 20011009
0000820027-01-500435.hdr.sgml : 20011009
ACCESSION NUMBER: 0000820027-01-500435
CONFORMED SUBMISSION TYPE: 485BPOS
PUBLIC DOCUMENT COUNT: 11
FILED AS OF DATE: 20010926
EFFECTIVENESS DATE: 20010928
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AXP GROWTH SERIES INC/MN
CENTRAL INDEX KEY: 0000049702
STANDARD INDUSTRIAL CLASSIFICATION: []
IRS NUMBER: 410329910
STATE OF INCORPORATION: MN
FISCAL YEAR END: 0731
FILING VALUES:
FORM TYPE: 485BPOS
SEC ACT: 1933 Act
SEC FILE NUMBER: 002-38355
FILM NUMBER: 1745012
BUSINESS ADDRESS:
STREET 1: 80 SOUTH 8TH STREET
STREET 2: T33/52
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55440
BUSINESS PHONE: 6126712772
MAIL ADDRESS:
STREET 1: 80 S. 8TH STREET
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55440
FORMER COMPANY:
FORMER CONFORMED NAME: AXP GROWTH FUND INC
DATE OF NAME CHANGE: 20000829
FORMER COMPANY:
FORMER CONFORMED NAME: IDS GROWTH FUND INC
DATE OF NAME CHANGE: 19920703
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AXP GROWTH SERIES INC/MN
CENTRAL INDEX KEY: 0000049702
STANDARD INDUSTRIAL CLASSIFICATION: []
IRS NUMBER: 410329910
STATE OF INCORPORATION: MN
FISCAL YEAR END: 0731
FILING VALUES:
FORM TYPE: 485BPOS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-02111
FILM NUMBER: 1745013
BUSINESS ADDRESS:
STREET 1: 80 SOUTH 8TH STREET
STREET 2: T33/52
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55440
BUSINESS PHONE: 6126712772
MAIL ADDRESS:
STREET 1: 80 S. 8TH STREET
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55440
FORMER COMPANY:
FORMER CONFORMED NAME: AXP GROWTH FUND INC
DATE OF NAME CHANGE: 20000829
FORMER COMPANY:
FORMER CONFORMED NAME: IDS GROWTH FUND INC
DATE OF NAME CHANGE: 19920703
485BPOS
1
partabc.txt
AXP GROWTH SERIES, INC.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ______ [ ]
Post-Effective Amendment No. 67 (File No. 2-38355) [X]
-------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 43 (File No. 811-2111) [X]
---------
AXP GROWTH SERIES, INC.
200 AXP Financial Center
Minneapolis, Minnesota 55474
Leslie L. Ogg - 901 Marquette Ave. So., Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ X ] on Sept. 28, 2001 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
AXP Growth Fund and AXP Research Opportunities Fund, series of the Registrant,
have adopted a master/feeder operating structure. This Post-Effective Amendment
includes a signature page for Growth Trust, the master fund.
AXP(R)
Growth Fund
PROSPECTUS
SEPT. 28, 2001
American
Express(R)
Funds
(icon of) ruler
AXP Growth Fund seeks to provide shareholders with long-term capital growth.
Please note that this Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Table of Contents
TAKE A CLOSER LOOK AT:
The Fund 3p
Goal 3p
Principal Investment Strategies 3p
Principal Risks 4p
Past Performance 5p
Fees and Expenses 7p
Investment Manager 8p
Other Securities and
Investment Strategies 8p
Buying and Selling Shares 8p
Valuing Fund Shares 8p
Investment Options 9p
Purchasing Shares 10p
Transactions Through American Express
Brokerage or Third Parties 12p
Sales Charges 13p
Exchanging/Selling Shares 16p
Distributions and Taxes 18p
Master/Feeder Structure 20p
Financial Highlights 21p
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2p AXP GROWTH FUND -- PROSPECTUS
The Fund
GOAL
AXP Growth Fund (the Fund) seeks to provide shareholders with long-term capital
growth. Because any investment involves risk, achieving this goal cannot be
guaranteed.
The Fund seeks to achieve its goal by investing all of its assets in a master
portfolio rather than by directly investing in and managing its own portfolio of
securities. The master portfolio has the same goal and investment policies as
the Fund.
PRINCIPAL INVESTMENT STRATEGIES
The Fund primarily invests in common stocks and securities convertible into
common stocks that appear to offer growth opportunities. These growth
opportunities could result from new management, market developments, or
technological superiority. The Fund may invest up to 25% of its total assets in
foreign investments.
The selection of common stocks is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, American Express Financial Corporation (AEFC),
the Fund's investment manager, chooses investments by:
o Identifying companies that AEFC believes have above-average long-term growth
potential based on:
-- effective management,
-- financial strength,
-- competitive market or product position, and
-- technological advantage relative to other companies.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the company has met AEFC's earnings and/or growth expectations,
-- political, economic, or other events could affect the company's
performance,
-- AEFC identifies a more attractive opportunity, and
-- the company continues to meet the other standards described above.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees, expenses, and
taxes.
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3p AXP GROWTH FUND -- PROSPECTUS
PRINCIPAL RISKS
This Fund is designed for investors with above-average risk tolerance. Please
remember that with any mutual fund investment you may lose money. Principal
risks associated with an investment in the Fund include:
Market Risk
Style Risk
Foreign Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Style Risk
The Fund purchases growth stocks based on the expectation that the companies
will have strong growth in earnings. The price paid often reflects an expected
rate of growth. If that growth fails to occur, the price of the stock may
decline quickly.
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic, and other conditions of a
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occuring.
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4p AXP GROWTH FUND -- PROSPECTUS
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance has varied for each full calendar year shown on
the chart below, and
o how the Fund's average annual total returns compare to recognized indexes.
How the Fund has performed in the past does not indicate how the Fund will
perform in the future.
+46.94% +8.06% +8.57% +2.99% +41.10% +24.51% +20.65% +22.56% +39.51% -19.02%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
During the period shown in the bar chart, the highest return for a calendar
quarter was +27.10% (quarter ending December 1998) and the lowest return for a
calendar quarter was -22.78% (quarter ending December 2000).
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 sales charges and fees.
The Fund's Class A year to date return as of June 30, 2001 was -18.46%.
Average Annual Total Returns (as of Dec. 31, 2000)
1 year 5 years 10 years Since inception
Growth:
Class A -23.68% +14.41% +17.25% N/A
Class B -22.66% +14.78% N/A +17.96%(a)
Class Y -18.90% +15.92% N/A +19.09%(a)
S&P 500 Index -9.10% +18.33% +17.46% +20.40%(b)
Russell 1000(R)Growth Index -22.42% +18.15% +17.33% +20.22%(b)
Lipper Large-Cap Growth Index -19.68% +17.85% +17.32% +20.06%(b)
(a) Inception date was March 20, 1995.
(b) Measurement period started April 1, 1995.
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5p AXP GROWTH FUND -- PROSPECTUS
This table shows total returns from hypothetical investments in Class A, Class B
and Class Y shares of the Fund. These returns are compared to the indexes shown
for the same periods. The performance of different classes varies because of
differences in sales charges and fees. Past performance for Class Y for the
periods prior to March 20, 1995 may be calculated based on the performance of
Class A, adjusted to reflect differences in sales charges, although not for
other differences in expenses. Class C became effective June 26, 2000 and
therefore performance information is not available.
For purposes of this calculation we assumed:
o the maximum sales charge for Class A shares,
o sales at the end of the period and deduction of the applicable contingent
deferred sales charge (CDSC) for Class B shares,
o no sales charge for Class Y shares, and
o no adjustments for taxes paid by an investor on the reinvested income and
capital gains.
Standard & Poor's 500 Index (S&P 500 Index), an unmanaged list 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.
The Russell 1000(R) Growth Index, an unmanaged index, measures the performance
of those companies among the 1,000 largest companies included in the Russell
3000(R) Index with higher price-to-book ratios and higher forecasted growth
values.
Lipper Large-Cap Growth Index, an unmanaged 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.
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6p AXP GROWTH FUND -- PROSPECTUS
FEES AND EXPENSES
Fund investors pay various expenses. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
Class A Class B Class C Class Y
Maximum sales charge (load)
imposed on purchases(a)
(as a percentage of offering price) 5.75%(b) none none none
Maximum deferred sales charge (load)
imposed on sales (as a percentage of
offering price at time of purchase) none 5% 1%(c) none
Annual Fund operating expenses(d) (expenses that are deducted from Fund assets)
As a percentage of average daily net assets: Class A Class B Class C Class Y
Management fees(e) 0.54% 0.54% 0.54% 0.54%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00%
Other expenses(f) 0.20% 0.21% 0.21% 0.29%
Total 0.99% 1.75% 1.75% 0.83%
(a) This charge may be reduced depending on the value of your total
investments in American Express mutual funds. See "Sales Charges."
(b) For Class A purchases over $500,000 on which the sales charge is waived, a
1% sales charge applies if you sell your shares less than one year after
purchase.
(c) For Class C purchases, a 1% sales charge applies if you sell your shares
less than one year after purchase.
(d) Both in this table and the following example fund operating expenses
include expenses charged by both the Fund and its Master Portfolio as
described under "Management."
(e) Includes the impact of a performance adjustment fee that increased the
management fee by 0.01% for the most recent fiscal year.
(f) Other expenses include an administrative services fee, a shareholder
services fee for Class Y, a transfer agency fee and other nonadvisory
expenses.
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 and the Fund earns a 5% annual return. The operating
expenses remain the same each year. If you hold your shares until the end of the
years shown, your costs would be:
1 year 3 years 5 years 10 years
Class A(a) $670 $872 $1,091 $1,723
Class B(b) $578 $851 $1,050 $1,866(d)
Class B(c) $178 $551 $ 950 $1,866(d)
Class C $178 $551 $ 950 $2,067
Class Y $ 85 $265 $ 461 $1,029
(a) Includes a 5.75% sales charge.
(b) Assumes you sold your Class B shares at the end of the period and incurred
the applicable CDSC.
(c) Assumes you did not sell your Class B shares at the end of the period.
(d) Based on conversion of Class B shares to Class A shares in the ninth year
of ownership.
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
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7p AXP GROWTH FUND -- PROSPECTUS
INVESTMENT MANAGER
The Portfolio pays AEFC a fee for managing its assets. The Fund pays its
proportionate share of the fee. Under the Investment Management Services
Agreement, the fee for the most recent fiscal year was 0.54% of its average
daily net assets, subject to possible adjustment under the terms of a
performance incentive arrangement between AEFC and the Fund. Under the
agreement, the Portfolio also pays taxes, brokerage commissions and nonadvisory
expenses. AEFC or an affiliate may make payments from its own resources, which
include profits from management fees paid by the Fund, to compensate
broker-dealers or other persons for providing distribution assistance. The
investment manager of the Portfolio is AEFC, 200 AXP Financial Center,
Minneapolis, MN 55474. AEFC is a wholly-owned subsidiary of American Express
Company, a financial services company with headquarters at American Express
Tower, World Financial Center, New York, NY 10285.
The Fund's assets are invested in Growth Portfolio (the Portfolio), which is
managed by AEFC.
Lisa Costa, senior portfolio manager, joined AEFC in January 2000. She has 21
years of investment experience. From 1985-1999 she was vice president and
portfolio manager for Franklin Advisors at Franklin Templeton Group of Funds.
She also serves as portfolio manager of AXP Variable Portfolio Growth Fund. She
has an MBA from Golden State University and has earned the Chartered Market
Technician designation.
Scott Mullinix, portfolio manager, joined AEFC in 1987. From 1992-1999 he was a
research analyst covering consumer stocks. He was promoted to associate
portfolio manager in 1999. He assists Lisa with the management of this Fund.
Scott has an MBA from the University of Minnesota and has earned the Chartered
Financial Analyst designation.
OTHER SECURITIES AND INVESTMENT STRATEGIES
There are other securities in which the Fund may invest, and investment
strategies that the Fund may employ, but they are not principal investment
strategies. The Fund may utilize derivative instruments to produce incremental
earnings, to hedge existing positions and to increase flexibility. The Fund also
may invest in other instruments, such as money market securities, preferred
stock, investment grade debt obligations, and convertible securities.
For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/semiannual reports.
Buying and Selling Shares
VALUING FUND SHARES
The public offering price for Class A is the net asset value (NAV) adjusted for
the sales charge. For Class B, Class C and Class Y, it is the NAV.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business of the New York Stock Exchange, normally
3 p.m. Central Time (CT), each business day (any day the New York Stock Exchange
is open).
Fund shares may be purchased through various third-party organizations,
including 401(k) plans, banks, brokers and investment advisers. Where authorized
by the Fund, orders will be priced at the NAV next computed after receipt by the
organization or their selected agent.
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8p AXP GROWTH FUND -- PROSPECTUS
Investments are valued based on market quotations, or where market quotations
are not readily available, based on methods selected in good faith by the board.
If the Fund's investment policies permit it to invest in securities that are
listed on foreign stock exchanges that trade on weekends or other days when the
Fund does not price its shares, the value of those investments may change on
days when you could not buy or sell shares of the Fund. Please see the SAI for
further information.
INVESTMENT OPTIONS
1. Class A shares are sold to the public with a sales charge at the time of
purchase and an annual distribution (12b-1) fee of 0.25%.
2. Class B shares are sold to the public with a contingent deferred sales charge
(CDSC) and an annual distribution fee of 1.00%.
3. Class C shares are sold to the public without a sales charge at the time of
purchase and with an annual distribution fee of 1.00% (may be subject to a
CDSC).
4. Class Y shares are sold to qualifying institutional investors without a sales
charge or distribution fee. Please see the SAI for information on eligibility
to purchase Class Y shares.
Investment options summary:
The Fund offers four different classes of shares. There are differences among
the fees and expenses for each class. Not everyone is eligible to buy every
class. After determining which classes you are eligible to buy, decide which
class best suits your needs. Your financial advisor can help you with this
decision.
The following table shows the key features of each class:
Class A Class B Class C Class Y
--------------- ---------------- -------------- --------------- ----------------
Availability Available to Available to Available to Limited to
all investors. all all investors. qualifying
investors. institutional
investors.
--------------- ---------------- -------------- --------------- ----------------
Initial Sales Yes. Payable No. Entire No. Entire No. Entire
Charge at time of purchase purchase purchase price
purchase. price is price is is invested in
Lower sales invested in invested in shares of the
charge for shares of shares of the Fund.
larger the Fund. Fund.
investments.
--------------- ---------------- -------------- --------------- ----------------
Deferred Sales On purchases Maximum 5% 1% CDSC None.
Charge over $500,000, CDSC during applies if
1% CDSC the first you sell your
applies if you year shares less
sell your decreasing than one year
shares less to 0% after after
than one year six years. purchase.
after purchase.
--------------- ---------------- -------------- --------------- ----------------
Distribution Yes.* 0.25% Yes.* 1.00% Yes.* 1.00% Yes. 0.10%
and/or
Shareholder
Service Fee
--------------- ---------------- -------------- --------------- ----------------
Conversion to N/A Yes, No. No.
Class A automatically
in ninth
calendar
year of
ownership.
--------------- ---------------- -------------- --------------- ----------------
* The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 that allows it to pay distribution and servicing-related expenses
for the sale of Class A, Class B and Class C shares. Because these fees are
paid out of the Fund's assets on an on-going basis, the fees may cost
long-term shareholders more than paying other types of sales charges imposed
by some mutual funds.
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9p AXP GROWTH FUND -- PROSPECTUS
Should you purchase Class A, Class B or Class C shares?
If your investments in American Express mutual funds total $250,000 or more,
Class A shares may be the better option because the sales charge is reduced for
larger purchases. If you qualify for a waiver of the sales charge, Class A
shares will be the best option.
If you invest less than $250,000, consider how long you plan to hold your
shares. Class B shares have a higher annual distribution fee than Class A shares
and a CDSC for six years. Class B shares convert to Class A shares in the ninth
calendar year of ownership. Class B shares purchased through reinvested
dividends and distributions also will convert to Class A shares in the same
proportion as the other Class B shares.
Class C shares also have a higher annual distribution fee than Class A shares.
Class C shares have no sales charge if you hold the shares for one year or
longer. Unlike Class B shares, Class C shares do not convert to Class A. As a
result, you will pay a 1% distribution fee for as long as you hold Class C
shares. If you choose a deferred sales charge option (Class B or Class C),
generally you should consider Class B shares if you intend to hold your shares
for more than six years. Consider Class C shares if you intend to hold your
shares less than six years. To help you determine what investment is best for
you, consult your financial advisor.
PURCHASING SHARES
To purchase shares through an American Express Brokerage Account or entities
other than American Express Financial Advisors Inc., please refer to the
American Express Brokerage Web site or consult your selling agent. The following
section explains how you can purchase shares from American Express Financial
Advisors (the Distributor).
If you do not have a mutual fund account, you need to establish one. Your
financial advisor will help you fill out and submit an application. Once your
account is set up, you can choose among several convenient ways to invest.
When you purchase shares for a new or existing account, your order will be
priced at the next NAV calculated after your order is accepted by the Fund. If
your application does not specify which class of shares you are purchasing, we
will assume you are investing in Class A shares.
Important: When you open an account, you must provide your correct Taxpayer
Identification Number (TIN), which is either your Social Security or Employer
Identification number.
If you do not provide and certify the correct TIN, you could be subject to
backup withholding of 31% of taxable distributions and proceeds from certain
sales and exchanges. You also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN,
o a civil penalty of $500 if you make a false statement that results in no
backup withholding, and
o criminal penalties for falsifying information.
You also could be subject to backup withholding, if the IRS notifies us to do
so, because you failed to report required interest or dividends on your tax
return.
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10p AXP GROWTH FUND -- PROSPECTUS
How to determine the correct TIN
------------------------------------ ----------------------------------------
For this type of account: Use the Social Security or Employer
Identification number of:
------------------------------------ ----------------------------------------
Individual or joint account The individual or one of the owners
listed on the joint account
------------------------------------ ----------------------------------------
Custodian account of a minor The minor
(Uniform Gifts/Transfers to Minors
Act)
------------------------------------ ----------------------------------------
A revocable living trust The grantor-trustee (the person who puts
the money into the trust)
------------------------------------ ----------------------------------------
An irrevocable trust, pension The legal entity (not the personal
trust or estate representative or trustee, unless no
legal entity is designated in the
account title)
------------------------------------ ----------------------------------------
Sole proprietorship The owner
------------------------------------ ----------------------------------------
Partnership The partnership
------------------------------------ ----------------------------------------
Corporate The corporation
------------------------------------ ----------------------------------------
Association, club or tax-exempt The organization
organization
------------------------------------ ----------------------------------------
For details on TIN requirements, contact your financial advisor to obtain a copy
of federal Form W-9, "Request for Taxpayer Identification Number and
Certification." You also may obtain the form on the Internet at
(http://www.irs.gov/prod/forms_pubs/).
Three ways to invest
1 By mail:
Once your account has been established, send your check with the account number
on it to:
American Express Funds
70200 AXP Financial Center
Minneapolis, MN 55474
Minimum amounts
Initial investment: $2,000
Additional investments: $100
Account balances: $300
Qualified accounts: none
If your account balance falls below $300, you will be asked to increase it to
$300 or establish a scheduled investment plan. If you do not do so within 30
days, your shares can be sold and the proceeds mailed to you.
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11p AXP GROWTH FUND -- PROSPECTUS
2 By scheduled investment plan:
Contact your financial advisor for assistance in setting up one of the following
scheduled plans:
o automatic payroll deduction,
o bank authorization,
o direct deposit of Social Security check, or
o other plan approved by the Fund.
Minimum amounts
Initial investment: $100
Additional investments: $50 per payment for qualified accounts;
$100 per payment for nonqualified accounts
Account balances: none (on a scheduled investment plan with monthly
payments)
If your account balance is below $2,000, you must make payments at least
monthly.
3 By wire or electronic funds transfer:
If you have an established account, you may wire money to:
Wells Fargo Bank Minnesota, N.A.
Minneapolis, MN 55479
Routing Transit No. 091000019
Give these instructions:
Credit American Express Financial Advisors Account #0000030015 for personal
account # (your account number) for (your name). Please be sure to include all
10 digits of the American Express Financial Advisors account number, including
the zeros.
If this information is not included, the order may be rejected, and all money
received by the Fund, less any costs the Fund or American Express Client Service
Corporation (AECSC) incurs, will be returned promptly.
Minimum amounts
Each wire investment: $1,000
TRANSACTIONS THROUGH AMERICAN EXPRESS BROKERAGE OR THIRD PARTIES
You may buy or sell shares through American Express Brokerage, certain 401(k)
plans, banks, broker-dealers, financial advisors or other investment
professionals. These organizations may charge you a fee for this service and may
have different policies. Some policy differences may include different minimum
investment amounts, exchange privileges, fund choices and cutoff times for
investments. The Fund and the Distributor are not responsible for the failure of
one of these organizations to carry out its obligations to its customers. Some
organizations may receive compensation from the Distributor or its affiliates
for shareholder recordkeeping and similar services. Where authorized by the
Fund, some organizations may designate selected agents to accept purchase or
sale orders on the Fund's behalf. To buy or sell shares through American Express
Brokerage or third parties or to determine if there are policy differences,
please consult the American Express Brokerage Web site or your selling agent.
For other pertinent information related to buying or selling shares, please
refer to the appropriate section in the prospectus.
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12p AXP GROWTH FUND -- PROSPECTUS
SALES CHARGES
Class A -- initial sales charge alternative
When you purchase Class A shares, you pay a sales charge as shown in the
following table:
Sales charge as percentage of:
Total market value Public offering price* Net amount invested
Up to $49,999 5.75% 6.10%
$50,000-$99,999 4.75 4.99
$100,000-$249,999 3.75 3.90
$250,000-$499,999 2.50 2.56
$500,000-$999,999 2.00** 2.04**
$1,000,000 or more 0.00 0.00
* Offering price includes the sales charge.
** The sales charge will be waived until Dec. 31, 2001.
The sales charge on Class A shares may be lower than 5.75%, based on the
combined market value of:
o your current investment in this Fund,
o your previous investment in this Fund, and
o investments you and your primary household group have made in other American
Express mutual funds that have a sales charge. (The primary household group
consists of accounts in any ownership for spouses or domestic partners and
their unmarried children under 21. For purposes of this policy, domestic
partners are individuals who maintain a shared primary residence and have
joint property or other insurable interests.) AXP Tax-Free Money Fund and
Class A shares of AXP Cash Management Fund do not have sales charges.
Other Class A sales charge policies:
o IRA purchases or other employee benefit plan purchases made through a payroll
deduction plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar group, may be added
together to reduce sales charges for all shares purchased through that plan,
and
o if you intend to invest more than $50,000 over a period of 13 months, you can
reduce the sales charges in Class A by filing a letter of intent. If
purchasing shares in a brokerage account or through a third party, you must
request the reduced sales charge when you buy shares. For more details,
please contact your financial advisor or see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses or domestic partners, children and
parents.
o current or retired American Express financial advisors, employees of
financial advisors, their spouses or domestic partners, children and parents.
o registered representatives and other employees of brokers, dealers or other
financial institutions having a sales agreement with the Distributor,
including their spouses, domestic partners, children and parents.
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13p AXP GROWTH FUND -- PROSPECTUS
o investors who have a business relationship with a newly associated financial
advisor who joined the Distributor from another investment firm provided that
(1) the purchase is made within six months of the advisor's appointment date
with the Distributor, (2) the purchase is made with proceeds of shares sold
that were sponsored by the financial advisor's previous broker-dealer, and
(3) the proceeds are the result of a sale of an equal or greater value where
a sales load was assessed.
o qualified employee benefit plans offering participants daily access to
American Express mutual funds. Eligibility must be determined in advance. For
assistance, please contact your financial advisor. (Participants in certain
qualified plans where the initial sales charge is waived may be subject to a
deferred sales charge of up to 4%.)
o shareholders who have at least $1 million in American Express mutual funds.
Until Dec. 31, 2001, the sales charge does not apply to shareholders who have
at least $500,000 in American Express mutual funds. If the investment is sold
less than one year after purchase, a CDSC of 1% will be charged. During that
year, the CDSC will be waived only in the circumstances described for waivers
for Class B and Class C shares.
o purchases made within 90 days after a sale of shares (up to the amount sold):
-- of American Express mutual funds in a qualified plan subject to a
deferred sales charge, or
-- in a qualified plan or account where American Express Trust Company has a
recordkeeping, trustee, investment management, or investment servicing
relationship.
Send the Fund a written request along with your payment, indicating the
date and the amount of the sale.
o purchases made:
-- with dividend or capital gain distributions from this Fund or from the
same class of another American Express mutual fund,
-- through or under a wrap fee product or other investment product sponsored
by the Distributor or another authorized broker-dealer, investment
advisor, bank or investment professional,
-- within the University of Texas System ORP,
-- within a segregated separate account offered by Nationwide Life Insurance
Company or Nationwide Life and Annuity Insurance Company,
-- within the University of Massachusetts After-Tax Savings Program, or
-- through or under a subsidiary of AEFC offering Personal Trust Services'
Asset-Based pricing alternative.
o shareholders whose original purchase was in a Strategist fund merged into an
American Express fund in 2000.
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14p AXP GROWTH FUND -- PROSPECTUS
Class B and Class C -- contingent deferred sales charge (CDSC) alternative
For Class B, the CDSC is based on the sale amount and the number of calendar
years -- including the year of purchase -- between purchase and sale. The
following table shows how CDSC percentages on sales decline after a purchase:
If the sale is made during the: The CDSC percentage rate is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
For Class C, a 1% CDSC is charged if you sell your shares less than one year
after purchase.
For both Class B and Class C, if the amount you are selling causes the value of
your investment to fall below the cost of the shares you have purchased, the
CDSC is based on the lower of the cost of those shares purchased or market
value. Because the CDSC is imposed only on sales that reduce your total purchase
payments, you never have to pay a CDSC on any amount that represents
appreciation in the value of your shares, income earned by your shares, or
capital gains.
In addition, the CDSC on your sale, if any, will be based on your oldest
purchase payment. The CDSC on the next amount sold will be based on the next
oldest purchase payment.
Example:
Assume you had invested $10,000 in Class B shares and that your investment had
appreciated in value to $12,000 after 15 months, including reinvested dividends
and capital gain distributions. You could sell up to $2,000 worth of shares
without paying a CDSC ($12,000 current value less $10,000 purchase amount). If
you sold $2,500 worth of shares, the CDSC would apply to the $500 representing
part of your original purchase price. The CDSC rate would be 4% because the sale
was made during the second year after the purchase.
Waivers of the sales charge for Class B and Class C shares
The CDSC will be waived on sales of shares:
o in the event of the shareholder's death,
o held in trust for an employee benefit plan, or
o held in IRAs or certain qualified plans if American Express Trust Company is
the custodian, such as Keogh plans, tax-sheltered custodial accounts or
corporate pension plans, provided that the shareholder is:
-- at least 59 1/2 years old AND
-- taking a retirement distribution (if the sale is part of a transfer to an
IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will
not be waived) OR
-- selling under an approved substantially equal periodic payment
arrangement.
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15p AXP GROWTH FUND -- PROSPECTUS
EXCHANGING/SELLING SHARES
Exchanges
You can exchange your Fund shares at no charge for shares of the same class of
any other publicly offered American Express mutual fund. Exchanges into AXP
Tax-Free Money Fund may only be made from Class A shares. For complete
information on the other fund, including fees and expenses, read that fund's
prospectus carefully. Your exchange will be priced at the next NAV calculated
after we receive your transaction request in good order.
You may make up to three exchanges (1 1/2 round trips) within any 30-day period.
These limits do not apply to scheduled exchange programs and certain employee
benefit plans. Exceptions may be allowed with pre-approval of the Fund.
Other exchange policies:
o Exchanges must be made into the same class of shares of the new fund.
o If your exchange creates a new account, it must satisfy the minimum
investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for another exchange.
o If your shares are pledged as collateral, the exchange will be delayed until
AECSC receives written approval from the secured party.
AECSC and the Fund reserve the right to reject any exchange, limit the amount,
or modify or discontinue the exchange privilege, to prevent abuse or adverse
effects on the Fund and its shareholders. For example, if exchanges are too
numerous or too large, they may disrupt the Fund's investment strategies or
increase its costs.
The Fund does not permit market-timing. Do not invest in the Fund if you are a
market timer.
Selling Shares
You can sell your shares at any time. The payment will be mailed within seven
days after accepting your request.
When you sell shares, the amount you receive may be more or less than the amount
you invested. Your sale price will be the next NAV calculated after your request
is accepted by the Fund, minus any applicable CDSC.
You can change your mind after requesting a sale and use all or part of the
proceeds to purchase new shares in the same account from which you sold. If you
reinvest in Class A, you will purchase the new shares at NAV rather than the
offering price on the date of a new purchase. If you reinvest in Class B or
Class C, any CDSC you paid on the amount you are reinvesting also will be
reinvested. To take advantage of this option, send a written request within 90
days of the date your sale request was received and include your account number.
This privilege may be limited or withdrawn at any time and may have tax
consequences.
The Fund reserves the right to redeem in kind.
For more details and a description of other sales policies, please see the SAI.
To sell or exchange shares held through an American Express Brokerage Account or
with entities other than American Express Financial Advisors, please consult
your selling agent. The following section explains how you can exchange or sell
shares held with American Express Financial Advisors.
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16p AXP GROWTH FUND -- PROSPECTUS
Requests to sell shares of the Fund are not allowed within 30 days of a
telephoned-in address change.
Important: If you request a sale of shares you recently purchased by a check or
money order that is not guaranteed, the Fund will wait for your check to clear.
It may take up to 10 days from the date of purchase before payment is made.
(Payment may be made earlier if your bank provides evidence satisfactory to the
Fund and AECSC that your check has cleared.)
Two ways to request an exchange or sale of shares
1 By letter:
Include in your letter:
o the name of the fund(s),
o the class of shares to be exchanged or sold,
o your mutual fund account number(s) (for exchanges, both funds must be
registered in the same ownership),
o your Social Security number or Employer Identification number,
o the dollar amount or number of shares you want to exchange or sell,
o signature(s) of all registered account owners,
o for sales, indicate how you want your money delivered to you, and
o any paper certificates of shares you hold.
Regular or express mail:
American Express Funds
70100 AXP Financial Center
Minneapolis, MN 55474
2 By telephone:
American Express Client Service Corporation
Telephone Transaction Service
(800) 437-3133
o The Fund and AECSC will use reasonable procedures to confirm authenticity of
telephone exchange or sale requests.
o Telephone exchange and sale privileges automatically apply to all accounts
except custodial, corporate or qualified retirement accounts. You may request
that these privileges NOT apply by writing AECSC. Each registered owner must
sign the request.
o Acting on your instructions, your financial advisor may conduct telephone
transactions on your behalf.
o Telephone privileges may be modified or discontinued at any time.
Minimum sale amount: $100
Maximum sale amount: $100,000
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17p AXP GROWTH FUND -- PROSPECTUS
Three ways to receive payment when you sell shares
1 By regular or express mail:
o Mailed to the address on record.
o Payable to names listed on the account.
NOTE: The express mail delivery charges you pay will vary depending on the
courier you select.
2 By wire or electronic funds transfer:
o Minimum wire: $1,000.
o Request that money be wired to your bank.
o Bank account must be in the same ownership as the American Express mutual
fund account.
NOTE: Pre-authorization required. For instructions, contact your financial
advisor or AECSC.
3 By scheduled payout plan:
o Minimum payment: $50.
o Contact your financial advisor or AECSC to set up regular payments on a
monthly, bimonthly, quarterly, semiannual or annual basis.
o Purchasing new shares while under a payout plan may be disadvantageous
because of the sales charges.
Distributions and Taxes
As a shareholder you are entitled to your share of the Fund's net income and net
gains. The Fund distributes dividends and capital gains to qualify as a
regulated investment company and to avoid paying corporate income and excise
taxes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund's net investment income is distributed to you as dividends. Capital
gains are realized when a security is sold for a higher price than was paid for
it. Each realized capital gain or loss is long-term or short-term depending on
the length of time the Fund held the security. Realized capital gains and losses
offset each other. The Fund offsets any net realized capital gains by any
available capital loss carryovers. Net short-term capital gains are included in
net investment income. Net realized long-term capital gains, if any, are
distributed by the end of the calendar year as capital gain distributions. As a
result of the Fund's goal and investment strategies, distributions from the Fund
may consist of a significant amount of capital gains.
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18p AXP GROWTH FUND -- PROSPECTUS
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request distributions in cash, or
o you direct the Fund to invest your distributions in the same class of any
publicly offered American Express mutual fund for which you have previously
opened an account.
We reinvest the distributions for you at the next calculated NAV after the
distribution is paid.
If you choose cash distributions, you will receive cash only for distributions
declared after your request has been processed.
TAXES
Distributions are subject to federal income tax and may be subject to state and
local taxes in the year they are declared. You must report distributions on your
tax returns, even if they are reinvested in additional shares.
If you buy shares shortly before the record date of a distribution, you may pay
taxes on money earned by the Fund before you were a shareholder. You will pay
the full pre-distribution price for the shares, then receive a portion of your
investment back as a distribution, which may be taxable.
For tax purposes, an exchange is considered a sale and purchase, and may result
in a gain or loss. A sale is a taxable transaction. If you sell shares for less
than their cost, the difference is a capital loss. If you sell shares for more
than their cost, the difference is a capital gain. Your gain may be short term
(for shares held for one year or less) or long term (for shares held for more
than one year).
If you buy Class A shares and within 91 days exchange into another fund, you may
not include the sales charge in your calculation of tax gain or loss on the sale
of the first fund you purchased. The sales charge may be included in the
calculation of your tax gain or loss on a subsequent sale of the second fund you
purchased.
Selling shares held in an IRA or qualified retirement account may subject you to
federal taxes, penalties and reporting requirements. Please consult your tax
advisor.
Important: This information is a brief and selective summary of some of the
tax rules that apply to this Fund. Because tax matters are highly individual
and complex, you should consult a qualified tax advisor.
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19p AXP GROWTH FUND -- PROSPECTUS
Master/Feeder Structure
This Fund uses a master/feeder structure. This means that the Fund (a feeder
fund) invests all of its assets in the Portfolio (the master fund). The
master/feeder structure offers the potential for reduced costs because it
spreads fixed costs of portfolio management over a larger pool of assets. The
Fund may withdraw its assets from the Portfolio at any time if the Fund's board
determines that it is best. In that event, the board would consider what action
should be taken, including whether to hire an investment advisor to manage the
Fund's assets directly or to invest all of the Fund's assets in another pooled
investment entity. Here is an illustration of the structure:
Investors buy shares in the Fund
The Fund buys units in the Portfolio
The Portfolio invests in securities, such as stocks or bonds
Other feeders may include mutual funds and institutional accounts. These feeders
buy the Portfolio's securities on the same terms and conditions as the Fund and
pay their proportionate share of the Portfolio's expenses. However, their
operating costs and sales charges are different from those of the Fund.
Therefore, the investment returns for other feeders are different from the
returns of the Fund.
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20p AXP GROWTH FUND -- PROSPECTUS
Financial Highlights
Class A
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997
Net asset value, beginning of period $ 54.36 $42.14 $36.58 $35.47 $23.16
Income from investment operations:
Net investment income (loss) (.14) (.14) (.03) (.07) (.05)
Net gains (losses) (both realized and unrealized) (22.34) 13.14 7.29 2.14 13.04
Total from investment operations (22.48) 13.00 7.26 2.07 12.99
Less distributions:
Distributions from realized gains (2.20) (.78) (1.70) (.96) (.68)
Net asset value, end of period $ 29.68 $54.36 $42.14 $36.58 $35.47
Ratios/supplemental data
Net assets, end of period (in millions) $3,851 $6,637 $4,576 $3,681 $3,215
Ratio of expenses to average daily net assets(c) .99% .99% .89% .87% .97%
Ratio of net investment income (loss)
to average daily net assets (.34%) (.30%) (.08%) (.22%) (.18%)
Portfolio turnover rate
(excluding short-term securities) 41% 23% 17% 28% 24%
Total return(e) (42.14%) 31.01% 20.49% 6.32% 57.00%
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997
Net asset value, beginning of period $ 52.02 $40.65 $35.61 $34.82 $22.92
Income from investment operations:
Net investment income (loss) (.42) (.46) (.28) (.29) (.22)
Net gains (losses) (both realized and unrealized) (21.29) 12.61 7.02 2.04 12.80
Total from investment operations (21.71) 12.15 6.74 1.75 12.58
Less distributions:
Distributions from realized gains (2.20) (.78) (1.70) (.96) (.68)
Net asset value, end of period $ 28.11 $52.02 $40.65 $35.61 $34.82
Ratios/supplemental data
Net assets, end of period (in millions) $1,510 $2,468 $1,458 $1,021 $713
Ratio of expenses to average daily net assets(c) 1.75% 1.75% 1.65% 1.63% 1.74%
Ratio of net investment income (loss)
to average daily net assets (1.11%) (1.06%) (.85%) (.97%) (.94%)
Portfolio turnover rate
(excluding short-term securities) 41% 23% 17% 28% 24%
Total return(e) (42.57%) 30.02% 19.58% 5.52% 55.81%
See accompanying notes to financial highlights.
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21p AXP GROWTH FUND -- PROSPECTUS
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000(b)
Net asset value, beginning of period $ 52.03 $52.65
Income from investment operations:
Net investment income (loss) (.42) (.04)
Net gains (losses) (both realized and unrealized) (21.29) (.58)
Total from investment operations (21.71) (.62)
Less distributions:
Distributions from realized gains (2.20) --
Net asset value, end of period $ 28.12 $52.03
Ratios/supplemental data
Net assets, end of period (in millions) $9 $1
Ratio of expenses to average daily net assets(c) 1.75% 1.75%(d)
Ratio of net investment income (loss)
to average daily net assets (1.10%) (1.30%)(d)
Portfolio turnover rate
(excluding short-term securities) 41% 23%
Total return(e) (42.56%) (1.18%)
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997
Net asset value, beginning of period $ 54.75 $42.37 $36.74 $35.60 $23.21
Income from investment operations:
Net investment income (loss) (.07) (.06) -- (.04) (.01)
Net gains (losses) (both realized and unrealized) (22.52) 13.22 7.33 2.14 13.08
Total from investment operations (22.59) 13.16 7.33 2.10 13.07
Less distributions:
Distributions from realized gains (2.20) (.78) (1.70) (.96) (.68)
Net asset value, end of period $ 29.96 $54.75 $42.37 $36.74 $35.60
Ratios/supplemental data
Net assets, end of period (in millions) $974 $1,551 $914 $582 $179
Ratio of expenses to average daily net assets(c) .83% .83% .80% .80% .85%
Ratio of net investment income (loss)
to average daily net assets (.18%) (.14%) --% (.12%) (.07%)
Portfolio turnover rate
(excluding short-term securities) 41% 23% 17% 28% 24%
Total return(e) (42.04%) 31.20% 20.59% 6.40% 57.23%
See accompanying notes to financial highlights.
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22p AXP GROWTH FUND -- PROSPECTUS
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Inception date was June 26, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
The information in these tables has been audited by KPMG LLP, independent
auditors. The independent auditors' report and additional information about the
performance of the Fund are contained in the Fund's annual report which, if not
included with this prospectus, may be obtained without charge.
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23p AXP GROWTH FUND -- PROSPECTUS
This Fund, along with the other American Express mutual funds, is distributed by
American Express Financial Advisors Inc. and can be purchased from an American
Express financial advisor or from other authorized broker-dealers or third
parties. The Funds can be found under the "Amer Express" banner in most mutual
fund quotations.
Additional information about the Fund and its investments is available in the
Fund's Statement of Additional Information (SAI), annual and semiannual reports
to shareholders. In the Fund's annual report, you will find a discussion of
market conditions and investment strategies that significantly affected the Fund
during its last fiscal year. The SAI is incorporated by reference in this
prospectus. For a free copy of the SAI, the annual report or the semiannual
report, contact your selling agent or American Express Client Service
Corporation.
American Express Funds
70100 AXP Financial Center, Minneapolis, MN 55474
(800) 862-7919 TTY: (800) 846-4852
Web site address:
americanexpress.com
You may review and copy information about the Fund, including the SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-202-942-8090). Reports and other information about the Fund are available on
the EDGAR Database on the Commission's Internet site at (http://www.sec.gov).
Copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following E-mail address: publicinfo@sec.gov, or by
writing to the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
Investment Company Act File #811-2111
Ticker Symbol
Class A: INIDX Class B: IGRBX
Class C: AXGCX Class Y: IGRYX
(logo)
American
Express
S-6455-99 V (9/01)
AXP(R) Research
Opportunities
Fund
PROSPECTUS
SEPT. 28, 2001
American
Express(R)
Funds
(icon of) ruler
AXP Research Opportunities Fund seeks to provide shareholders with long-term
capital growth.
Please note that this Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Table of Contents
TAKE A CLOSER LOOK AT:
The Fund 3p
Goal 3p
Principal Investment Strategies 3p
Principal Risks 4p
Past Performance 5p
Fees and Expenses 6p
Investment Manager 7p
Other Securities and
Investment Strategies 8p
Buying and Selling Shares 8p
Valuing Fund Shares 8p
Investment Options 8p
Purchasing Shares 10p
Transactions Through American Express
Brokerage or Third Parties 12p
Sales Charges 12p
Exchanging/Selling Shares 15p
Distributions and Taxes 18p
Master/Feeder Structure 20p
Financial Highlights 21p
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2p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
The Fund
GOAL
AXP Research Opportunities Fund (the Fund) seeks to provide shareholders with
long-term capital growth. Because any investment involves risk, achieving this
goal cannot be guaranteed.
The Fund seeks to achieve its goal by investing all of its assets in a master
portfolio rather than by directly investing in and managing its own portfolio of
securities. The master portfolio has the same goal and investment policies as
the Fund.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in securities of companies included in the Standard &
Poor's 500 Composite Stock Price Index (S&P 500 Index). The S&P 500 Index is an
unmanaged market index used to measure the total return of the U.S. stock
market. The Fund researches securities and invests in those that are believed to
offer the potential for long-term growth. Under normal market conditions, at
least 65% of the Fund's total assets will be invested in equity securities.
Although the Fund invests primarily in common stocks that comprise the S&P 500
Index, it is not an index fund, it may own companies not included in the index,
and its results will likely differ from the index. The selection of common
stocks is the primary decision in building the investment portfolio.
In pursuit of the Fund's goal, American Express Financial Corporation (AEFC),
the Fund's investment manager, chooses investments by:
o Identifying companies with:
--effective management,
--financial strength,
--competitive market position, and
--growth potential.
o Utilizing the proprietary research rating system that AEFC has developed to
rate securities on a daily basis based on each company's merits and its
industry grouping(s).
o Buying those securities that carry the highest ratings. AEFC will weight
certain sectors or industries more heavily than others.
o Buying equity securities not included in the S&P 500 Index if those
securities meet the standards described above.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued relative to alternative investments,
-- the security has reached AEFC's price objective,
-- the company has met AEFC's earnings and/or growth expectations,
-- political, economic, or other events could affect the company's
performance,
-- AEFC wishes to minimize potential losses (i.e., in a market downturn),
-- AEFC wishes to lock-in profits, and
-- AEFC identifies a more attractive opportunity.
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3p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees, expenses, and
taxes.
PRINCIPAL RISKS
This Fund is designed for investors with above-average risk tolerance. Please
remember that with any mutual fund investment you may lose money. Principal
risks associated with an investment in the Fund include:
Market Risk
Issuer Risk
Style Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Style Risk
The Fund purchases growth stocks based on the expectation that the companies
will have strong growth in earnings. The price paid often reflects an expected
rate of growth. If that growth fails to occur, the price of the stock may
decline quickly.
--------------------------------------------------------------------------------
4p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance has varied for each full calendar year that the
Fund has existed, and
o how the Fund's average annual total returns compare to recognized indexes.
How the Fund has performed in the past does not indicate how the Fund will
perform in the future.
Class A Performance (based on calendar years)
(bar chart)
+26.20% +23.37% +22.03% -10.10%
1997 1998 1999 2000
During the period shown in the bar chart, the highest return for a calendar
quarter was +24.86% (quarter ending December 1998) and the lowest return for a
calendar quarter was -12.00% (quarter ending September 1998).
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 sales charges and fees.
The Fund's Class A year to date return as of June 30, 2001 was -10.70%.
Average Annual Total Returns (as of Dec. 31, 2000)
1 year Since inception
Research Opportunities:
Class A -15.26% +13.61%(a)
Class B -13.85% +13.98%(a)
Class Y -9.83% +15.34%(a)
S&P 500 Index -9.10% +19.43%(b)
Lipper Large-Cap Core Index -7.37% +17.79%(b)
(a) Inception date was Aug. 19, 1996.
(b) Measurement period started Sept. 1, 1996.
--------------------------------------------------------------------------------
5p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
This table shows total returns from hypothetical investments in Class A, Class B
and Class Y shares of the Fund. These returns are compared to the indexes shown
for the same periods. The performance of different classes varies because of
differences in sales charges and fees. Class C became effective June 26, 2000
and therefore performance information is not available.
For purposes of this calculation we assumed:
o the maximum sales charge for Class A shares,
o sales at the end of the period and deduction of the applicable contingent
deferred sales charge (CDSC) for Class B shares,
o no sales charge for Class Y shares, and
o no adjustments for taxes paid by an investor on the reinvested income and
capital gains.
Standard & Poor's 500 Index (S&P 500 Index), an unmanaged list 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.
Lipper Large-Cap Core Index, an unmanaged 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.
FEES AND EXPENSES
Fund investors pay various expenses. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
Class A Class B Class C Class Y
Maximum sales charge (load) imposed on purchases(a)
(as a percentage of offering price) 5.75%(b) none none none
Maximum deferred sales charge (load) imposed on sales
(as a percentage of offering price at time of purchase) none 5% 1%(c) none
Annual Fund operating expenses(d) (expenses that are deducted from Fund assets)
As a percentage of average daily net assets: Class A Class B Class C Class Y
Management fees(e) 0.60% 0.60% 0.60% 0.60%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00%
Other expenses(f) 0.31% 0.32% 0.32% 0.40%
Total 1.16% 1.92% 1.92% 1.00%
(a) This charge may be reduced depending on the value of your total investments
in American Express mutual funds. See "Sales Charges."
(b) For Class A purchases over $500,000 on which the sales charge is waived, a
1% sales charge applies if you sell your shares less than one year after
purchase.
(c) For Class C purchases, a 1% sales charge applies if you sell your shares
less than one year after purchase.
(d) Both in this table and the following example, fund operating expenses
include expenses charged by both the Fund and its Master Portfolio as
described under "Management."
(e) Includes the impact of a performance adjustment fee that decreased the
management fee by 0.03% for the most recent fiscal year.
(f) Other expenses include an administrative services fee, a shareholder
services fee for Class Y, a transfer agency fee and other nonadvisory
expenses.
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6p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 and the Fund earns a 5% annual return. The operating
expenses remain the same each year. If you hold your shares until the end of the
years shown, your costs would be:
1 year 3 years 5 years 10 years
Class A(a) $686 $923 $1,178 $1,907
Class B(b) $595 $903 $1,138 $2,050(d)
Class B(c) $195 $603 $1,038 $2,050(d)
Class C $195 $603 $1,038 $2,248
Class Y $102 $319 $ 553 $1,229
(a) Includes a 5.75% sales charge.
(b) Assumes you sold your Class B shares at the end of the period and incurred
the applicable CDSC.
(c) Assumes you did not sell your Class B shares at the end of the period.
(d) Based on conversion of Class B shares to Class A shares in the ninth year
of ownership.
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
INVESTMENT MANAGER
The Portfolio pays AEFC a fee for managing its assets. The Fund pays its
proportionate share of the fee. Under the Investment Management Services
Agreement, the fee for the most recent fiscal year was 0.60% of its average
daily net assets, subject to possible adjustment under the terms of a
performance incentive arrangement between AEFC and the Fund. Under the
agreement, the Portfolio also pays taxes, brokerage commissions and nonadvisory
expenses. AEFC or an affiliate may make payments from its own resources, which
include profits from management fees paid by the Fund, to compensate
broker-dealers or other persons for providing distribution assistance. The
investment manager of the Portfolio is AEFC, 200 AXP Financial Center,
Minneapolis, MN 55474. AEFC is a wholly-owned subsidiary of American Express
Company, a financial services company with headquarters at American Express
Tower, World Financial Center, New York, NY 10285.
The Fund's assets are invested in Aggressive Growth Portfolio (the Portfolio),
which is managed by AEFC.
James Johnson, portfolio manager, joined AEFC in 1994 as an equity quantitative
analyst. He began managing portfolios for American Express Asset Management in
1996. He is portfolio manager of AXP Blue Chip Advantage Fund, AXP Managed
Allocation Fund, AXP Small Company Index Fund, AXP S&P 500 Index Fund, AXP Mid
Cap Index Fund, AXP Total Stock Market Index Fund, AXP Nasdaq 100 Index Fund and
AXP Variable Portfolio - Blue Chip Advantage Fund. Jim has 11 years of
experience in the investment industry. He has an MBA in finance and has earned
the Chartered Financial Analyst designation.
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7p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
OTHER SECURITIES AND INVESTMENT STRATEGIES
There are other securities in which the Fund may invest, and investment
strategies that the Fund may employ, but they are not principal investment
strategies. The Fund may invest in other instruments, such as money market
securities, preferred stock, derivative instruments (typically S&P 500 futures),
convertible securities and other instruments. The Fund uses derivative
instruments to maintain exposure to the market, produce incremental earnings and
to hedge against risk. The potential loss from the use of derivative instruments
could extend beyond the initial investment.
For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/semiannual reports.
Buying and Selling Shares
VALUING FUND SHARES
The public offering price for Class A is the net asset value (NAV) adjusted for
the sales charge. For Class B, Class C and Class Y, it is the NAV.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business of the New York Stock Exchange, normally
3 p.m. Central Time (CT), each business day (any day the New York Stock Exchange
is open).
Fund shares may be purchased through various third-party organizations,
including 401(k) plans, banks, brokers and investment advisers. Where authorized
by the Fund, orders will be priced at the NAV next computed after receipt by the
organization or their selected agent.
Investments are valued based on market quotations, or where market quotations
are not readily available, based on methods selected in good faith by the board.
If the Fund's investment policies permit it to invest in securities that are
listed on foreign stock exchanges that trade on weekends or other days when the
Fund does not price its shares, the value of those investments may change on
days when you could not buy or sell shares of the Fund. Please see the SAI for
further information.
INVESTMENT OPTIONS
1. Class A shares are sold to the public with a sales charge at the time of
purchase and an annual distribution (12b-1) fee of 0.25%.
2. Class B shares are sold to the public with a contingent deferred sales
charge (CDSC) and an annual distribution fee of 1.00%.
3. Class C shares are sold to the public without a sales charge at the time of
purchase and with an annual distribution fee of 1.00% (may be subject to a
CDSC).
4. Class Y shares are sold to qualifying institutional investors without a sales
charge or distribution fee. Please see the SAI for information on eligibility
to purchase Class Y shares.
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8p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Investment options summary:
The Fund offers four different classes of shares. There are differences among
the fees and expenses for each class. Not everyone is eligible to buy every
class. After determining which classes you are eligible to buy, decide which
class best suits your needs. Your financial advisor can help you with this
decision.
The following table shows the key features of each class:
Class A Class B Class C Class Y
--------------- ---------------- -------------- --------------- ----------------
Availability Available to Available to Available to Limited to
all investors. all all investors. qualifying
investors. institutional
investors.
--------------- ---------------- -------------- --------------- ----------------
Initial Sales Yes. Payable No. Entire No. Entire No. Entire
Charge at time of purchase purchase purchase price
purchase. price is price is is invested in
Lower sales invested in invested in shares of the
charge for shares of shares of the Fund.
larger the Fund. Fund.
investments.
--------------- ---------------- -------------- --------------- ----------------
Deferred Sales On purchases Maximum 5% 1% CDSC None.
Charge over $500,000, CDSC during applies if
1% CDSC the first you sell your
applies if you year shares less
sell your decreasing than one year
shares less to 0% after after
than one year six years. purchase.
after purchase.
--------------- ---------------- -------------- --------------- ----------------
Distribution Yes.* 0.25% Yes.* 1.00% Yes.* 1.00% Yes. 0.10%
and/or
Shareholder
Service Fee
--------------- ---------------- -------------- --------------- ----------------
Conversion to N/A Yes, No. No.
Class A automatically
in ninth
calendar
year of
ownership.
--------------- ---------------- -------------- --------------- ----------------
* The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 that allows it to pay distribution and servicing-related expenses
for the sale of Class A, Class B and Class C shares. Because these fees are
paid out of the Fund's assets on an on-going basis, the fees may cost
long-term shareholders more than paying other types of sales charges
imposed by some mutual funds.
Should you purchase Class A, Class B or Class C shares?
If your investments in American Express mutual funds total $250,000 or more,
Class A shares may be the better option because the sales charge is reduced for
larger purchases. If you qualify for a waiver of the sales charge, Class A
shares will be the best option.
If you invest less than $250,000, consider how long you plan to hold your
shares. Class B shares have a higher annual distribution fee than Class A shares
and a CDSC for six years. Class B shares convert to Class A shares in the ninth
calendar year of ownership. Class B shares purchased through reinvested
dividends and distributions also will convert to Class A shares in the same
proportion as the other Class B shares.
Class C shares also have a higher annual distribution fee than Class A shares.
Class C shares have no sales charge if you hold the shares for one year or
longer. Unlike Class B shares, Class C shares do not convert to Class A. As a
result, you will pay a 1% distribution fee for as long as you hold Class C
shares. If you choose a deferred sales charge option (Class B or Class C),
generally you should consider Class B shares if you intend to hold your shares
for more than six years. Consider Class C shares if you intend to hold your
shares less than six years. To help you determine what investment is best for
you, consult your financial advisor.
--------------------------------------------------------------------------------
9p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
PURCHASING SHARES
To purchase shares through an American Express Brokerage Account or entities
other than American Express Financial Advisors Inc., please refer to the
American Express Brokerage Web site or consult your selling agent. The following
section explains how you can purchase shares from American Express Financial
Advisors (the Distributor).
If you do not have a mutual fund account, you need to establish one. Your
financial advisor will help you fill out and submit an application. Once your
account is set up, you can choose among several convenient ways to invest.
When you purchase shares for a new or existing account, your order will be
priced at the next NAV calculated after your order is accepted by the Fund. If
your application does not specify which class of shares you are purchasing, we
will assume you are investing in Class A shares.
Important: When you open an account, you must provide your correct Taxpayer
Identification Number (TIN), which is either your Social Security or Employer
Identification number.
If you do not provide and certify the correct TIN, you could be subject to
backup withholding of 31% of taxable distributions and proceeds from certain
sales and exchanges. You also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN,
o a civil penalty of $500 if you make a false statement that results in no
backup withholding, and
o criminal penalties for falsifying information.
You also could be subject to backup withholding, if the IRS notifies us to do
so, because you failed to report required interest or dividends on your tax
return.
How to determine the correct TIN
------------------------------------ ----------------------------------------
For this type of account: Use the Social Security or Employer
Identification number of:
------------------------------------ ----------------------------------------
Individual or joint account The individual or one of the owners
listed on the joint account
------------------------------------ ----------------------------------------
Custodian account of a minor The minor
(Uniform Gifts/Transfers to Minors
Act)
------------------------------------ ----------------------------------------
A revocable living trust The grantor-trustee (the person who puts
the money into the trust)
------------------------------------ ----------------------------------------
An irrevocable trust, pension The legal entity (not the personal
trust or estate representative or trustee, unless no
legal entity is designated in the
account title)
------------------------------------ ----------------------------------------
Sole proprietorship The owner
------------------------------------ ----------------------------------------
Partnership The partnership
------------------------------------ ----------------------------------------
Corporate The corporation
------------------------------------ ----------------------------------------
Association, club or tax-exempt The organization
organization
------------------------------------ ----------------------------------------
For details on TIN requirements, contact your financial advisor to obtain a copy
of federal Form W-9, "Request for Taxpayer Identification Number and
Certification." You also may obtain the form on the Internet at
(http://www.irs.gov/prod/forms_pubs/).
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10p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Three ways to invest
1 By mail:
Once your account has been established, send your check with the account number
on it to:
American Express Funds
70200 AXP Financial Center
Minneapolis, MN 55474
Minimum amounts
Initial investment: $2,000
Additional investments: $100
Account balances: $300
Qualified accounts: none
If your account balance falls below $300, you will be asked to increase it to
$300 or establish a scheduled investment plan. If you do not do so within 30
days, your shares can be sold and the proceeds mailed to you.
2 By scheduled investment plan:
Contact your financial advisor for assistance in setting up one of the following
scheduled plans:
o automatic payroll deduction,
o bank authorization,
o direct deposit of Social Security check, or
o other plan approved by the Fund.
Minimum amounts
Initial investment: $100
Additional investments: $50 per payment for qualified accounts; $100 per
payment for nonqualified accounts
Account balances: none (on a scheduled investment plan with monthly
payments)
If your account balance is below $2,000, you must make payments at least
monthly.
3 By wire or electronic funds transfer:
If you have an established account, you may wire money to:
Wells Fargo Bank Minnesota, N.A.
Minneapolis, MN 55479
Routing Transit No. 091000019
Give these instructions:
Credit American Express Financial Advisors Account #0000030015 for personal
account # (your account number) for (your name). Please be sure to include all
10 digits of the American Express Financial Advisors account number, including
the zeros.
If this information is not included, the order may be rejected, and all money
received by the Fund, less any costs the Fund or American Express Client Service
Corporation (AECSC) incurs, will be returned promptly.
Minimum amounts
Each wire investment: $1,000
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11p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
TRANSACTIONS THROUGH AMERICAN EXPRESS BROKERAGE OR THIRD PARTIES
You may buy or sell shares through American Express Brokerage, certain 401(k)
plans, banks, broker-dealers, financial advisors or other investment
professionals. These organizations may charge you a fee for this service and may
have different policies. Some policy differences may include different minimum
investment amounts, exchange privileges, fund choices and cutoff times for
investments. The Fund and the Distributor are not responsible for the failure of
one of these organizations to carry out its obligations to its customers. Some
organizations may receive compensation from the Distributor or its affiliates
for shareholder recordkeeping and similar services. Where authorized by the
Fund, some organizations may designate selected agents to accept purchase or
sale orders on the Fund's behalf. To buy or sell shares through American Express
Brokerage or third parties or to determine if there are policy differences,
please consult the American Express Brokerage Web site or your selling agent.
For other pertinent information related to buying or selling shares, please
refer to the appropriate section in the prospectus.
SALES CHARGES
Class A -- initial sales charge alternative
When you purchase Class A shares, you pay a sales charge as shown in the
following table:
Total Market Value Sales charge as percentage of:
Public offering price* Net amount invested
Up to $49,999 5.75% 6.10%
$50,000 - $99,999 4.75 4.99
$100,000 - $249,999 3.75 3.90
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00** 2.04**
$1,000,000 or more 0.00 0.00
* Offering price includes the sales charge.
** The sales charge will be waived until Dec. 31, 2001.
The sales charge on Class A shares may be lower than 5.75%, based on the
combined market value of:
o your current investment in this Fund,
o your previous investment in this Fund, and
o investments you and your primary household group have made in other American
Express mutual funds that have a sales charge. (The primary household group
consists of accounts in any ownership for spouses or domestic partners and
their unmarried children under 21. For purposes of this policy, domestic
partners are individuals who maintain a shared primary residence and have
joint property or other insurable interests.) AXP Tax-Free Money Fund and
Class A shares of AXP Cash Management Fund do not have sales charges.
--------------------------------------------------------------------------------
12p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Other Class A sales charge policies:
o IRA purchases or other employee benefit plan purchases made through a payroll
deduction plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar group, may be added
together to reduce sales charges for all shares purchased through that plan,
and
o if you intend to invest more than $50,000 over a period of 13 months, you can
reduce the sales charges in Class A by filing a letter of intent. If
purchasing shares in a brokerage account or through a third party, you must
request the reduced sales charge when you buy shares. For more details,
please contact your financial advisor or see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses or domestic partners, children and
parents.
o current or retired American Express financial advisors, employees of
financial advisors, their spouses or domestic partners, children and parents.
o registered representatives and other employees of brokers, dealers or other
financial institutions having a sales agreement with the Distributor,
including their spouses, domestic partners, children and parents.
o investors who have a business relationship with a newly associated financial
advisor who joined the Distributor from another investment firm provided that
(1) the purchase is made within six months of the advisor's appointment date
with the Distributor, (2) the purchase is made with proceeds of shares sold
that were sponsored by the financial advisor's previous broker-dealer, and
(3) the proceeds are the result of a sale of an equal or greater value where
a sales load was assessed.
o qualified employee benefit plans offering participants daily access to
American Express mutual funds. Eligibility must be determined in advance. For
assistance, please contact your financial advisor. (Participants in certain
qualified plans where the initial sales charge is waived may be subject to a
deferred sales charge of up to 4%.)
o shareholders who have at least $1 million in American Express mutual funds.
Until Dec. 31, 2001, the sales charge does not apply to shareholders who have
at least $500,000 in American Express mutual funds. If the investment is sold
less than one year after purchase, a CDSC of 1% will be charged. During that
year, the CDSC will be waived only in the circumstances described for waivers
for Class B and Class C shares.
o purchases made within 90 days after a sale of shares (up to the amount sold):
-- of American Express mutual funds in a qualified plan subject to a deferred
sales charge, or
-- in a qualified plan or account where American Express Trust Company has a
recordkeeping, trustee, investment management, or investment servicing
relationship.
Send the Fund a written request along with your payment, indicating the
date and the amount of the sale.
--------------------------------------------------------------------------------
13p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
o purchases made:
-- with dividend or capital gain distributions from this Fund or from the
same class of another American Express mutual fund,
-- through or under a wrap fee product or other investment product sponsored
by the Distributor or another authorized broker-dealer, investment
advisor, bank or investment professional,
-- within the University of Texas System ORP,
-- within a segregated separate account offered by Nationwide Life Insurance
Company or Nationwide Life and Annuity Insurance Company,
-- within the University of Massachusetts After-Tax Savings Program, or
-- through or under a subsidiary of AEFC offering Personal Trust Services'
Asset-Based pricing alternative.
o shareholders whose original purchase was in a Strategist fund merged into
an American Express fund in 2000.
Class B and Class C -- contingent deferred sales charge (CDSC) alternative
For Class B, the CDSC is based on the sale amount and the number of calendar
years -- including the year of purchase -- between purchase and sale. The
following table shows how CDSC percentages on sales decline after a purchase:
If the sale is made during the: The CDSC percentage rate is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
For Class C, a 1% CDSC is charged if you sell your shares less than one year
after purchase.
For both Class B and Class C, if the amount you are selling causes the value of
your investment to fall below the cost of the shares you have purchased, the
CDSC is based on the lower of the cost of those shares purchased or market
value. Because the CDSC is imposed only on sales that reduce your total purchase
payments, you never have to pay a CDSC on any amount that represents
appreciation in the value of your shares, income earned by your shares, or
capital gains.
In addition, the CDSC on your sale, if any, will be based on your oldest
purchase payment. The CDSC on the next amount sold will be based on the next
oldest purchase payment.
--------------------------------------------------------------------------------
14p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Example:
Assume you had invested $10,000 in Class B shares and that your investment had
appreciated in value to $12,000 after 15 months, including reinvested dividends
and capital gain distributions. You could sell up to $2,000 worth of shares
without paying a CDSC ($12,000 current value less $10,000 purchase amount). If
you sold $2,500 worth of shares, the CDSC would apply to the $500 representing
part of your original purchase price. The CDSC rate would be 4% because the sale
was made during the second year after the purchase.
Waivers of the sales charge for Class B and Class C shares
The CDSC will be waived on sales of shares:
o in the event of the shareholder's death,
o held in trust for an employee benefit plan, or
o held in IRAs or certain qualified plans if American Express Trust Company is
the custodian, such as Keogh plans, tax-sheltered custodial accounts or
corporate pension plans, provided that the shareholder is:
-- at least 59 1/2 years old AND
-- taking a retirement distribution (if the sale is part of a transfer to an
IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will
not be waived) OR
-- selling under an approved substantially equal periodic payment
arrangement.
EXCHANGING/SELLING SHARES
Exchanges
You can exchange your Fund shares at no charge for shares of the same class of
any other publicly offered American Express mutual fund. Exchanges into AXP
Tax-Free Money Fund may only be made from Class A shares. For complete
information on the other fund, including fees and expenses, read that fund's
prospectus carefully. Your exchange will be priced at the next NAV calculated
after we receive your transaction request in good order.
You may make up to three exchanges (1 1/2 round trips) within any 30-day period.
These limits do not apply to scheduled exchange programs and certain employee
benefit plans. Exceptions may be allowed with pre-approval of the Fund.
Other exchange policies:
o Exchanges must be made into the same class of shares of the new fund.
o If your exchange creates a new account, it must satisfy the minimum
investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for another exchange.
o If your shares are pledged as collateral, the exchange will be delayed until
AECSC receives written approval from the secured party.
AECSC and the Fund reserve the right to reject any exchange, limit the amount,
or modify or discontinue the exchange privilege, to prevent abuse or adverse
effects on the Fund and its shareholders. For example, if exchanges are too
numerous or too large, they may disrupt the Fund's investment strategies or
increase its costs.
The Fund does not permit market-timing. Do not invest in the Fund if you are a
market timer.
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15p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Selling Shares
You can sell your shares at any time. The payment will be mailed within seven
days after accepting your request.
When you sell shares, the amount you receive may be more or less than the amount
you invested. Your sale price will be the next NAV calculated after your request
is accepted by the Fund, minus any applicable CDSC.
You can change your mind after requesting a sale and use all or part of the
proceeds to purchase new shares in the same account from which you sold. If you
reinvest in Class A, you will purchase the new shares at NAV rather than the
offering price on the date of a new purchase. If you reinvest in Class B or
Class C, any CDSC you paid on the amount you are reinvesting also will be
reinvested. To take advantage of this option, send a written request within 90
days of the date your sale request was received and include your account number.
This privilege may be limited or withdrawn at any time and may have tax
consequences.
The Fund reserves the right to redeem in kind.
For more details and a description of other sales policies, please see the SAI.
To sell or exchange shares held through an American Express Brokerage Account or
with entities other than American Express Financial Advisors, please consult
your selling agent. The following section explains how you can exchange or sell
shares held with American Express Financial Advisors.
Requests to sell shares of the Fund are not allowed within 30 days of a
telephoned-in address change.
Important: If you request a sale of shares you recently purchased by a check or
money order that is not guaranteed, the Fund will wait for your check to clear.
It may take up to 10 days from the date of purchase before payment is made.
(Payment may be made earlier if your bank provides evidence satisfactory to the
Fund and AECSC that your check has cleared.)
--------------------------------------------------------------------------------
16p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Two ways to request an exchange or sale of shares
1 By letter:
Include in your letter:
o the name of the fund(s),
o the class of shares to be exchanged or sold,
o your mutual fund account number(s) (for exchanges, both funds must be
registered in the same ownership),
o your Social Security number or Employer Identification number,
o the dollar amount or number of shares you want to exchange or sell,
o signature(s) of all registered account owners,
o for sales, indicate how you want your money delivered to you, and
o any paper certificates of shares you hold.
Regular or express mail:
American Express Funds
70100 AXP Financial Center
Minneapolis, MN 55474
2 By telephone:
American Express Client Service Corporation
Telephone Transaction Service
(800) 437-3133
o The Fund and AECSC will use reasonable procedures to confirm authenticity of
telephone exchange or sale requests.
o Telephone exchange and sale privileges automatically apply to all accounts
except custodial, corporate or qualified retirement accounts. You may request
that these privileges NOT apply by writing AECSC. Each registered owner must
sign the request.
o Acting on your instructions, your financial advisor may conduct telephone
transactions on your behalf.
o Telephone privileges may be modified or discontinued at any time.
Minimum sale amount: $100
Maximum sale amount: $100,000
--------------------------------------------------------------------------------
17p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Three ways to receive payment when you sell shares
1 By regular or express mail:
o Mailed to the address on record.
o Payable to names listed on the account.
NOTE: The express mail delivery charges you pay will vary depending on the
courier you select.
2 By wire or electronic funds transfer:
o Minimum wire: $1,000.
o Request that money be wired to your bank.
o Bank account must be in the same ownership as the American Express mutual
fund account.
NOTE: Pre-authorization required. For instructions, contact your financial
advisor or AECSC.
3 By scheduled payout plan:
o Minimum payment: $50.
o Contact your financial advisor or AECSC to set up regular payments on a
monthly, bimonthly, quarterly, semiannual or annual basis.
o Purchasing new shares while under a payout plan may be disadvantageous
because of the sales charges.
Distributions and Taxes
As a shareholder you are entitled to your share of the Fund's net income and net
gains. The Fund distributes dividends and capital gains to qualify as a
regulated investment company and to avoid paying corporate income and excise
taxes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund's net investment income is distributed to you as dividends. Capital
gains are realized when a security is sold for a higher price than was paid for
it. Each realized capital gain or loss is long-term or short-term depending on
the length of time the Fund held the security. Realized capital gains and losses
offset each other. The Fund offsets any net realized capital gains by any
available capital loss carryovers. Net short-term capital gains are included in
net investment income. Net realized long-term capital gains, if any, are
distributed by the end of the calendar year as capital gain distributions. As a
result of the Fund's goal and investment strategies, distributions from the Fund
may consist of a significant amount of capital gains.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request distributions in cash, or
o you direct the Fund to invest your distributions in the same class of any
publicly offered American Express mutual fund for which you have previously
opened an account.
We reinvest the distributions for you at the next calculated NAV after the
distribution is paid.
If you choose cash distributions, you will receive cash only for distributions
declared after your request has been processed.
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18p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
TAXES
Distributions are subject to federal income tax and may be subject to state and
local taxes in the year they are declared. You must report distributions on your
tax returns, even if they are reinvested in additional shares.
If you buy shares shortly before the record date of a distribution, you may pay
taxes on money earned by the Fund before you were a shareholder. You will pay
the full pre-distribution price for the shares, then receive a portion of your
investment back as a distribution, which may be taxable.
For tax purposes, an exchange is considered a sale and purchase, and may result
in a gain or loss. A sale is a taxable transaction. If you sell shares for less
than their cost, the difference is a capital loss. If you sell shares for more
than their cost, the difference is a capital gain. Your gain may be short term
(for shares held for one year or less) or long term (for shares held for more
than one year).
If you buy Class A shares and within 91 days exchange into another fund, you may
not include the sales charge in your calculation of tax gain or loss on the sale
of the first fund you purchased. The sales charge may be included in the
calculation of your tax gain or loss on a subsequent sale of the second fund you
purchased.
Selling shares held in an IRA or qualified retirement account may subject you to
federal taxes, penalties and reporting requirements. Please consult your tax
advisor.
Important: This information is a brief and selective summary of some of the tax
rules that apply to this Fund. Because tax matters are highly individual and
complex, you should consult a qualified tax advisor.
--------------------------------------------------------------------------------
19p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Master/Feeder Structure
This Fund uses a master/feeder structure. This means that the Fund (a feeder
fund) invests all of its assets in the Portfolio (the master fund). The
master/feeder structure offers the potential for reduced costs because it
spreads fixed costs of portfolio management over a larger pool of assets. The
Fund may withdraw its assets from the Portfolio at any time if the Fund's board
determines that it is best. In that event, the board would consider what action
should be taken, including whether to hire an investment advisor to manage the
Fund's assets directly or to invest all of the Fund's assets in another pooled
investment entity. Here is an illustration of the structure:
Investors buy shares in the Fund
The Fund buys units in the Portfolio
The Portfolio invests in securities, such as stocks or bonds
Other feeders may include mutual funds and institutional accounts. These feeders
buy the Portfolio's securities on the same terms and conditions as the Fund and
pay their proportionate share of the Portfolio's expenses. However, their
operating costs and sales charges are different from those of the Fund.
Therefore, the investment returns for other feeders are different from the
returns of the Fund.
--------------------------------------------------------------------------------
20p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Financial Highlights
Class A
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997(b)
Net asset value, beginning of period $ 7.61 $7.94 $6.98 $6.86 $5.00
Income from investment operations:
Net investment income (loss) .02 -- (.01) .02 .01
Net gains (losses) (both realized and unrealized) (1.27) .66 1.32 .65 1.86
Total from investment operations (1.25) .66 1.31 .67 1.87
Less distributions:
Distributions from realized gains (.99) (.99) (.35) (.55) (.01)
Net asset value, end of period $ 5.37 $7.61 $7.94 $6.98 $6.86
Ratios/supplemental data
Net assets, end of period (in millions) $365 $540 $481 $337 $205
Ratio of expenses to average daily net assets(d) 1.16% 1.14% 1.12% 1.12% 1.52%(e)
Ratio of net investment income
(loss) to average daily net assets .37% .02% .04% .30% .20%(e)
Portfolio turnover rate
(excluding short-term securities) 234% 160% 143% 148% 171%
Total return(f) (17.54%) 7.73% 19.21% 10.76% 37.44%
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997(b)
Net asset value, beginning of period $ 7.36 $7.76 $6.88 $6.82 $5.00
Income from investment operations:
Net investment income (loss) (.02) (.05) (.02) (.02) (.02)
Net gains (losses) (both realized and unrealized) (1.23) .64 1.25 .63 1.85
Total from investment operations (1.25) .59 1.23 .61 1.83
Less distributions:
Distributions from realized gains (.99) (.99) (.35) (.55) (.01)
Net asset value, end of period $ 5.12 $7.36 $7.76 $6.88 $6.82
Ratios/supplemental data
Net assets, end of period (in millions) $235 $336 $276 $184 $96
Ratio of expenses to average daily net assets(d) 1.92% 1.91% 1.88% 1.88% 2.25%(e)
Ratio of net investment income (loss)
to average daily net assets (.39%) (.73%) (.72%) (.46%) (.53%)(e)
Portfolio turnover rate
(excluding short-term securities) 234% 160% 143% 148% 171%
Total return(f) (18.19%) 7.03% 18.31% 9.92% 36.48%
See accompanying notes to financial highlights.
--------------------------------------------------------------------------------
21p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000(c)
Net asset value, beginning of period $ 7.36 $7.50
Income from investment operations:
Net investment income (loss) (.02) .02
Net gains (losses) (both realized and unrealized) (1.22) (.16)
Total from investment operations (1.24) (.14)
Less distributions:
Distributions from realized gains (.99 --
Net asset value, end of period $ 5.13 $7.36
Ratios/supplemental data
Net assets, end of period (in millions) $-- $--
Ratio of expenses to average daily net assets(d) 1.92% 1.91%(e)
Ratio of net investment income (loss)
to average daily net assets (.36%) (.50%)(e)
Portfolio turnover rate
(excluding short-term securities) 234% 160%
Total return(f) (18.03%) (1.87%)
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997(b)
Net asset value, beginning of period $ 7.65 $7.96 $7.01 $6.88 $5.00
Income from investment operations:
Net investment income (loss) .04 .01 -- .03 .01
Net gains (losses) (both realized and unrealized) (1.28) .67 1.32 .65 1.88
Total from investment operations (1.24) .68 1.32 .68 1.89
Less distributions:
Dividends from net investment income -- -- (.02) -- --
Distributions from realized gains (.99) (.99) (.35) (.55) (.01)
Total distributions (.99) (.99) (.37) (.55) (.01)
Net asset value, end of period $ 5.42 $7.65 $7.96 $7.01 $6.88
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $-- $-- $--
Ratio of expenses to average daily net assets(d) 1.00% .97% 1.02% .87% 1.45%(e)
Ratio of net investment income (loss)
to average daily net assets .54% .17% .12% .40% .33%(e)
Portfolio turnover rate
(excluding short-term securities) 234% 160% 143% 148% 171%
Total return(f) (17.29%) 7.99% 19.34% 10.93% 37.66%
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was Aug. 19, 1996.
(c) Inception date was June 26, 2000.
(d) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
--------------------------------------------------------------------------------
22p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
The information in these tables has been audited by KPMG LLP, independent
auditors. The independent auditors' report and additional information about the
performance of the Fund are contained in the Fund's annual report which, if not
included with this prospectus, may be obtained without charge.
--------------------------------------------------------------------------------
23p AXP RESEARCH OPPORTUNITIES FUND -- PROSPECTUS
This Fund, along with the other American Express mutual funds, is distributed by
American Express Financial Advisors Inc. and can be purchased from an American
Express financial advisor or from other authorized broker-dealers or third
parties. The Funds can be found under the "Amer Express" banner in most mutual
fund quotations.
Additional information about the Fund and its investments is available in the
Fund's Statement of Additional Information (SAI), annual and semiannual reports
to shareholders. In the Fund's annual report, you will find a discussion of
market conditions and investment strategies that significantly affected the Fund
during its last fiscal year. The SAI is incorporated by reference in this
prospectus. For a free copy of the SAI, the annual report or the semiannual
report, contact your selling agent or American Express Client Service
Corporation.
American Express Funds
70100 AXP Financial Center, Minneapolis, MN 55474
(800) 862-7919 TTY: (800) 846-4852
Web site address:
americanexpress.com
You may review and copy information about the Fund, including the SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-202-942-8090). Reports and other information about the Fund are available on
the EDGAR Database on the Commission's Internet site at (http://www.sec.gov).
Copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following E-mail address: publicinfo@sec.gov, or by
writing to the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
Investment Company Act File #811-2111
Ticker Symbol
Class A: IRDAX Class B: IROBX
Class C: N/A Class Y: N/A
(logo)
American
Express
S-6356-99 J (9/01)
AXP(R) GROWTH SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
FOR
AXP(R) GROWTH FUND (the Fund)
Sept. 28, 2001
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
most recent Annual Report to shareholders (Annual Report) that may be obtained
from your financial advisor or by writing to American Express Client Service
Corporation, 70100 AXP Financial Center, Minneapolis, MN 55474 or by calling
(800) 862-7919.
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is incorporated
in this SAI by reference.
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Mutual Fund Checklist p. 3
Fundamental Investment Policies p. 4
Investment Strategies and Types of Investments p. 5
Information Regarding Risks and Investment Strategies p. 6
Security Transactions p. 21
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation p. 22
Performance Information p. 23
Valuing Fund Shares p. 24
Investing in the Fund p. 24
Selling Shares p. 26
Pay-out Plans p. 27
Capital Loss Carryover p. 27
Taxes p. 27
Agreements p. 29
Organizational Information p. 31
Board Members and Officers p. 34
Compensation for Board Members p. 35
Independent Auditors p. 36
Appendix: Description of Ratings p. 37
-2-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Mutual Fund Checklist
[X] Mutual funds are NOT guaranteed or insured by any bank or government
agency. You can lose money.
[X] Mutual funds ALWAYS carry investment risks. Some types carry more risk than
others.
[X] A higher rate of return typically involves a higher risk of loss.
[X] Past performance is not a reliable indicator of future performance.
[X] ALL mutual funds have costs that lower investment return.
[X] You can buy some mutual funds by contacting them directly. Others, like
this one, are sold mainly through brokers, banks, financial planners, or
insurance agents. If you buy through these financial professionals, you
generally will pay a sales charge.
[X] Shop around. Compare a mutual fund with others of the same type before you
buy.
OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING:
Develop a Financial Plan
Have a plan -- even a simple plan can help you take control of your financial
future. Review your plan with your advisor at least once a year or more
frequently if your circumstances change.
Dollar-Cost Averaging
An investment technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is dollar-cost
averaging. Dollar-cost averaging involves building a portfolio through the
investment of fixed amounts of money on a regular basis regardless of the price
or market condition. This may enable an investor to smooth out the effects of
the volatility of the financial markets. By using this strategy, more shares
will be purchased when the price is low and less when the price is high. As the
accompanying chart illustrates, dollar-cost averaging tends to keep the average
price paid for the shares lower than the average market price of shares
purchased, although there is no guarantee.
While this does not ensure a profit and does not protect against a loss if the
market declines, it is an effective way for many shareholders who can continue
investing through changing market conditions to accumulate shares to meet
long-term goals.
Dollar-cost averaging:
Regular Market price Shares
investment of a share acquired
$100 $ 6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
$500 $25.00 103.4
Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5)
The average price you paid for each share: $4.84 ($500 divided by 103.4)
Diversify
Diversify your portfolio. By investing in different asset classes and different
economic environments you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
Understand Your Investment
Know what you are buying. Make sure you understand the potential risks, rewards,
costs, and expenses associated with each of your investments.
-3-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Fundamental Investment Policies
The Fund pursues its investment objective by investing all of its assets in
Growth Portfolio (the Portfolio) of Growth Trust (the Trust), a separate
investment company, rather than by directly investing in and managing its own
portfolio of securities. The Portfolio has the same investment objectives,
policies, and restrictions as the Fund. References to "Fund" in this SAI, where
applicable, refer to the Fund and Portfolio, collectively, to the Fund,
singularly, or to the Portfolio, singularly.
Fundamental investment policies adopted by the Fund cannot be changed without
the approval of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies, and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
The policies below are fundamental policies that apply to the Fund and may be
changed only with shareholder approval. Unless holders of a majority of the
outstanding voting securities agree to make the change, the Fund will not:
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.
o Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value
of its total assets (including borrowings) less liabilities (other than
borrowings) immediately after the borrowing.
o Concentrate in any one industry. According to the present interpretation by
the Securities and Exchange Commission (SEC), this means that up to 25% of
the Fund's total assets, based on current market value at time of purchase,
can be invested in any one industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's total
assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund from
buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.
o Lend Fund securities in excess of 30% of its net assets.
Except for the fundamental investment policies listed above, the other
investment policies described in the prospectus and in this SAI are not
fundamental and may be changed by the board at any time.
-4-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Investment Strategies and Types of Investments
This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It is intended to show the breadth of
investments that the investment manager may make on behalf of the Fund. For a
description of principal risks, please see the prospectus. Notwithstanding the
Fund's ability to utilize these strategies and techniques, the investment
manager is not obligated to use them at any particular time. For example, even
though the investment manager is authorized to adopt temporary defensive
positions and is authorized to attempt to hedge against certain types of risk,
these practices are left to the investment manager's sole discretion.
Investment strategies & types of investments: Allowable for the Fund?
Agency and Government Securities yes
Borrowing yes
Cash/Money Market Instruments yes
Collateralized Bond Obligations yes
Commercial Paper yes
Common Stock yes
Convertible Securities yes
Corporate Bonds yes
Debt Obligations yes
Depositary Receipts yes
Derivative Instruments yes
Foreign Currency Transactions yes
Foreign Securities yes
High-Yield (High-Risk) Securities (Junk Bonds) no
Illiquid and Restricted Securities yes
Indexed Securities yes
Inverse Floaters no
Investment Companies yes
Lending of Portfolio Securities yes
Loan Participations yes
Mortgage- and Asset-Backed Securities yes
Mortgage Dollar Rolls no
Municipal Obligations yes
Preferred Stock yes
Real Estate Investment Trusts yes
Repurchase Agreements yes
Reverse Repurchase Agreements yes
Short Sales no
Sovereign Debt yes
Structured Products yes
Variable- or Floating-Rate Securities yes
Warrants yes
When-Issued Securities yes
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities yes
-5-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
The following are guidelines that may be changed by the board at any time:
o The Fund will not invest in bonds rated below investment grade.
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for good
faith deposits on futures and premiums for options on futures that do not
offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in stock index futures
contracts.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
Information Regarding Risks and Investment Strategies
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Accordingly, one or more of the following types of risk may be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Company Risk
The prospects for a company may vary because of a variety of factors, including
the success of the company, disappointing earnings, or changes in the
competitive environment. As a result, the success of the companies in which the
Fund invests largely determines the Fund's long-term performance.
Correlation Risk
The risk that a given transaction may fail to achieve its objectives due to an
imperfect relationship between markets. Certain investments may react more
negatively than others in response to changing market conditions.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment grade bonds.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of a
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
-6-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Emerging markets risk includes the dramatic pace of change (economic, social,
and political) in emerging market countries as well as the other considerations
listed above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners, and hostile relations with neighboring countries.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Leverage Risk
Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Management Risk
The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Reinvestment Risk
The risk that an investor will not be able to reinvest income or principal at
the same rate it currently is earning.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.
-7-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.
Borrowing
The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.
Cash/Money Market Instruments
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include short-term U.S. and Canadian
government securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances, and letters of credit of banks or
savings and loan associations having capital, surplus, and undivided profits (as
of the date of its most recently published annual financial statements) in
excess of $100 million (or the equivalent in the instance of a foreign branch of
a U.S. bank) at the date of investment. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit
Risk, Inflation Risk, and Management Risk.
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments -- money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them, earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.
Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.
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Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common, preferred or other securities of
the same or a different issuer within a particular period of time at a specified
price. Some convertible securities, such as preferred equity-redemption
cumulative stock (PERCs), have mandatory conversion features. Others are
voluntary. A convertible security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Securities.)
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating organization or their rating systems, the Fund will attempt
to use comparable ratings as standards for selecting investments.
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See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Depositary Receipts
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable percentage gain or loss in the price of
the derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.
Options. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees for the length of the contract to sell the security at the set price when
the buyer wants to exercise the option, no matter what the market price of the
security is at that time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person who writes a
put option agrees to buy the security at the set price if the purchaser wants to
exercise the option during the length of the contract, no matter what the market
price of the security is at that time. An option is covered if the writer owns
the security (in the case of a call) or sets aside the cash or securities of
equivalent value (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a
below-market price if the market price rises above the exercise price. A writer
of a put option may have to pay an above-market price for the security if its
market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
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Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer
(holding the "long" position) and a seller (holding the "short" position) for an
asset with delivery deferred until a future date. The buyer agrees to pay a
fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day a buyer
would pay out cash in an amount equal to any decline in the contract's value or
receive cash equal to any increase. At the time a futures contract is closed
out, a nominal commission is paid, which is generally lower than the commission
on a comparable transaction in the cash market.
Futures contracts may be based on various securities, securities indices (such
as the S&P 500 Index), foreign currencies and other financial instruments and
indices.
Options on Futures Contracts. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date (some futures are settled in cash), an option on a futures contract merely
entitles its holder to decide on or before a future date (within nine months of
the date of issue) whether to enter into a contract. If the holder decides not
to enter into the contract, all that is lost is the amount (premium) paid for
the option. Further, because the value of the option is fixed at the point of
sale, there are no daily payments of cash to reflect the change in the value of
the underlying contract. However, since an option gives the buyer the right to
enter into a contract at a set price for a fixed period of time, its value does
change daily.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor might not be able to close the option because of insufficient activity
in the options market. Purchasing options also limits the use of monies that
might otherwise be available for long-term investments.
Options on Stock Indexes. Options on stock indexes are securities traded on
national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level.
Tax Treatment. As permitted under federal income tax laws and to the extent the
Fund is allowed to invest in futures contacts, the Fund intends to identify
futures contracts as mixed straddles and not mark them to market, that is, not
treat them as having been sold at the end of the year at market value. If the
Fund is using short futures contracts for hedging purposes, the Fund may be
required to defer recognizing losses incurred on short futures contracts and on
underlying securities.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
Other Risks of Derivatives.
The primary risk of derivatives is the same as the risk of the underlying asset,
namely that the value of the underlying asset may go up or down. Adverse
movements in the value of an underlying asset can expose an investor to losses.
Derivative instruments may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative instrument in relation to the
underlying asset may be
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magnified. The successful use of derivative instruments depends upon a variety
of factors, particularly the investment manager's ability to predict movements
of the securities, currencies, and commodity markets, which requires different
skills than predicting changes in the prices of individual securities. There can
be no assurance that any particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Leverage Risk,
Liquidity Risk, and Management Risk.
Foreign Currency Transactions
Investments in foreign countries usually involve currencies of foreign
countries. In addition, the Fund may hold cash and cash-equivalent investments
in foreign currencies. As a result, the value of the Fund's assets as measured
in U.S. dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Also, the Fund may incur costs
in connection with conversions between various currencies. Currency exchange
rates may fluctuate significantly over short periods of time causing the Fund's
NAV to fluctuate. Currency exchange rates are generally determined by the forces
of supply and demand in the foreign exchange markets, actual or anticipated
changes in interest rates, and other complex factors. Currency exchange rates
also can be affected by the intervention of U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments.
Spot Rates and Derivative Instruments. The Fund conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. (See also Derivative Instruments). These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Because foreign currency transactions
occurring in the interbank market might involve substantially larger amounts
than those involved in the use of such derivative instruments, the Fund could be
disadvantaged by having to deal in the odd lot market for the underlying foreign
currencies at prices that are less favorable than for round lots.
The Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.
The Fund also may enter into forward contracts when management of the Fund
believes the currency of a particular foreign country may change in relationship
to another currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of securities in foreign currencies more than likely will change between
the date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult
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AXP(R) Growth Series, Inc.
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and successful execution of a short-term hedging strategy is highly uncertain.
The Fund will not enter into such forward contracts or maintain a net exposure
to such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
The Fund will designate cash or securities in an amount equal to the value of
the Fund's total assets committed to consummating forward contracts entered into
under the second circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a daily basis so
that the value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund may either sell the security and
make delivery of the foreign currency or retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.
If the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss (as described below) to the extent there has been
movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline between the date the Fund enters
into a forward contract for selling foreign currency and the date it enters into
an offsetting contract for purchasing the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to buy. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to buy exceeds the price of the currency it has agreed to
sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of that
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some point in time. Although forward contracts
tend to minimize the risk of loss due to a decline in value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.
Although the Fund values its assets each business day in terms of U.S. dollars,
it does not intend to convert its foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and shareholders should be aware
of currency conversion costs. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Fund may buy put and call options and write
covered call and cash-secured put options on foreign currencies for hedging
purposes. For example, a decline in the dollar value of a foreign currency in
which securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against the diminutions in the value of securities, the Fund
may buy put options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will offset, in whole or in part, the adverse effect on its
portfolio that otherwise would have resulted.
Conversely, where a change in the dollar value of a currency would increase the
cost of securities the Fund plans to buy, the Fund may buy call options on the
foreign currency. The purchase of the options could offset, at least partially,
the changes in exchange rates.
As in the case of other types of options, however, the benefit to the Fund
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
rates.
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of securities will be fully or
partially offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Fund could write a
put option on the relevant currency. If rates move in the manner projected, the
put option will expire unexercised and allow the Fund to hedge increased cost up
to the amount of the premium.
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As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy or sell
the underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for that purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. The Fund may enter into currency
futures contracts to buy or sell currencies. It also may buy put and call
options and write covered call and cash-secured put options on currency futures.
Currency futures contracts are similar to currency forward contracts, except
that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures call
for payment of delivery in U.S. dollars. The Fund may use currency futures for
the same purposes as currency forward contracts, subject to Commodity Futures
Trading Commission (CFTC) limitations.
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency will change in
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of the Fund's investments
denominated in that currency over time.
The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.
(See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Correlation
Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk.
Foreign Securities
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication
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procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions making it
difficult to conduct such transactions. Delays in such procedures could result
in temporary periods when assets are uninvested and no return is earned on them.
The inability of an investor to make intended security purchases due to such
problems could cause the investor to miss attractive investment opportunities.
Payment for securities without delivery may be required in certain foreign
markets and, when participating in new issues, some foreign countries require
payment to be made in advance of issuance (at the time of issuance, the market
value of the security may be more or less than the purchase price). Some foreign
markets also have compulsory depositories (i.e., an investor does not have a
choice as to where the securities are held). Fixed commissions on some foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. Further, an investor may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is generally
less government supervision and regulation of business and industry practices,
stock exchanges, brokers, and listed companies than in the U.S. It may be more
difficult for an investor's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delays or
loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of additional withholding or confiscatory taxes,
political, social, or economic instability, diplomatic developments that could
affect investments in those countries, or other unforeseen actions by regulatory
bodies (such as changes to settlement or custody procedures).
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates; the fluctuation of the euro relative to non-euro currencies during the
transition period from January 1, 1999 to December 31, 2000 and beyond; whether
the interest rate, tax or labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of other EU countries such as the United Kingdom and Greece into the euro and
the admission of other non-EU countries such as Poland, Latvia, and Lithuania as
members of the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.
High-Yield (High-Risk) Securities (Junk Bonds)
High yield (high-risk) securities are sometimes referred to as "junk bonds."
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
The lower-quality and comparable unrated security market is relatively new and
its growth has paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such conditions could severely disrupt the market for and adversely affect the
value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecasts, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
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An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.
Illiquid and Restricted Securities
The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.
To the extent the Fund invests in illiquid or restricted securities, it may
encounter difficulty in determining a market value for such securities.
Disposing of illiquid or restricted securities may involve time-consuming
negotiations and legal expense, and it may be difficult or impossible for the
Fund to sell such an investment promptly and at an acceptable price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.
Indexed Securities
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.
Inverse Floaters
Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.
Investment Companies
The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the securities of other investment companies
include: Management Risk and Market Risk.
Lending of Portfolio Securities
The Fund may lend certain of its portfolio securities to broker-dealers. The
current policy of the Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Fund receives the market
price in cash, U.S. government securities, letters of credit, or such other
collateral as may be permitted by regulatory agencies and approved by the board.
If the market price of the loaned securities goes up, the Fund will get
additional collateral on a daily basis. The risks are that the borrower may not
provide additional collateral when required or return the securities when due.
During the existence of the loan, the Fund receives cash payments equivalent to
all interest or other distributions paid on the loaned securities. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned.
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Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk and Management Risk.
Loan Participations
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. A rapid rate of principal payments may adversely
affect the yield to maturity of IOs. A slow rate of principal payments may
adversely affect the yield to maturity of POs. If prepayments of principal are
greater than anticipated, an investor in IOs may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on a PO will be
affected more severely than would be the case with a traditional mortgage-backed
security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Management Risk.
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Mortgage Dollar Rolls
Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia and Puerto Rico). The
interest on these obligations is generally exempt from federal income tax.
Municipal obligations are generally classified as either "general obligations"
or "revenue obligations."
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in such obligations. Municipal leases may be subject to
greater risks than general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet in order
to issue municipal obligations. Municipal leases may contain a covenant by the
state or municipality to budget for and make payments due under the obligation.
Certain municipal leases may, however, provide that the issuer is not obligated
to make payments on the obligation in future years unless funds have been
appropriated for this purpose each year.
Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
Taxable Municipal Obligations. There is another type of municipal obligation
that is subject to federal income tax for a variety of reasons. These municipal
obligations do not qualify for the federal income exemption because (a) they did
not receive necessary authorization for tax-exempt treatment from state or local
government authorities, (b) they exceed certain regulatory limitations on the
cost of issuance for tax-exempt financing or (c) they finance public or private
activities that do not qualify for the federal income tax exemption. These
non-qualifying activities might include, for example, certain types of
multi-family housing, certain professional and local sports facilities,
refinancing of certain municipal debt, and borrowing to replenish a
municipality's underfunded pension plan.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.
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Real Estate Investment Trusts
Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with REITs include: Issuer Risk, Management Risk, and
Market Risk.
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement thereby determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price at the time of replacement. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to utilize short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased between the date of the
short sale and the date on which the borrowed security is replaced, the investor
loses the opportunity to participate in the gain. A "short sale against the box"
will result in a constructive sale of appreciated securities thereby generating
capital gains to the Fund.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Management Risk and Market
Risk.
Sovereign Debt
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk,
Foreign/Emerging Markets Risk, and Management Risk.
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Structured Products
Structured products are over-the-counter financial instruments created
specifically to meet the needs of one or a small number of investors. The
instrument may consist of a warrant, an option, or a forward contract embedded
in a note or any of a wide variety of debt, equity, and/or currency
combinations. Risks of structured products include the inability to close such
instruments, rapid changes in the market, and defaults by other parties. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured products include: Credit Risk,
Liquidity Risk, and Management Risk.
Variable- or Floating-Rate Securities
The Fund may invest in securities that offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes.
Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.
When-Issued Securities and Forward Commitments
When-issued securities and forward commitments involve a commitment to purchase
or sell specific securities at a predetermined price or yield in which payment
and delivery take place after the customary settlement period for that type of
security. Normally, the settlement date occurs within 45 days of the purchase
although in some cases settlement may take longer. The investor does not pay for
the securities or receive dividends or interest on them until the contractual
settlement date. Such instruments involve the risk of loss if the value of the
security to be purchased declines prior to the settlement date and the risk that
the security will not be issued as anticipated. If the security is not issued as
anticipated, the Fund may lose the opportunity to obtain a price and yield
considered to be advantageous.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities and forward commitments
include: Credit Risk and Management Risk.
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk, Interest Rate Risk, and Management Risk.
-20-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Security Transactions
Subject to policies set by the board, AEFC is authorized to determine,
consistent with the Fund's investment goal and policies, which securities will
be purchased, held, or sold. The description of policies and procedures in this
section also applies to any Fund subadviser. In determining where the buy and
sell orders are to be placed, AEFC has been directed to use its best efforts to
obtain the best available price and the most favorable execution except where
otherwise authorized by the board. In selecting broker-dealers to execute
transactions, AEFC may consider the price of the security, including commission
or mark-up, the size and difficulty of the order, the reliability, integrity,
financial soundness, and general operation and execution capabilities of the
broker, the broker's expertise in particular markets, and research services
provided by the broker.
The Fund, AEFC, any subadviser and American Express Financial Advisors Inc. (the
Distributor) each have a strict Code of Ethics that prohibits affiliated
personnel from engaging in personal investment activities that compete with or
attempt to take advantage of planned portfolio transactions for the Fund.
The Fund's securities may be traded on a principal rather than an agency basis.
In other words, AEFC will trade directly with the issuer or with a dealer who
buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities with respect to the Fund and the other American Express mutual
funds for which it acts as investment manager.
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business, and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software, or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management, and trading
functions and other services to the extent permitted under an interpretation by
the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund that it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions will be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all American
Express mutual funds even though it is not possible to relate the benefits to
any particular fund.
Each investment decision made for the Fund is made independently from any
decision made for another portfolio, fund, or other account advised by AEFC or
any of its subsidiaries. When the Fund buys or sells the same security as
another portfolio, fund, or account, AEFC carries out the purchase or sale in a
way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution. On occasion, the Fund may
purchase and sell a security simultaneously in order to profit from short-term
price disparities.
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AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency, and research services.
The Fund paid total brokerage commissions of $4,890,808 for fiscal year ended
July 31, 2001, $3,876,550 for fiscal year 2000, and $1,814,193 for fiscal year
1999. Substantially all firms through whom transactions were executed provide
research services.
No transactions were directed to brokers because of research services they
provided to the Fund.
As of the end of the most recent fiscal year, the Fund held securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below:
Value of securities
Name of issuer owned at end of fiscal year
Merrill Lynch $161,364,000
Morgan Stanley 15,654,573
The portfolio turnover rate was 41% in the most recent fiscal year, and 23% in
the year before.
Brokerage Commissions Paid to Brokers Affiliated with American Express Financial
Corporation
Affiliates of American Express Company (of which AEFC is a wholly-owned
subsidiary) may engage in brokerage and other securities transactions on behalf
of the Fund according to procedures adopted by the board and to the extent
consistent with applicable provisions of the federal securities laws. Subject to
approval by the board, the same conditions apply to transactions with
broker-dealer affiliates of any subadviser. AEFC will use an American Express
affiliate only if (i) AEFC determines that the Fund will receive prices and
executions at least as favorable as those offered by qualified independent
brokers performing similar brokerage and other services for the Fund and (ii)
the affiliate charges the Fund commission rates consistent with those the
affiliate charges comparable unaffiliated customers in similar transactions and
if such use is consistent with terms of the Investment Management Services
Agreement.
Information about brokerage commissions paid by the Fund for the last three
fiscal years to brokers affiliated with AEFC is contained in the following
table:
As of the end of Fiscal Year
2001 2000 1999
Percent of
aggregate dollar
amount of
Aggregate dollar Percent of transactions Aggregate dollar Aggregate dollar
amount of aggregate involving amount of amount of
Nature of commissions brokerage payment of commissions commissions
Broker affiliation paid to broker commissions commissions paid to broker paid to broker
American Enterprise Wholly-owned $147,507 3.02% 4.94% $304,626 $291,000
Investment subsidiary of
Services Inc. AEFC
-22-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Performance Information
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations, if applicable, used by
the Fund are based on standardized methods of computing performance as required
by the SEC. An explanation of the methods used by the Fund to compute
performance follows below.
AVERAGE ANNUAL TOTAL RETURN
The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)(to the power of n) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
AGGREGATE TOTAL RETURN
The Fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the Fund
over a specified period of time according to the following formula:
ERV - P
--------
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields, or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar,
Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor,
Shearson Lehman Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal
Finance, USA Today, U.S. News and World Report, The Wall Street Journal, and
Wiesenberger Investment Companies Service. The Fund also may compare its
performance to a wide variety of indexes or averages. There are similarities and
differences between the investments that the Fund may purchase and the
investments measured by the indexes or averages and the composition of the
indexes or averages will differ from that of the Fund.
Ibbotson Associates provides historical returns of the capital markets in the
United States, including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term government bonds,
Treasury bills, the U.S. rate of inflation (based on the CPI) and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indexes. The Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios.
The Fund may quote various measures of volatility in advertising. Measures of
volatility seek to compare a fund's historical share price fluctuations or
returns to those of a benchmark.
The Distributor may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Materials may
include discussions of asset allocation, retirement investing, brokerage
products and services, model portfolios, saving for college or other goals, and
charitable giving.
-23-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Valuing Fund Shares
As of the end of the most recent fiscal year, the computation looked like this:
Net assets Shares outstanding Net asset value of one share
Class A $3,851,155,705 divided by 129,745,372 equals $29.68
Class B 1,510,173,533 53,731,152 28.11
Class C 8,798,341 312,923 28.12
Class Y 973,550,444 32,490,892 29.96
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
o Securities traded on a securities exchange for which a last-quoted sales
price is readily available are valued at the last-quoted sales price on the
exchange where such security is primarily traded.
o Securities traded on a securities exchange for which a last-quoted sales
price is not readily available are valued at the mean of the closing bid and
asked prices, looking first to the bid and asked prices on the exchange where
the security is primarily traded and, if none exist, to the over-the-counter
market.
o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
o Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
o Foreign securities traded outside the United States are generally valued as
of the time their trading is complete, which is usually different from the
close of the Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current rate of exchange. Occasionally,
events affecting the value of such securities may occur between such times
and the close of the Exchange that will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, these securities will be valued at
their fair value according to procedures decided upon in good faith by the
board.
o Short-term securities maturing more than 60 days from the valuation date are
valued at the readily available market price or approximate market value
based on current interest rates. Short-term securities maturing in 60 days or
less that originally had maturities of more than 60 days at acquisition date
are valued at amortized cost using the market value on the 61st day before
maturity. Short-term securities maturing in 60 days or less at acquisition
date are valued at amortized cost. Amortized cost is an approximation of
market value determined by systematically increasing the carrying value of a
security if acquired at a discount, or reducing the carrying value if
acquired at a premium, so that the carrying value is equal to maturity value
on the maturity date.
o Securities without a readily available market price and other assets are
valued at fair value as determined in good faith by the board. The board is
responsible for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service independent from the Fund. If
a valuation of a bond is not available from a pricing service, the bond will
be valued by a dealer knowledgeable about the bond if such a dealer is
available.
Investing in the Fund
SALES CHARGE
Investors should understand that the purpose and function of the initial sales
charge and distribution fee for Class A shares is the same as the purpose and
function of the CDSC and distribution fee for Class B and Class C shares. The
sales charges and distribution fees applicable to each class pay for the
distribution of shares of the Fund.
Shares of the Fund are sold at the public offering price. The public offering
price is the NAV of one share adjusted for the sales charge for Class A. For
Class B, Class C and Class Y, there is no initial sales charge so the public
offering price is the same as the NAV. Using the sales charge schedule in the
table below, for Class A, the public offering price for an investment of less
than $50,000, made on the last day of the most recent fiscal year, was
determined by dividing the NAV of one share, $29.68, by 0.9425 (1.00-0.0575) for
a maximum 5.75% sales charge for a public offering price of $31.49. The sales
charge is paid to the Distributor by the person buying the shares.
-24-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Class A -- Calculation of the Sales Charge
Sales charges are determined as follows:
Total Market Value Sales charge as a percentage of:
Public offering price Net amount invested
Up to $49,999 5.75% 6.10%
$50,000 - $99,999 4.75 4.99
$100,000 - $249,999 3.75 3.90
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00* 2.04*
$1,000,000 or more 0.00 0.00
* The sales charge will be waived until Dec. 31, 2001.
The initial sales charge is waived for certain qualified plans. Participants in
these qualified plans may be subject to a deferred sales charge on certain
redemptions. The Fund will waive the deferred sales charge on certain
redemptions if the redemption is a result of a participant's death, disability,
retirement, attaining age 59 1/2, loans, or hardship withdrawals. The deferred
sales charge varies depending on the number of participants in the qualified
plan and total plan assets as follows:
Deferred Sales Charge
Number of participants
Total plan assets 1-99 100 or more
Less than $1 million 4% 0%
$1 million or more 0% 0%
Class A -- Reducing the Sales Charge
The market value of your investments in the Fund determines your sales charge.
For example, suppose you have made an investment that now has a value of $20,000
and you later decide to invest $40,000 more. The value of your investments would
be $60,000. As a result, your $40,000 investment qualifies for the lower 4.75%
sales charge that applies to investments of more than $50,000 and up to
$100,000.
Class A -- Letter of Intent (LOI)
If you intend to invest more than $50,000 over a period of time, you can reduce
the sales charge in Class A by filing a LOI and committing to invest a certain
amount. The agreement can start at any time and you will have up to 13 months to
fulfill your commitment. The LOI start date can be backdated by up to 90 days.
Your holdings in American Express funds acquired more than 90 days before
receipt of your signed LOI in the home office will not be counted towards the
completion of the LOI. Your investments will be charged the sales charge that
applies to the amount you have committed to invest. Five percent of the
commitment amount will be placed in escrow. If your commitment amount is reached
within the 13-month period, the LOI will end and the shares will be released
from escrow. Once the LOI has ended, future sales charges will be determined by
the total value of the new investment combined with the market value of the
existing American Express mutual fund investments. If you do not invest the
commitment amount by the end of the 13 months, the remaining unpaid sales charge
will be redeemed from the escrowed shares and the remaining balance released
from escrow. The commitment amount does not include purchases in any class of
American Express funds other than Class A; purchases in American Express funds
held within a wrap product; and purchases of AXP Cash Management Fund and AXP
Tax-Free Money Fund unless they are subsequently exchanged to Class A shares of
an American Express mutual fund within the 13 month period. A LOI is not an
option (absolute right) to buy shares. If you purchase shares in an American
Express brokerage account or through a third party, you must inform the
Distributor about the LOI when placing any purchase orders during the period of
the LOI.
Class Y Shares
Class Y shares are offered to certain institutional investors. Class Y shares
are sold without a front-end sales charge or a CDSC and are not subject to a
distribution fee. The following investors are eligible to purchase Class Y
shares:
o Qualified employee benefit plans* if the plan:
-- uses a daily transfer recordkeeping service offering participants daily
access to American Express mutual funds and has
-- at least $10 million in plan assets or
-- 500 or more participants; or
-- does not use daily transfer recordkeeping and has
-- at least $3 million invested in American Express mutual funds or
-- 500 or more participants.
-25-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These institutions must have at least $10 million in American Express
mutual funds.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit described above.
o State sponsored college savings plans established under Section 529 of the
Internal Revenue Code.
* Eligibility must be determined in advance. To do so, contact your financial
advisor.
SYSTEMATIC INVESTMENT PROGRAMS
After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. These minimums do not apply to all systematic investment programs. You
decide how often to make payments -- monthly, quarterly, or semiannually. You
are not obligated to make any payments. You can omit payments or discontinue the
investment program altogether. The Fund also can change the program or end it at
any time.
AUTOMATIC DIRECTED DIVIDENDS
Dividends, including capital gain distributions, paid by another American
Express mutual fund may be used to automatically purchase shares in the same
class of this Fund. Dividends may be directed to existing accounts only.
Dividends declared by a fund are exchanged to this Fund the following day.
Dividends can be exchanged into the same class of another American Express
mutual fund but cannot be split to make purchases in two or more funds.
Automatic directed dividends are available between accounts of any ownership
except:
o Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts as
custodian;
o Between two American Express Trust Company custodial accounts with different
owners (for example, you may not exchange dividends from your IRA to the IRA
of your spouse); and
o Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.
The Fund's investment goal is described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REJECTION OF BUSINESS
The Fund or AECSC reserves the right to reject any business, in its sole
discretion.
Selling Shares
You have a right to sell your shares at any time. For an explanation of sales
procedures, please see the prospectus.
During an emergency, the board can suspend the computation of NAV, stop
accepting payments for purchase of shares, or suspend the duty of the Fund to
redeem shares for more than seven days. Such emergency situations would occur
if:
o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
o Disposal of the Fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or
o The SEC, under the provisions of the 1940 Act, declares a period of emergency
to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in this
SAI. Should the Fund distribute securities, a shareholder may incur brokerage
fees or other transaction costs in converting the securities to cash.
-26-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Pay-out Plans
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem shares, you may be subject to a contingent deferred
sales charge as discussed in the prospectus. While the plans differ on how the
pay-out is figured, they all are based on the redemption of your investment. Net
investment income dividends and any capital gain distributions will
automatically be reinvested, unless you elect to receive them in cash. If you
are redeeming a tax-qualified plan account for which American Express Trust
Company acts as custodian, you can elect to receive your dividends and other
distributions in cash when permitted by law. If you redeem an IRA or a qualified
retirement account, certain restrictions, federal tax penalties, and special
federal income tax reporting requirements may apply. You should consult your tax
advisor about this complex area of the tax law.
Applications for a systematic investment in a class of the Fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.
To start any of these plans, please consult your selling agent or write American
Express Client Service Corporation, 70100 AXP Financial Center, Minneapolis, MN
55474, or call 800-437-3133. Your authorization must be received at least five
days before the date you want your payments to begin. The initial payment must
be at least $50. Payments will be made on a monthly, bimonthly, quarterly,
semiannual, or annual basis. Your choice is effective until you change or cancel
it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you will have to send in
a separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in the account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.
Capital Loss Carryover
For federal income tax purposes, the Fund had total capital loss carryovers of
$949,420,217 at the end of the most recent fiscal year, that if not offset by
subsequent capital gains will expire in 2010.
It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.
Taxes
For tax purposes, an exchange is considered a sale and purchase, and may result
in a gain or loss. A sale is a taxable transaction. If you sell shares for less
than their cost, the difference is a capital loss. If you sell shares for more
than their cost, the difference is a capital gain. Your gain may be short term
(for shares held for one year or less) or long term (for shares held more than
one year).
If you buy Class A shares and within 91 days exchange into another fund, you may
not include the sales charge in your calculation of tax gain or loss on the sale
of the first fund you purchased. The sales charge may be included in the
calculation of your tax gain or loss on a subsequent sale of the second fund you
purchased.
For example:
You purchase 100 shares of one fund having a public offering price of $10.00 per
share. With a sales load of 5.75%, you pay $57.50 in sales load. With a NAV of
$9.425 per share, the value of your investment is $942.50. Within 91 days of
purchasing that fund, you decide to exchange out of that fund, now at a NAV of
$11.00 per share, up from the original NAV of $9.425, and purchase into a second
fund, at a NAV of $15.00 per share. The value of your investment is now
$1,100.00 ($11.00 x 100 shares). You cannot use the $57.50 paid as a sales load
when
-27-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
calculating your tax gain or loss in the sale of the first fund shares. So
instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a $157.50
gain ($1,100.00 - $942.50). You can include the $57.50 sales load in the basis
of your shares in the second fund.
If you have a nonqualified investment in the Fund and you wish to move part or
all of those shares to an IRA or qualified retirement account in the Fund, you
can do so without paying a sales charge. However, this type of exchange is
considered a redemption of shares and may result in a gain or loss for tax
purposes. In addition, this type of exchange may result in an excess
contribution under IRA or qualified plan regulations if the amount exchanged
plus the amount of the initial sales charge applied to the amount exchanged
exceeds annual contribution limitations. For example: If you were to exchange
$2,000 in Class A shares from a nonqualified account to an IRA without
considering the 5.75% ($115) initial sales charge applicable to that $2,000, you
may be deemed to have exceeded current IRA annual contribution limitations. You
should consult your tax advisor for further details about this complex subject.
Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities.
The Fund may be subject to U.S. taxes resulting from holdings in a passive
foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or
more of its gross income for the taxable year is passive income or 50% or more
of the average value of its assets consists of assets that produce or could
produce passive income.
Income earned by the Fund may have had foreign taxes imposed and withheld on it
in foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. If more than 50% of the Fund's total assets at
the close of its fiscal year consists of securities of foreign corporations, the
Fund will be eligible to file an election with the Internal Revenue Service
under which shareholders of the Fund would be required to include their pro rata
portions of foreign taxes withheld by foreign countries as gross income in their
federal income tax returns. These pro rata portions of foreign taxes withheld
may be taken as a credit or deduction in computing the shareholders' federal
income taxes. If the election is filed, the Fund will report to its shareholders
the per share amount of such foreign taxes withheld and the amount of foreign
tax credit or deduction available for federal income tax purposes.
Capital gain distributions, if any, received by shareholders should be treated
as long-term capital gains regardless of how long they owned their shares.
Short-term capital gains earned by the Fund are paid to shareholders as part of
their ordinary income dividend and are taxable. A special 28% rate on capital
gains may apply to sales of precious metals, if any, owned directly by the Fund.
A special 25% rate on capital gains may apply to investments in REITs.
Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable
to fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, gains or losses on disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gains or losses. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
Under federal tax law, by the end of a calendar year the Fund must declare and
pay dividends representing 98% of ordinary income for that calendar year and 98%
of net capital gains (both long-term and short-term) for the 12-month period
ending Oct. 31 of that calendar year. The Fund is subject to an excise tax equal
to 4% of the excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with federal tax law and
avoid any excise tax.
The Internal Revenue Code imposes two asset diversification rules that apply to
the Fund as of the close of each quarter. First, as to 50% of its holdings, the
Fund may hold no more than 5% of its assets in securities of one issuer and no
more than 10% of any one issuer's outstanding voting securities. Second, the
Fund cannot have more than 25% of its assets in any one issuer.
For purposes of the excise tax distributions, "section 988" ordinary gains and
losses are distributable based on an Oct. 31 year end. This is an exception to
the general rule that ordinary income is paid based on a calendar year end.
If a mutual fund is the holder of record of any share of stock on the record
date for any dividend payable with respect to the stock, the dividend will be
included in gross income by the Fund as of the later of (1) the date the share
became ex-dividend or (2) the date the Fund acquired the share. Because the
dividends on some foreign equity investments may be received some time after the
stock goes ex-dividend, and in certain rare cases may never be received by the
Fund, this rule may cause the Fund to take into income dividend income that it
has not received and pay that income to its shareholders. To the extent that the
dividend is never received, the Fund will take a loss at the time that a
determination is made that the dividend will not be received.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state, and local income tax laws to Fund distributions.
-28-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Agreements
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AEFC, a wholly-owned subsidiary of American Express Company, is the investment
manager for the Fund. Under the Investment Management Services Agreement, AEFC,
subject to the policies set by the board, provides investment management
services.
For its services, AEFC is paid a fee based on the following schedule. Each class
of the Fund pays its proportionate share of the fee.
Assets (billions) Annual rate at each asset level
First $ 1.0 0.600%
Next 1.0 0.575
Next 1.0 0.550
Next 3.0 0.525
Next 6.0 0.500
Next 12.0 0.490
Over 24.0 0.480
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.547% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made.
Before the fee based on the asset charge is paid, it is adjusted for investment
performance. The adjustment, determined monthly, will be calculated using the
percentage point difference between the change in the net asset value of one
Class A share of the Fund and the change in the Lipper Large-Cap Growth Fund
Index (Index). The performance of one Class A share of the Fund is measured by
computing the percentage difference between the opening and closing net asset
value of one Class A share of the Fund, as of the last business day of the
period selected for comparison, adjusted for dividend or capital gain
distributions which are treated as reinvested at the end of the month during
which the distribution was made. The performance of the Index for the same
period is established by measuring the percentage difference between the
beginning and ending Index for the comparison period. The performance is
adjusted for dividend or capital gain distributions (on the securities which
comprise the Index), which are treated as reinvested at the end of the month
during which the distribution was made. One percentage point will be subtracted
from the calculation to help assure that incentive adjustments are attributable
to AEFC's management abilities rather than random fluctuations and the result
multiplied by 0.01%. That number will be multiplied times the Fund's average net
assets for the comparison period and then divided by the number of months in the
comparison period to determine the monthly adjustment.
Where the Fund's Class A share performance exceeds that of the Index, the base
fee will be increased. Where the performance of the Index exceeds the
performance of the Fund's Class A share, the base fee will be decreased. The
maximum monthly increase or decrease will be 0.12% of the Fund's average net
assets on an annual basis.
The 12 month comparison period rolls over with each succeeding month, so that it
always equals 12 months, ending with the month for which the performance
adjustment is being computed. The adjustment increased the fee by $770,306 for
fiscal year 2001.
The management fee is paid monthly. Under the agreement, the total amount paid
was $46,332,635 for fiscal year 2001, $52,927,029 for fiscal year 2000, and
$31,067,869 for fiscal year 1999.
Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
postage of confirmations except purchase confirmations; consultants' fees;
compensation of board members, officers and employees; corporate filing fees;
organizational expenses; expenses incurred in connection with lending
securities; and expenses properly payable by the Fund, approved by the board.
Under the agreement, nonadvisory expenses, net of earnings credits, paid by the
Fund were $2,355,999 for fiscal year 2001, $1,136,532 for fiscal year 2000, and
$1,771,147 for fiscal year 1999.
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AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES AGREEMENT
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets (billions) Annual rate at each asset level
First $ 1.0 0.050%
Next 1.0 0.045
Next 1.0 0.040
Next 3.0 0.035
Next 6.0 0.030
Next 12.0 0.025
Over 24.0 0.020
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.039% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. Under the
agreement, the Fund paid fees of $3,193,208 for fiscal year 2001, $3,333,702 for
fiscal year 2000, and $2,363,210 for fiscal year 1999.
Third parties with which AEFC contracts to provide services for the Fund or its
shareholders may pay a fee to AEFC to help defray the cost of providing
administrative and accounting services. The amount of any such fee is negotiated
separately with each service provider and does not constitute compensation for
investment advisory, distribution, or other services. Payment of any such fee
neither increases nor reduces fees or expenses paid by shareholders of the Fund.
TRANSFER AGENCY AGREEMENT
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A is $19 per year, for Class B is $20 per year, for Class C is $19.50 per
year and for Class Y is $17 per year. The fees paid to AECSC may be changed by
the board without shareholder approval.
DISTRIBUTION AGREEMENT
American Express Financial Advisors Inc. is the Fund's principal underwriter
(the Distributor). The Fund's shares are offered on a continuous basis.
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to the Distributor daily. These charges amounted to $14,259,993
for fiscal year 2001. After paying commissions to personal financial advisors,
and other expenses, the amount retained was $2,823,915. The amounts were
$19,466,386 and $1,633,078 for fiscal year 2000, and $12,574,666 and $764,720
for fiscal year 1999.
Part of the sales charge may be paid to selling dealers who have agreements with
the Distributor. The Distributor will retain the balance of the sales charge. At
times the entire sales charge may be paid to selling dealers.
SHAREHOLDER SERVICE AGREEMENT
With respect to Class Y shares, 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 average daily net assets.
PLAN AND AGREEMENT OF DISTRIBUTION
For Class A, Class B and Class C shares, to help defray the cost of distribution
and servicing not covered by the sales charges received under the Distribution
Agreement, the Fund and the Distributor entered into a Plan and Agreement of
Distribution (Plan) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
the Fund pays a fee up to actual expenses incurred at an annual rate of 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. Each class has exclusive voting
rights on the Plan as it applies to that class. In addition, because Class B
shares convert to Class A shares, Class B shareholders have the right to vote on
any material change to expenses charged under the Class A plan.
Expenses covered under this Plan include sales commissions; business, employee
and financial advisor expenses charged to distribution of Class A, Class B and
Class C shares; and overhead appropriately allocated to the sale of Class A,
Class B and Class C shares. These expenses also include costs of providing
personal service to shareholders. A substantial portion of the costs are not
specifically identified to any one of the American Express mutual funds.
-30-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the relevant class of shares or by the Distributor. The
Plan (or any agreement related to it) will terminate in the event of its
assignment, as that term is defined in the 1940 Act. The Plan may not be amended
to increase the amount to be spent for distribution without shareholder
approval, and all material amendments to the Plan must be approved by a majority
of the board members, including a majority of the board members who are not
interested persons of the Fund and who do not have a financial interest in the
operation of the Plan or any agreement related to it. The selection and
nomination of disinterested board members is the responsibility of the other
disinterested board members. No board member who is not an interested person has
any direct or indirect financial interest in the operation of the Plan or any
related agreement. For the most recent fiscal year, the Fund paid fees of
$13,034,501 for Class A shares, $20,253,042 for Class B shares and $70,471 for
Class C shares. The fee is not allocated to any one service (such as
advertising, payments to underwriters, or other uses). However, a significant
portion of the fee is generally used for sales and promotional expenses.
CUSTODIAN AGREEMENT
The Fund's securities and cash are held by American Express Trust Company, 200
AXP Financial Center, Minneapolis, MN 55474, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities in central
depository systems as allowed by federal law. For its services, the Fund pays
the custodian a maintenance charge and a charge per transaction in addition to
reimbursing the custodian's out-of-pocket expenses.
The custodian has entered into a sub-custodian agreement with the Bank of New
York, 90 Washington Street, New York, NY 10286. As part of this arrangement,
securities purchased outside the United States are maintained in the custody of
various foreign branches of Bank of New York or in other financial institutions
as permitted by law and by the Fund's sub-custodian agreement.
Organizational Information
The Fund is an open-end management investment company. The Fund headquarters are
at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
SHARES
The shares of the Fund represent an interest in that fund's assets only (and
profits or losses), and, in the event of liquidation, each share of the Fund
would have the same rights to dividends and assets as every other share of that
Fund.
VOTING RIGHTS
As a shareholder in the Fund, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each share you own.
Each class, if applicable, has exclusive voting rights with respect to matters
for which separate class voting is appropriate under applicable law. All shares
have cumulative voting rights with respect to the election of board members.
This means that you have as many votes as the number of shares you own,
including fractional shares, multiplied by the number of members to be elected.
DIVIDEND RIGHTS
Dividends paid by the Fund, if any, with respect to each class of shares, if
applicable, will be calculated in the same manner, at the same time, on the same
day, and will be in the same amount, except for differences resulting from
differences in fee structures.
AMERICAN EXPRESS FINANCIAL CORPORATION
AEFC has been a provider of financial services since 1894. Its family of
companies offers not only mutual funds but also insurance, annuities, investment
certificates and a broad range of financial management services.
In addition to managing assets of more than $83 billion for the American Express
Funds, AEFC manages investments for itself and its subsidiaries, American
Express Certificate Company and IDS Life Insurance Company. Total assets owned
and managed as of the end of the most recent fiscal year were more than $227
billion.
The Distributor serves individuals and businesses through its nationwide network
of more than 600 supervisory offices, more than 3,800 branch offices and more
than 9,600 financial advisors.
-31-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
FUND HISTORY TABLE FOR ALL PUBLICLY OFFERED AMERICAN EXPRESS FUNDS*
Date of Form of State of Fiscal
Fund organization organization organization year end Diversified
AXP Bond Fund, Inc. 6/27/74, 6/31/86*** Corporation NV/MN 8/31 Yes
AXP California Tax-Exempt Trust 4/7/86 Business Trust**** MA 6/30
AXP California Tax-Exempt Fund No
AXP Discovery Fund, Inc. 4/29/81, 6/13/86*** Corporation NV/MN 7/31 Yes
AXP Equity Select Fund, Inc.** 3/18/57, 6/13/86*** Corporation NV/MN 11/30 Yes
AXP Extra Income Fund, Inc. 8/17/83 Corporation MN 5/31 Yes
AXP Federal Income Fund, Inc. 3/12/85 Corporation MN 5/31 Yes
AXP Global Series, Inc. 10/28/88 Corporation MN 10/31
AXP Emerging Markets Fund Yes
AXP Global Balanced Fund Yes
AXP Global Bond Fund No
AXP Global Growth Fund Yes
AXP Innovations Fund Yes
AXP Growth Series, Inc. 5/21/70, 6/13/86*** Corporation NV/MN 7/31
AXP Growth Fund Yes
AXP Research Opportunities Fund Yes
AXP High Yield Tax-Exempt Fund, Inc. 12/21/78, 6/13/86*** Corporation NV/MN 11/30 Yes
AXP International Fund, Inc. 7/18/84 Corporation MN 10/31
AXP European Equity Fund No
AXP International Fund Yes
AXP Investment Series, Inc. 1/18/40, 6/13/86*** Corporation NV/MN 9/30
AXP Diversified Equity Income Fund Yes
AXP Mutual Yes
AXP Managed Series, Inc. 10/9/84 Corporation MN 9/30
AXP Managed Allocation Fund Yes
AXP Market Advantage Series, Inc. 8/25/89 Corporation MN 1/31
AXP Blue Chip Advantage Fund Yes
AXP International Equity Index Fund No
AXP Mid Cap Index Fund No
AXP Nasdaq 100 Index Fund No
AXP S&P 500 Index Fund No
AXP Small Company Index Fund Yes
AXP Total Stock Market Index Fund No
AXP Money Market Series, Inc. 8/22/75, 6/13/86*** Corporation NV/MN 7/31
AXP Cash Management Fund Yes
AXP New Dimensions Fund, Inc. 2/20/68, 6/13/86*** Corporation NV/MN 7/31
AXP Growth Dimensions Fund Yes
AXP New Dimensions Fund Yes
AXP Precious Metals Fund, Inc. 10/5/84 Corporation MN 3/31 No
AXP Progressive Fund, Inc. 4/23/68, 6/13/86*** Corporation NV/MN 9/30 Yes
AXP Selective Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 5/31 Yes
AXP Stock Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 9/30 Yes
AXP Partners International Series, Inc. 5/9/01 Corporation MN 10/31
AXP Partners International Aggressive Growth Fund Yes
AXP Partners International Select Value Fund Yes
-32-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Date of Form of State of Fiscal
Fund organization organization organization year end Diversified
AXP Partners Series, Inc. 3/20/01 Corporation MN 5/31
AXP Partners Fundamental Value Fund Yes
AXP Partners Small Cap Value Fund No
AXP Partners Value Fund Yes
AXP Special Tax-Exempt Series Trust 4/7/86 Business Trust**** MA 6/30
AXP Insured Tax-Exempt Fund Yes
AXP Massachusetts Tax-Exempt Fund No
AXP Michigan Tax-Exempt Fund No
AXP Minnesota Tax-Exempt Fund No
AXP New York Tax-Exempt Fund No
AXP Ohio Tax-Exempt Fund No
AXP Strategy Series, Inc. 1/24/84 Corporation MN 3/31
AXP Equity Value Fund** Yes
AXP Focus 20 Fund No
AXP Small Cap Advantage Fund Yes
AXP Small Cap Growth Fund Yes
AXP Strategy Aggressive Fund** Yes
AXP Tax-Exempt Series, Inc. 9/30/76, 6/13/86*** Corporation NV/MN 11/30
AXP Intermediate Tax-Exempt Fund Yes
AXP Tax-Exempt Bond Fund Yes
AXP Utilities Income Fund, Inc. 3/25/88 Corporation MN 6/30 Yes
* At the shareholders meeting held on June 16, 1999, shareholders approved
the name change from IDS to AXP. In addition to substituting AXP for IDS,
the following series changed their names: IDS Growth Fund, Inc. to AXP
Growth Series, Inc., IDS Managed Retirement Fund, Inc. to AXP Managed
Series, Inc., IDS Strategy Fund, Inc. to AXP Strategy Series, Inc., and IDS
Tax-Exempt Bond Fund, Inc. to AXP Tax-Exempt Series, Inc.
** At the shareholders meeting held on Nov. 9, 1994, IDS Equity Plus Fund,
Inc. changed its name to IDS Equity Select Fund, Inc. At that same time IDS
Strategy Aggressive Equity Fund changed its name to IDS Strategy Aggressive
Fund, and IDS Strategy Equity Fund changed its name to IDS Equity Value
Fund.
*** Date merged into a Minnesota corporation incorporated on 4/7/86.
**** Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the
trust itself is unable to meet its obligations.
-33-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees 15
Master Trust portfolios and 68 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
Position held
with
Name, Registrant and
address, length of Principal occupations Other Committee
age service during past 5 years directorships memberships
------------------------------ ---------------- ------------------------ -------------------- --------------------
H. Brewster Atwater, Jr. Board member Retired chairman and Merck & Co., Inc. Board
4900 IDS Tower since 1996 chief executive (pharmaceuticals) Effectiveness,
Minneapolis, MN 55402 officer, General Investment Review
Born in 1931 Mills, Inc. (consumer
foods)
------------------------------ ---------------- ------------------------ -------------------- --------------------
Arne H. Carlson Chair of the Chairman, Board Contracts,
901 S. Marquette Ave. Board since Services Corporation Executive,
Minneapolis, MN 55402 1999 (provides Investment Review,
Born in 1934 administrative Board Effectiveness
services to boards)
Former Governor of
Minnesota
------------------------------ ---------------- ------------------------ -------------------- --------------------
Lynne V. Cheney Board member Distinguished Fellow, The Reader's Joint Audit,
American Enterprise since 1994 AEI Digest Association Contracts
Institute for Public Policy Inc.
Research (AEI)
1150 17th St., N.W.
Washington, D.C. 20036
Born in 1941
------------------------------ ---------------- ------------------------ -------------------- --------------------
Livio D. DeSimone Board member Retired chair of the Cargill, Joint Audit,
30 Seventh Street since 2001 board and chief Incorporated Contracts
St. Paul, MN 55101-4901 executive officer, (commodity
Born in 1936 Minnesota Mining and merchants and
Manufacturing (3M) processors),
Target Corporation
(department
stores), General
Mills, Inc.
(consumer foods)
and Vulcan
Materials Company
(construction
materials/
chemicals)
------------------------------ ---------------- ------------------------ -------------------- --------------------
Ira D. Hall Board member Treasurer, Texaco Inc. Joint Audit,
Texaco, Inc. since 2001 since 1998. Prior to Investment Review
2000 Westchester Avenue that, director,
White Plains, NY 10650 International
Born in 1944 Operations IBM Corp.
------------------------------ ---------------- ------------------------ -------------------- --------------------
Heinz F. Hutter Board member Retired president and Board
P.O. Box 2187 since 1994 chief operating Effectiveness,
Minneapolis, MN 55402 officer, Cargill, Investment Review
Born in 1929 Incorporated
(commodity merchants
and processors)
------------------------------ ---------------- ------------------------ -------------------- --------------------
Anne P. Jones Board member Attorney and Motorola, Inc. Joint Audit, Board
5716 Bent Branch Rd. since 1985 telecommunications (electronics) Effectiveness
Bethesda, MD 20816 consultant
Born in 1935
------------------------------ ---------------- ------------------------ -------------------- --------------------
William R. Pearce Board member RII Weyerhaeuser World Executive,
2050 One Financial Plaza since 1980 Timberfund, L.P. Investment Review,
Minneapolis, MN 55402 (develops timber Board Effectiveness
Born in 1927 resources)--
management committee;
Former chair, American
Express Funds
------------------------------ ---------------- ------------------------ -------------------- --------------------
Alan K. Simpson Board member Former three-term Biogen, Inc. Joint Audit,
1201 Sunshine Ave. since 1997 United States Senator (bio- Contracts
Cody, WY 82414 for Wyoming pharmaceuticals)
Born in 1931
------------------------------ ---------------- ------------------------ -------------------- --------------------
C. Angus Wurtele Board member Retired chair of the The Valspar Contracts,
Suite 1700 Foshay Tower since 1994 board and chief Corporation Investment Review
Minneapolis, MN 55402 executive officer, The (paints), Bemis
Born in 1934 Valspar Corporation Corporation
(packaging)
------------------------------ ---------------- ------------------------ -------------------- --------------------
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AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Board Members Affiliated with American Express Financial Corporation (AEFC)
Position held
with
Name, Registrant and
address, length of Principal occupations Other Committee
age service during past 5 years directorships memberships
--------------------------- ------------------------ ------------------------ ------------------------ ------------------------
David R. Hubers Board member since 1993 Retired chief Chronimed Inc.
50643 AXP Financial Center executive officer, (specialty
Minneapolis, MN 55474 director and chair of pharmaceutical
Born in 1943 the board of AEFC distribution), RTW
Inc. (manages worker's
compensation
programs), Lawson
Software, Inc.
(technology based
business applications)
--------------------------- ------------------------ ------------------------ ------------------------ ------------------------
John R. Thomas Board member since Senior vice president Executive, Investment
50652 AXP Financial Center 1987, president since - information and Review
Minneapolis, MN 55474 1997 technology of AEFC
Born in 1937
--------------------------- ------------------------ ------------------------ ------------------------ ------------------------
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. Thomas, who is president, the Fund's
other officers are:
Other Officers
Position held
with
Name, Registrant and
address, length of Principal occupations Other Committee
age service during past 5 years directorships memberships
----------------------------- --------------- --------------------------- -------------------------- --------------------------
John M. Knight Treasurer Vice president -
50005 AXP Financial Center since 1999 investment accounting of
Minneapolis, MN 55474 AEFC
Born in 1952
----------------------------- --------------- --------------------------- -------------------------- --------------------------
Leslie L. Ogg Vice President of Board
901 S. Marquette Ave. president, Services Corporation
Minneapolis, MN 55402 general
Born in 1938 counsel, and
secretary
since 1978
----------------------------- --------------- --------------------------- -------------------------- --------------------------
Frederick C. Quirsfeld Vice Senior vice president -
53609 AXP Financial Center president fixed income of AEFC
Minneapolis, MN 55474 since 1998
Born in 1947
----------------------------- --------------- --------------------------- -------------------------- --------------------------
Compensation for Board Members
During the most recent fiscal year, the independent members of the Fund and
Portfolio boards, for attending up to 26 meetings, received the following
compensation:
Compensation Table
Total cash compensation from
Aggregate Aggregate American Express Funds and
Board member compensation from the Fund compensation from the Portfolio Preferred Master Trust Group
H. Brewster Atwater, Jr. $2,258 $3,642 $123,558
Lynne V. Cheney 1,508 2,425 84,492
Livio D. DeSimone 1,242 2,042 68,717
Ira D. Hall 1,825 2,858 103,817
Heinz F. Hutter 2,158 3,542 116,608
Anne P. Jones 2,158 3,542 116,258
William R. Pearce 2,258 3,642 123,608
Alan K. Simpson 2,108 3,492 112,408
C. Angus Wurtele 2,158 3,542 116,158
As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.
-35-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Independent Auditors
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG LLP, 4200 Wells Fargo Center, 90 S. Seventh St.,
Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
-36-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Appendix
DESCRIPTION OF RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
-37-
AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Moody's Long-Term Debt Ratings
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present that suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative
elements--their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds that are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
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AXP(R) Growth Series, Inc.
AXP(R) Growth Fund
--------------------------------------------------------------------------------
Standard & Poor's Note Ratings
An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to possess
very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-l (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-l repayment
ability will often be evidenced by many of the following characteristics:
(i) leading market positions in well-established industries, (ii) high
rates of return on funds employed, (iii) conservative capitalization
structure with moderate reliance on debt and ample asset protection, (iv)
broad margins in earnings coverage of fixed financial charges and high
internal cash generation, and (v) well established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the
level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's & S&P's
Short-Term Muni Bonds and Notes
Short-term municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
-39-
S-6455-20 V (9/01)
AXP(R) GROWTH SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
FOR
AXP(R) RESEARCH OPPORTUNITIES FUND (the Fund)
Sept. 28, 2001
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
most recent Annual Report to shareholders (Annual Report) that may be obtained
from your financial advisor or by writing to American Express Client Service
Corporation, 70100 AXP Financial Center, Minneapolis, MN 55474 or by calling
800-862-7919.
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is incorporated
in this SAI by reference.
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Mutual Fund Checklist p. 3
Fundamental Investment Policies p. 4
Investment Strategies and Types of Investments p. 5
Information Regarding Risks and Investment Strategies p. 6
Security Transactions p. 21
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation p. 22
Performance Information p. 23
Valuing Fund Shares p. 24
Investing in the Fund p. 24
Selling Shares p. 26
Pay-out Plans p. 27
Capital Loss Carryover p. 27
Taxes p. 27
Agreements p. 29
Organizational Information p. 31
Board Members and Officers p. 34
Compensation for Board Members p. 35
Principal Holders of Securities p. 36
Independent Auditors p. 36
Appendix A: Description of Ratings p. 37
Appendix B: Utilities and Energy Industries p. 40
-2-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Mutual Fund Checklist
[X] Mutual funds are NOT guaranteed or insured by any bank or government
agency. You can lose money.
[X] Mutual funds ALWAYS carry investment risks. Some types carry more risk than
others.
[X] A higher rate of return typically involves a higher risk of loss.
[X] Past performance is not a reliable indicator of future performance.
[X] ALL mutual funds have costs that lower investment return.
[X] You can buy some mutual funds by contacting them directly. Others, like
this one, are sold mainly through brokers, banks, financial planners, or
insurance agents. If you buy through these financial professionals, you
generally will pay a sales charge.
[X] Shop around. Compare a mutual fund with others of the same type before you
buy.
OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING:
Develop a Financial Plan
Have a plan -- even a simple plan can help you take control of your financial
future. Review your plan with your advisor at least once a year or more
frequently if your circumstances change.
Dollar-Cost Averaging
An investment technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is dollar-cost
averaging. Dollar-cost averaging involves building a portfolio through the
investment of fixed amounts of money on a regular basis regardless of the price
or market condition. This may enable an investor to smooth out the effects of
the volatility of the financial markets. By using this strategy, more shares
will be purchased when the price is low and less when the price is high. As the
accompanying chart illustrates, dollar-cost averaging tends to keep the average
price paid for the shares lower than the average market price of shares
purchased, although there is no guarantee.
While this does not ensure a profit and does not protect against a loss if the
market declines, it is an effective way for many shareholders who can continue
investing through changing market conditions to accumulate shares to meet
long-term goals.
Dollar-cost averaging:
Regular Market price Shares
investment of a share acquired
$100 $ 6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
$500 $25.00 103.4
Average market price of a share over 5 periods: $5.00 ($25.00 / 5)
The average price you paid for each share: $4.84 ($500 / 103.4)
Diversify
Diversify your portfolio. By investing in different asset classes and different
economic environments you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
Understand Your Investment
Know what you are buying. Make sure you understand the potential risks, rewards,
costs, and expenses associated with each of your investments.
-3-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Fundamental Investment Policies
The Fund pursues its investment objective by investing all of its assets in
Aggressive Growth Portfolio (the Portfolio) of Growth Trust (the Trust), a
separate investment company, rather than by directly investing in and managing
its own portfolio of securities. The Portfolio has the same investment
objectives, policies, and restrictions as the Fund. References to "Fund" in this
SAI, where applicable, refer to the Fund and Portfolio, collectively, to the
Fund, singularly, or to the Portfolio, singularly.
Fundamental investment policies adopted by the Fund cannot be changed without
the approval of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies, and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
The policies below are fundamental policies that apply to the Fund and may be
changed only with shareholder approval. Unless holders of a majority of the
outstanding voting securities agree to make the change, the Fund will not:
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value
of its total assets (including borrowings) less liabilities (other than
borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's total
assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund from
buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.
o Lend Fund securities in excess of 30% of its net assets.
o Concentrate in any industry except in either or both the energy or utilities
industries. According to the present interpretation by the Securities and
Exchange Commission (SEC), this means that up to 25% of the Fund's total
assets, based on current market value, can be invested in any one industry
other than the energy and/or utility industries.
Except for the fundamental investment policies listed above, the other
investment policies described in the prospectus and in this SAI are not
fundamental and may be changed by the board at any time.
-4-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Investment Strategies and Types of Investments
This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It is intended to show the breadth of
investments that the investment manager may make on behalf of the Fund. For a
description of principal risks, please see the prospectus. Notwithstanding the
Fund's ability to utilize these strategies and techniques, the investment
manager is not obligated to use them at any particular time. For example, even
though the investment manager is authorized to adopt temporary defensive
positions and is authorized to attempt to hedge against certain types of risk,
these practices are left to the investment manager's sole discretion.
AXP Research Opportunites
Investment strategies & types of investments: Allowable for the Fund?
Agency and Government Securities yes
Borrowing yes
Cash/Money Market Instruments yes
Collateralized Bond Obligations yes
Commercial Paper yes
Common Stock yes
Convertible Securities yes
Corporate Bonds yes
Debt Obligations yes
Depositary Receipts yes
Derivative Instruments yes
Foreign Currency Transactions no
Foreign Securities yes
High-Yield (High-Risk) Securities (Junk Bonds) no
Illiquid and Restricted Securities yes
Indexed Securities yes
Inverse Floaters no
Investment Companies yes
Lending of Portfolio Securities yes
Loan Participations yes
Mortgage- and Asset-Backed Securities yes
Mortgage Dollar Rolls no
Municipal Obligations yes
Preferred Stock yes
Real Estate Investment Trusts yes
Repurchase Agreements yes
Reverse Repurchase Agreements yes
Short Sales no
Sovereign Debt yes
Structured Products yes
Variable- or Floating-Rate Securities yes
Warrants yes
When-Issued Securities yes
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities yes
-5-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
The following are guidelines that may be changed by the board at any time:
o Ordinarily, at least 65% of the Fund's total assets will be invested in
equity securities comprising the S&P 500.
o The Fund will not invest in bonds rated below investment grade.
o The Fund may invest only up to 20% of its total assets in foreign securities
that are included in the S&P 500 (or that will be included in the S&P 500 in
the near future) or in Canadian money market instruments.
o No more than 5% of the Fund's net assets can be used at any one time for good
faith deposits on futures and premiums for options on futures that do not
offset existing investment positions
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in options, futures contracts
and other financial instruments.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
For a discussion of the energy and utility industries, see Appendix B.
Information Regarding Risks and Investment Strategies
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Accordingly, one or more of the following types of risk may be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Company Risk
The prospects for a company may vary because of a variety of factors, including
the success of the company, disappointing earnings, or changes in the
competitive environment. As a result, the success of the companies in which the
Fund invests largely determines the Fund's long-term performance.
Correlation Risk
The risk that a given transaction may fail to achieve its objectives due to an
imperfect relationship between markets. Certain investments may react more
negatively than others in response to changing market conditions.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment grade bonds.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of a
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
-6-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic, social,
and political) in emerging market countries as well as the other considerations
listed above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners, and hostile relations with neighboring countries.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Leverage Risk
Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Management Risk
The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Reinvestment Risk
The risk that an investor will not be able to reinvest income or principal at
the same rate it currently is earning.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.
-7-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.
Borrowing
The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.
Cash/Money Market Instruments
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include short-term U.S. and Canadian
government securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances, and letters of credit of banks or
savings and loan associations having capital, surplus, and undivided profits (as
of the date of its most recently published annual financial statements) in
excess of $100 million (or the equivalent in the instance of a foreign branch of
a U.S. bank) at the date of investment. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit
Risk, Inflation Risk, and Management Risk.
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments--money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them, earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.
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Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common, preferred or other securities of
the same or a different issuer within a particular period of time at a specified
price. Some convertible securities, such as preferred equity-redemption
cumulative stock (PERCs), have mandatory conversion features. Others are
voluntary. A convertible security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
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As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Securities.)
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating organization or their rating systems, the Fund will attempt
to use comparable ratings as standards for selecting investments.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Depositary Receipts
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable percentage gain or loss in the price of
the derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.
Options. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees for the length of the contract to sell the security at the set price when
the buyer wants to exercise the option, no matter what the market price of the
security is at that time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person who writes a
put option agrees to buy the security at the set price if the purchaser wants to
exercise the option during the length of the contract, no matter what the market
price of the security is at that time. An option is covered if the writer owns
the security (in the case of a call) or sets aside the cash or securities of
equivalent value (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a
below-market price if the market price rises above the exercise price. A writer
of a put option may have to pay an above-market price for the security if its
market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
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One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer
(holding the "long" position) and a seller (holding the "short" position) for an
asset with delivery deferred until a future date. The buyer agrees to pay a
fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day a buyer
would pay out cash in an amount equal to any decline in the contract's value or
receive cash equal to any increase. At the time a futures contract is closed
out, a nominal commission is paid, which is generally lower than the commission
on a comparable transaction in the cash market.
Futures contracts may be based on various securities, securities indices (such
as the S&P 500 Index), foreign currencies and other financial instruments and
indices.
Options on Futures Contracts. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date (some futures are settled in cash), an option on a futures contract merely
entitles its holder to decide on or before a future date (within nine months of
the date of issue) whether to enter into a contract. If the holder decides not
to enter into the contract, all that is lost is the amount (premium) paid for
the option. Further, because the value of the option is fixed at the point of
sale, there are no daily payments of cash to reflect the change in the value of
the underlying contract. However, since an option gives the buyer the right to
enter into a contract at a set price for a fixed period of time, its value does
change daily.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor might not be able to close the option because of insufficient activity
in the options market. Purchasing options also limits the use of monies that
might otherwise be available for long-term investments.
Options on Stock Indexes. Options on stock indexes are securities traded on
national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level.
Tax Treatment. As permitted under federal income tax laws and to the extent the
Fund is allowed to invest in futures contacts, the Fund intends to identify
futures contracts as mixed straddles and not mark them to market, that is, not
treat them as having been sold at the end of the year at market value. If the
Fund is using short futures contracts for hedging purposes, the Fund may be
required to defer recognizing losses incurred on short futures contracts and on
underlying securities.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
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AXP(R) Research Opportunities Fund
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Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
Other Risks of Derivatives.
The primary risk of derivatives is the same as the risk of the underlying asset,
namely that the value of the underlying asset may go up or down. Adverse
movements in the value of an underlying asset can expose an investor to losses.
Derivative instruments may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative instrument in relation to the
underlying asset may be magnified. The successful use of derivative instruments
depends upon a variety of factors, particularly the investment manager's ability
to predict movements of the securities, currencies, and commodity markets, which
requires different skills than predicting changes in the prices of individual
securities. There can be no assurance that any particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Leverage Risk,
Liquidity Risk, and Management Risk.
Foreign Currency Transactions
Investments in foreign countries usually involve currencies of foreign
countries. In addition, the Fund may hold cash and cash-equivalent investments
in foreign currencies. As a result, the value of the Fund's assets as measured
in U.S. dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Also, the Fund may incur costs
in connection with conversions between various currencies. Currency exchange
rates may fluctuate significantly over short periods of time causing the Fund's
NAV to fluctuate. Currency exchange rates are generally determined by the forces
of supply and demand in the foreign exchange markets, actual or anticipated
changes in interest rates, and other complex factors. Currency exchange rates
also can be affected by the intervention of U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments.
Spot Rates and Derivative Instruments. The Fund conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. (See also Derivative Instruments). These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Because foreign currency transactions
occurring in the interbank market might involve substantially larger amounts
than those involved in the use of such derivative instruments, the Fund could be
disadvantaged by having to deal in the odd lot market for the underlying foreign
currencies at prices that are less favorable than for round lots.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
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The Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.
The Fund also may enter into forward contracts when management of the Fund
believes the currency of a particular foreign country may change in relationship
to another currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of securities in foreign currencies more than likely will change between
the date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
successful execution of a short-term hedging strategy is highly uncertain. The
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
The Fund will designate cash or securities in an amount equal to the value of
the Fund's total assets committed to consummating forward contracts entered into
under the second circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a daily basis so
that the value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund may either sell the security and
make delivery of the foreign currency or retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.
If the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss (as described below) to the extent there has been
movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline between the date the Fund enters
into a forward contract for selling foreign currency and the date it enters into
an offsetting contract for purchasing the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to buy. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to buy exceeds the price of the currency it has agreed to
sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of that
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some point in time. Although forward contracts
tend to minimize the risk of loss due to a decline in value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.
Although the Fund values its assets each business day in terms of U.S. dollars,
it does not intend to convert its foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and shareholders should be aware
of currency conversion costs. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Fund may buy put and call options and write
covered call and cash-secured put options on foreign currencies for hedging
purposes. For example, a decline in the dollar value of a foreign currency in
which securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against the diminutions in the value of securities, the Fund
may buy put options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will offset, in whole or in part, the adverse effect on its
portfolio that otherwise would have resulted.
Conversely, where a change in the dollar value of a currency would increase the
cost of securities the Fund plans to buy, the Fund may buy call options on the
foreign currency. The purchase of the options could offset, at least partially,
the changes in exchange rates.
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AXP(R) Research Opportunities Fund
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As in the case of other types of options, however, the benefit to the Fund
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
rates.
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of securities will be fully or
partially offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Fund could write a
put option on the relevant currency. If rates move in the manner projected, the
put option will expire unexercised and allow the Fund to hedge increased cost up
to the amount of the premium.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy or sell
the underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for that purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. The Fund may enter into currency
futures contracts to buy or sell currencies. It also may buy put and call
options and write covered call and cash-secured put options on currency futures.
Currency futures contracts are similar to currency forward contracts, except
that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures call
for payment of delivery in U.S. dollars. The Fund may use currency futures for
the same purposes as currency forward contracts, subject to Commodity Futures
Trading Commission (CFTC) limitations.
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency will change in
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of the Fund's investments
denominated in that currency over time.
The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.
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(See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Correlation
Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk.
Foreign Securities
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in such
procedures could result in temporary periods when assets are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor to miss attractive
investment opportunities. Payment for securities without delivery may be
required in certain foreign markets and, when participating in new issues, some
foreign countries require payment to be made in advance of issuance (at the time
of issuance, the market value of the security may be more or less than the
purchase price). Some foreign markets also have compulsory depositories (i.e.,
an investor does not have a choice as to where the securities are held). Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Further, an investor may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers, and listed companies than in the
U.S. It may be more difficult for an investor's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., thus increasing
the risk of delays or loss of certificates for portfolio securities. In
addition, with respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of additional withholding or
confiscatory taxes, political, social, or economic instability, diplomatic
developments that could affect investments in those countries, or other
unforeseen actions by regulatory bodies (such as changes to settlement or
custody procedures).
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates; the fluctuation of the euro relative to non-euro currencies during the
transition period from January 1, 1999 to December 31, 2000 and beyond; whether
the interest rate, tax or labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of other EU countries such as the United Kingdom and Greece into the euro and
the admission of other non-EU countries such as Poland, Latvia, and Lithuania as
members of the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.
High-Yield (High-Risk) Securities (Junk Bonds)
High yield (high-risk) securities are sometimes referred to as "junk bonds."
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
The lower-quality and comparable unrated security market is relatively new and
its growth has paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such conditions could severely disrupt the market for and adversely affect the
value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
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generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecasts, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.
Illiquid and Restricted Securities
The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.
To the extent the Fund invests in illiquid or restricted securities, it may
encounter difficulty in determining a market value for such securities.
Disposing of illiquid or restricted securities may involve time-consuming
negotiations and legal expense, and it may be difficult or impossible for the
Fund to sell such an investment promptly and at an acceptable price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.
Indexed Securities
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.
Inverse Floaters
Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.
Investment Companies
The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.
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Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the securities of other investment companies
include: Management Risk and Market Risk.
Lending of Portfolio Securities
The Fund may lend certain of its portfolio securities to broker-dealers. The
current policy of the Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Fund receives the market
price in cash, U.S. government securities, letters of credit, or such other
collateral as may be permitted by regulatory agencies and approved by the board.
If the market price of the loaned securities goes up, the Fund will get
additional collateral on a daily basis. The risks are that the borrower may not
provide additional collateral when required or return the securities when due.
During the existence of the loan, the Fund receives cash payments equivalent to
all interest or other distributions paid on the loaned securities. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk and Management Risk.
Loan Participations
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. A rapid rate of principal payments may adversely
affect the yield to maturity of IOs. A slow rate of principal payments may
adversely affect the yield to maturity of POs. If prepayments of principal are
greater than anticipated, an investor in IOs may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on a PO will be
affected more severely than would be the case with a traditional mortgage-backed
security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying
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such securities, how well the entity issuing the security is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement of the securities. Payments or
distributions of principal and interest on asset-backed debt obligations may be
supported by non-governmental credit enhancements including letters of credit,
reserve funds, overcollateralization, and guarantees by third parties. The
market for privately issued asset-backed debt obligations is smaller and less
liquid than the market for government sponsored mortgage-backed securities. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Management Risk.
Mortgage Dollar Rolls
Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia and Puerto Rico). The
interest on these obligations is generally exempt from federal income tax.
Municipal obligations are generally classified as either "general obligations"
or "revenue obligations."
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in such obligations. Municipal leases may be subject to
greater risks than general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet in order
to issue municipal obligations. Municipal leases may contain a covenant by the
state or municipality to budget for and make payments due under the obligation.
Certain municipal leases may, however, provide that the issuer is not obligated
to make payments on the obligation in future years unless funds have been
appropriated for this purpose each year.
Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
Taxable Municipal Obligations. There is another type of municipal obligation
that is subject to federal income tax for a variety of reasons. These municipal
obligations do not qualify for the federal income exemption because (a) they did
not receive necessary authorization for tax-exempt treatment from state or local
government authorities, (b) they exceed certain regulatory limitations on the
cost of issuance for tax-exempt financing or (c) they finance public or private
activities that do not qualify for the federal income tax exemption. These
non-qualifying activities might include, for example, certain types of
multi-family housing, certain professional and local sports facilities,
refinancing of certain municipal debt, and borrowing to replenish a
municipality's underfunded pension plan.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
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Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with REITs include: Issuer Risk, Management Risk, and
Market Risk.
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement thereby determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price at the time of replacement. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to utilize short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased between the date of the
short sale and the date on which the borrowed security is replaced, the investor
loses the opportunity to participate in the gain. A "short sale against the box"
will result in a constructive sale of appreciated securities thereby generating
capital gains to the Fund.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Management Risk and Market
Risk.
Sovereign Debt
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.
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Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk,
Foreign/Emerging Markets Risk, and Management Risk.
Structured Products
Structured products are over-the-counter financial instruments created
specifically to meet the needs of one or a small number of investors. The
instrument may consist of a warrant, an option, or a forward contract embedded
in a note or any of a wide variety of debt, equity, and/or currency
combinations. Risks of structured products include the inability to close such
instruments, rapid changes in the market, and defaults by other parties. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured products include: Credit Risk,
Liquidity Risk, and Management Risk.
Variable- or Floating-Rate Securities
The Fund may invest in securities that offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes.
Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.
When-Issued Securities and Forward Commitments
When-issued securities and forward commitments involve a commitment to purchase
or sell specific securities at a predetermined price or yield in which payment
and delivery take place after the customary settlement period for that type of
security. Normally, the settlement date occurs within 45 days of the purchase
although in some cases settlement may take longer. The investor does not pay for
the securities or receive dividends or interest on them until the contractual
settlement date. Such instruments involve the risk of loss if the value of the
security to be purchased declines prior to the settlement date and the risk that
the security will not be issued as anticipated. If the security is not issued as
anticipated, the Fund may lose the opportunity to obtain a price and yield
considered to be advantageous.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities and forward commitments
include: Credit Risk and Management Risk.
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk, Interest Rate Risk, and Management Risk.
-20-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
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Security Transactions
Subject to policies set by the board, AEFC is authorized to determine,
consistent with the Fund's investment goal and policies, which securities will
be purchased, held, or sold. The description of policies and procedures in this
section also applies to any Fund subadviser. In determining where the buy and
sell orders are to be placed, AEFC has been directed to use its best efforts to
obtain the best available price and the most favorable execution except where
otherwise authorized by the board. In selecting broker-dealers to execute
transactions, AEFC may consider the price of the security, including commission
or mark-up, the size and difficulty of the order, the reliability, integrity,
financial soundness, and general operation and execution capabilities of the
broker, the broker's expertise in particular markets, and research services
provided by the broker.
The Fund, AEFC, any subadviser and American Express Financial Advisors Inc. (the
Distributor) each have a strict Code of Ethics that prohibits affiliated
personnel from engaging in personal investment activities that compete with or
attempt to take advantage of planned portfolio transactions for the Fund.
The Fund's securities may be traded on a principal rather than an agency basis.
In other words, AEFC will trade directly with the issuer or with a dealer who
buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities with respect to the Fund and the other American Express mutual
funds for which it acts as investment manager.
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business, and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software, or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management, and trading
functions and other services to the extent permitted under an interpretation by
the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund that it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions will be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all American
Express mutual funds even though it is not possible to relate the benefits to
any particular fund.
Each investment decision made for the Fund is made independently from any
decision made for another portfolio, fund, or other account advised by AEFC or
any of its subsidiaries. When the Fund buys or sells the same security as
another portfolio, fund, or account, AEFC carries out the purchase or sale in a
way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution. On occasion, the Fund may
purchase and sell a security simultaneously in order to profit from short-term
price disparities.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency, and research services.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
The Fund paid total brokerage commissions of $2,454,635 for fiscal year ended
July 31, 2001, $1,820,391 for fiscal year 2000, and $1,434,694 for fiscal year
1999. Substantially all firms through whom transactions were executed provide
research services.
No transactions were directed to brokers because of research services they
provided to the Fund except for the affiliates as noted below.
As of the end of the most recent fiscal year, the Fund held securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below:
Value of securities
Name of issuer owned at end of fiscal year
Bank of America $11,133,500
Fleet Boston Financial 7,860,440
Lehman Brothers Holdings 6,573,600
The portfolio turnover rate was 234% in the most recent fiscal year, and 160% in
the year before. Higher turnover rates may result in higher brokerage expenses.
Brokerage Commissions Paid to Brokers Affiliated with American Express Financial
Corporation
Affiliates of American Express Company (of which AEFC is a wholly-owned
subsidiary) may engage in brokerage and other securities transactions on behalf
of the Fund according to procedures adopted by the board and to the extent
consistent with applicable provisions of the federal securities laws. Subject to
approval by the board, the same conditions apply to transactions with
broker-dealer affiliates of any subadviser. AEFC will use an American Express
affiliate only if (i) AEFC determines that the Fund will receive prices and
executions at least as favorable as those offered by qualified independent
brokers performing similar brokerage and other services for the Fund and (ii)
the affiliate charges the Fund commission rates consistent with those the
affiliate charges comparable unaffiliated customers in similar transactions and
if such use is consistent with terms of the Investment Management Services
Agreement.
Information about brokerage commissions paid by the Fund for the last three
fiscal years to brokers affiliated with AEFC is contained in the following
table:
As of the end of Fiscal Year
2001 2000 1999
Percent of
aggregate dollar
amount of
Aggregate dollar Percent of transactions Aggregate dollar Aggregate dollar
amount of aggregate involving amount of amount of
Nature of commissions brokerage payment of commissions commissions
Broker affiliation paid to broker commissions commissions paid to broker paid to broker
American Enterprise Wholly-owned $40,815 1.66% 1.57% $82,839 $71,634
Investment subsidiary of
Services Inc. AEFC
-22-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Performance Information
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations, if applicable, used by
the Fund are based on standardized methods of computing performance as required
by the SEC. An explanation of the methods used by the Fund to compute
performance follows below.
AVERAGE ANNUAL TOTAL RETURN
The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)(to the power of n) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
AGGREGATE TOTAL RETURN
The Fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the Fund
over a specified period of time according to the following formula:
ERV - P
---------
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields, or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar,
Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor,
Shearson Lehman Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal
Finance, USA Today, U.S. News and World Report, The Wall Street Journal, and
Wiesenberger Investment Companies Service. The Fund also may compare its
performance to a wide variety of indexes or averages. There are similarities and
differences between the investments that the Fund may purchase and the
investments measured by the indexes or averages and the composition of the
indexes or averages will differ from that of the Fund.
Ibbotson Associates provides historical returns of the capital markets in the
United States, including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term government bonds,
Treasury bills, the U.S. rate of inflation (based on the CPI) and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indexes. The Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios.
The Fund may quote various measures of volatility in advertising. Measures of
volatility seek to compare a fund's historical share price fluctuations or
returns to those of a benchmark.
The Distributor may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Materials may
include discussions of asset allocation, retirement investing, brokerage
products and services, model portfolios, saving for college or other goals, and
charitable giving.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Valuing Fund Shares
As of the end of the most recent fiscal year, the computation looked like this:
Net assets Shares outstanding Net asset value of one share
Class A $364,714,877 divided by 67,857,675 equals $5.37
Class B 234,749,843 45,846,846 5.12
Class C 265,758 51,849 5.13
Class Y 314,555 58,085 5.42
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
o Securities traded on a securities exchange for which a last-quoted sales
price is readily available are valued at the last-quoted sales price on the
exchange where such security is primarily traded.
o Securities traded on a securities exchange for which a last-quoted sales
price is not readily available are valued at the mean of the closing bid and
asked prices, looking first to the bid and asked prices on the exchange where
the security is primarily traded and, if none exist, to the over-the-counter
market.
o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
o Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
o Foreign securities traded outside the United States are generally valued as
of the time their trading is complete, which is usually different from the
close of the Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current rate of exchange. Occasionally,
events affecting the value of such securities may occur between such times
and the close of the Exchange that will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, these securities will be valued at
their fair value according to procedures decided upon in good faith by the
board.
o Short-term securities maturing more than 60 days from the valuation date are
valued at the readily available market price or approximate market value
based on current interest rates. Short-term securities maturing in 60 days or
less that originally had maturities of more than 60 days at acquisition date
are valued at amortized cost using the market value on the 61st day before
maturity. Short-term securities maturing in 60 days or less at acquisition
date are valued at amortized cost. Amortized cost is an approximation of
market value determined by systematically increasing the carrying value of a
security if acquired at a discount, or reducing the carrying value if
acquired at a premium, so that the carrying value is equal to maturity value
on the maturity date.
o Securities without a readily available market price and other assets are
valued at fair value as determined in good faith by the board. The board is
responsible for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service independent from the Fund. If
a valuation of a bond is not available from a pricing service, the bond will
be valued by a dealer knowledgeable about the bond if such a dealer is
available.
Investing in the Fund
SALES CHARGE
Investors should understand that the purpose and function of the initial sales
charge and distribution fee for Class A shares is the same as the purpose and
function of the CDSC and distribution fee for Class B and Class C shares. The
sales charges and distribution fees applicable to each class pay for the
distribution of shares of the Fund.
Shares of the Fund are sold at the public offering price. The public offering
price is the NAV of one share adjusted for the sales charge for Class A. For
Class B, Class C and Class Y, there is no initial sales charge so the public
offering price is the same as the NAV. Using the sales charge schedule in the
table below, for Class A, the public offering price for an investment of less
than $50,000, made on the last day of the most recent fiscal year, was
determined by dividing the NAV of one share, $5.37, by 0.9425 (1.00-0.0575) for
a maximum 5.75% sales charge for a public offering price of $5.70. The sales
charge is paid to the Distributor by the person buying the shares.
-24-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Class A -- Calculation of the Sales Charge Sales charges are determined as
follows:
Total Market Value Sales charge as a percentage of:
Public offering price Net amount invested
Up to $49,999 5.75% 6.10%
$50,000 - $99,999 4.75 4.99
$100,000 - $249,999 3.75 3.90
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00* 2.04*
$1,000,000 or more 0.00 0.00
* The sales charge will be waived until Dec. 31, 2001.
The initial sales charge is waived for certain qualified plans. Participants in
these qualified plans may be subject to a deferred sales charge on certain
redemptions. The Fund will waive the deferred sales charge on certain
redemptions if the redemption is a result of a participant's death, disability,
retirement, attaining age 59 1/2, loans, or hardship withdrawals. The deferred
sales charge varies depending on the number of participants in the qualified
plan and total plan assets as follows:
Deferred Sales Charge
Number of participants
Total plan assets 1-99 100 or more
Less than $1 million 4% 0%
$1 million or more 0% 0%
Class A -- Reducing the Sales Charge
The market value of your investments in the Fund determines your sales charge.
For example, suppose you have made an investment that now has a value of $20,000
and you later decide to invest $40,000 more. The value of your investments would
be $60,000. As a result, your $40,000 investment qualifies for the lower 4.75%
sales charge that applies to investments of more than $50,000 and up to
$100,000.
Class A -- Letter of Intent (LOI)
If you intend to invest more than $50,000 over a period of time, you can reduce
the sales charge in Class A by filing a LOI and committing to invest a certain
amount. The agreement can start at any time and you will have up to 13 months to
fulfill your commitment. The LOI start date can be backdated by up to 90 days.
Your holdings in American Express funds acquired more than 90 days before
receipt of your signed LOI in the home office will not be counted towards the
completion of the LOI. Your investments will be charged the sales charge that
applies to the amount you have committed to invest. Five percent of the
commitment amount will be placed in escrow. If your commitment amount is reached
within the 13-month period, the LOI will end and the shares will be released
from escrow. Once the LOI has ended, future sales charges will be determined by
the total value of the new investment combined with the market value of the
existing American Express mutual fund investments. If you do not invest the
commitment amount by the end of the 13 months, the remaining unpaid sales charge
will be redeemed from the escrowed shares and the remaining balance released
from escrow. The commitment amount does not include purchases in any class of
American Express funds other than Class A; purchases in American Express funds
held within a wrap product; and purchases of AXP Cash Management Fund and AXP
Tax-Free Money Fund unless they are subsequently exchanged to Class A shares of
an American Express mutual fund within the 13 month period. A LOI is not an
option (absolute right) to buy shares. If you purchase shares in an American
Express brokerage account or through a third party, you must inform the
Distributor about the LOI when placing any purchase orders during the period of
the LOI.
Class Y Shares
Class Y shares are offered to certain institutional investors. Class Y shares
are sold without a front-end sales charge or a CDSC and are not subject to a
distribution fee. The following investors are eligible to purchase Class Y
shares:
o Qualified employee benefit plans* if the plan:
-- uses a daily transfer recordkeeping service offering participants daily
access to American Express mutual funds and has
-- at least $10 million in plan assets or
-- 500 or more participants; or
-- does not use daily transfer recordkeeping and has
-- at least $3 million invested in American Express mutual funds or
-- 500 or more participants.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These institutions must have at least $10 million in American Express
mutual funds.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit described above.
o State sponsored college savings plans established under Section 529 of the
Internal Revenue Code.
* Eligibility must be determined in advance. To do so, contact your financial
advisor.
SYSTEMATIC INVESTMENT PROGRAMS
After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. These minimums do not apply to all systematic investment programs. You
decide how often to make payments -- monthly, quarterly, or semiannually. You
are not obligated to make any payments. You can omit payments or discontinue the
investment program altogether. The Fund also can change the program or end it at
any time.
AUTOMATIC DIRECTED DIVIDENDS
Dividends, including capital gain distributions, paid by another American
Express mutual fund may be used to automatically purchase shares in the same
class of this Fund. Dividends may be directed to existing accounts only.
Dividends declared by a fund are exchanged to this Fund the following day.
Dividends can be exchanged into the same class of another American Express
mutual fund but cannot be split to make purchases in two or more funds.
Automatic directed dividends are available between accounts of any ownership
except:
o Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts as
custodian;
o Between two American Express Trust Company custodial accounts with different
owners (for example, you may not exchange dividends from your IRA to the IRA
of your spouse); and
o Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.
The Fund's investment goal is described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REJECTION OF BUSINESS
The Fund or AECSC reserves the right to reject any business, in its sole
discretion.
Selling Shares
You have a right to sell your shares at any time. For an explanation of sales
procedures, please see the prospectus.
During an emergency, the board can suspend the computation of NAV, stop
accepting payments for purchase of shares, or suspend the duty of the Fund to
redeem shares for more than seven days. Such emergency situations would occur
if:
o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
o Disposal of the Fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or
o The SEC, under the provisions of the 1940 Act, declares a period of emergency
to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in this
SAI. Should the Fund distribute securities, a shareholder may incur brokerage
fees or other transaction costs in converting the securities to cash.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Pay-out Plans
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem shares, you may be subject to a contingent deferred
sales charge as discussed in the prospectus. While the plans differ on how the
pay-out is figured, they all are based on the redemption of your investment. Net
investment income dividends and any capital gain distributions will
automatically be reinvested, unless you elect to receive them in cash. If you
are redeeming a tax-qualified plan account for which American Express Trust
Company acts as custodian, you can elect to receive your dividends and other
distributions in cash when permitted by law. If you redeem an IRA or a qualified
retirement account, certain restrictions, federal tax penalties, and special
federal income tax reporting requirements may apply. You should consult your tax
advisor about this complex area of the tax law.
Applications for a systematic investment in a class of the Fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.
To start any of these plans, please consult your selling agent or write American
Express Client Service Corporation, 70100 AXP Financial Center, Minneapolis, MN
55474, or call 800-437-3133. Your authorization must be received at least five
days before the date you want your payments to begin. The initial payment must
be at least $50. Payments will be made on a monthly, bimonthly, quarterly,
semiannual, or annual basis. Your choice is effective until you change or cancel
it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you will have to send in
a separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in the account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.
Capital Loss Carryover
For federal income tax purposes, the Fund had total capital loss carryovers of
$100,482,475 at the end of the most recent fiscal year, that if not offset by
subsequent capital gains will expire in 2010.
It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.
Taxes
For tax purposes, an exchange is considered a sale and purchase, and may result
in a gain or loss. A sale is a taxable transaction. If you sell shares for less
than their cost, the difference is a capital loss. If you sell shares for more
than their cost, the difference is a capital gain. Your gain may be short term
(for shares held for one year or less) or long term (for shares held more than
one year).
If you buy Class A shares and within 91 days exchange into another fund, you may
not include the sales charge in your calculation of tax gain or loss on the sale
of the first fund you purchased. The sales charge may be included in the
calculation of your tax gain or loss on a subsequent sale of the second fund you
purchased.
For example:
You purchase 100 shares of one fund having a public offering price of $10.00 per
share. With a sales load of 5.75%, you pay $57.50 in sales load. With a NAV of
$9.425 per share, the value of your investment is $942.50. Within 91 days of
purchasing that fund, you decide to
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
exchange out of that fund, now at a NAV of $11.00 per share, up from the
original NAV of $9.425, and purchase into a second fund, at a NAV of $15.00 per
share. The value of your investment is now $1,100.00 ($11.00 x 100 shares). You
cannot use the $57.50 paid as a sales load when calculating your tax gain or
loss in the sale of the first fund shares. So instead of having a $100.00 gain
($1,100.00 - $1,000.00), you have a $157.50 gain ($1,100.00 - $942.50). You can
include the $57.50 sales load in the basis of your shares in the second fund.
If you have a nonqualified investment in the Fund and you wish to move part or
all of those shares to an IRA or qualified retirement account in the Fund, you
can do so without paying a sales charge. However, this type of exchange is
considered a redemption of shares and may result in a gain or loss for tax
purposes. In addition, this type of exchange may result in an excess
contribution under IRA or qualified plan regulations if the amount exchanged
plus the amount of the initial sales charge applied to the amount exchanged
exceeds annual contribution limitations. For example: If you were to exchange
$2,000 in Class A shares from a nonqualified account to an IRA without
considering the 5.75% ($115) initial sales charge applicable to that $2,000, you
may be deemed to have exceeded current IRA annual contribution limitations. You
should consult your tax advisor for further details about this complex subject.
Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities. For
the most recent fiscal year, none of the Fund's net investment income dividends
qualified for the corporate deduction.
The Fund may be subject to U.S. taxes resulting from holdings in a passive
foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or
more of its gross income for the taxable year is passive income or 50% or more
of the average value of its assets consists of assets that produce or could
produce passive income.
Income earned by the Fund may have had foreign taxes imposed and withheld on it
in foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. If more than 50% of the Fund's total assets at
the close of its fiscal year consists of securities of foreign corporations, the
Fund will be eligible to file an election with the Internal Revenue Service
under which shareholders of the Fund would be required to include their pro rata
portions of foreign taxes withheld by foreign countries as gross income in their
federal income tax returns. These pro rata portions of foreign taxes withheld
may be taken as a credit or deduction in computing the shareholders' federal
income taxes. If the election is filed, the Fund will report to its shareholders
the per share amount of such foreign taxes withheld and the amount of foreign
tax credit or deduction available for federal income tax purposes.
Capital gain distributions, if any, received by shareholders should be treated
as long-term capital gains regardless of how long they owned their shares.
Short-term capital gains earned by the Fund are paid to shareholders as part of
their ordinary income dividend and are taxable. A special 28% rate on capital
gains may apply to sales of precious metals, if any, owned directly by the Fund.
A special 25% rate on capital gains may apply to investments in REITs.
Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable
to fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, gains or losses on disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gains or losses. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
Under federal tax law, by the end of a calendar year the Fund must declare and
pay dividends representing 98% of ordinary income for that calendar year and 98%
of net capital gains (both long-term and short-term) for the 12-month period
ending Oct. 31 of that calendar year. The Fund is subject to an excise tax equal
to 4% of the excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with federal tax law and
avoid any excise tax.
The Internal Revenue Code imposes two asset diversification rules that apply to
the Fund as of the close of each quarter. First, as to 50% of its holdings, the
Fund may hold no more than 5% of its assets in securities of one issuer and no
more than 10% of any one issuer's outstanding voting securities. Second, the
Fund cannot have more than 25% of its assets in any one issuer.
For purposes of the excise tax distributions, "section 988" ordinary gains and
losses are distributable based on an Oct. 31 year end. This is an exception to
the general rule that ordinary income is paid based on a calendar year end.
If a mutual fund is the holder of record of any share of stock on the record
date for any dividend payable with respect to the stock, the dividend will be
included in gross income by the Fund as of the later of (1) the date the share
became ex-dividend or (2) the date the Fund acquired the share. Because the
dividends on some foreign equity investments may be received some time after the
stock goes ex-dividend, and in certain rare cases may never be received by the
Fund, this rule may cause the Fund to take into income dividend income that it
has not received and pay that income to its shareholders. To the extent that the
dividend is never received, the Fund will take a loss at the time that a
determination is made that the dividend will not be received.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state, and local income tax laws to Fund distributions.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Agreements
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AEFC, a wholly-owned subsidiary of American Express Company, is the investment
manager for the Fund. Under the Investment Management Services Agreement, AEFC,
subject to the policies set by the board, provides investment management
services.
For its services, AEFC is paid a fee based on the following schedule. Each class
of the Fund pays its proportionate share of the fee.
Assets Annual rate at
(billions) each asset level
First $0.25 0.650%
Next 0.25 0.625
Next 0.50 0.600
Next 1.00 0.575
Next 1.00 0.550
Next 3.00 0.525
Over 6.00 0.500
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.631% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made.
Before the fee based on the asset charge is paid, it is adjusted for investment
performance. The adjustment, determined monthly, will be calculated using the
percentage point difference between the change in the net asset value of one
Class A share of the Fund and the change in the Lipper Large-Cap Core Index
(Index). The performance of one Class A share of the Fund is measured by
computing the percentage difference between the opening and closing net asset
value of one Class A share of the Fund, as of the last business day of the
period selected for comparison, adjusted for dividend or capital gain
distributions which are treated as reinvested at the end of the month during
which the distribution was made. The performance of the Index for the same
period is established by measuring the percentage difference between the
beginning and ending Index for the comparison period. The performance is
adjusted for dividend or capital gain distributions (on the securities which
comprise the Index), which are treated as reinvested at the end of the month
during which the distribution was made. One percentage point will be subtracted
from the calculation to help assure that incentive adjustments are attributable
to AEFC's management abilities rather than random fluctuations and the result
multiplied by 0.01%. That number will be multiplied times the Fund's average net
assets for the comparison period and then divided by the number of months in the
comparison period to determine the monthly adjustment.
Where the Fund's Class A share performance exceeds that of the Index, the base
fee will be increased. Where the performance of the Index exceeds the
performance of the Fund's Class A share, the base fee will be decreased. The
maximum monthly increase or decrease will be 0.12% of the Fund's average net
assets on an annual basis.
The 12-month comparison period rolls over with each succeeding month, so that it
always equals 12 months, ending with the month for which the performance
adjustment is being computed. The adjustment decreased the fee by $191,412 for
fiscal year 2001.
The management fee is paid monthly. Under the agreement, the total amount paid
was $4,445,702 for fiscal year 2001, $5,427,385 for fiscal year 2000, and
$3,864,984 for fiscal year 1999.
Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
postage of confirmations except purchase confirmations; consultants' fees;
compensation of board members, officers and employees; corporate filing fees;
organizational expenses; expenses incurred in connection with lending
securities; and expenses properly payable by the Fund, approved by the board.
Under the agreement, nonadvisory expenses, net of earnings credits, paid by the
Fund were $404,909 for fiscal year 2001, $326,143 for fiscal year 2000, and
$362,304 for fiscal year 1999.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets Annual rate at
(billions) each asset level
First $0.25 0.060%
Next 0.25 0.055
Next 0.50 0.050
Next 1.00 0.045
Next 1.00 0.040
Next 3.00 0.035
Over 6.00 0.030
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.056% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. Under the
agreement, the Fund paid fees of $412,205 for fiscal year 2001, $475,477 for
fiscal year 2000, and $344,928 for fiscal year 1999.
Third parties with which AEFC contracts to provide services for the Fund or its
shareholders may pay a fee to AEFC to help defray the cost of providing
administrative and accounting services. The amount of any such fee is negotiated
separately with each service provider and does not constitute compensation for
investment advisory, distribution, or other services. Payment of any such fee
neither increases nor reduces fees or expenses paid by shareholders of the Fund.
TRANSFER AGENCY AGREEMENT
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A is $19 per year, for Class B is $20 per year, for Class C is $19.50 per
year and for Class Y is $17 per year. The fees paid to AECSC may be changed by
the board without shareholder approval.
DISTRIBUTION AGREEMENT
American Express Financial Advisors Inc. is the Fund's principal underwriter
(the Distributor). The Fund's shares are offered on a continuous basis.
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to the Distributor daily. These charges amounted to $904,117 for
fiscal year 2001. After paying commissions to personal financial advisors, and
other expenses, the amount retained was $339,503. The amounts were $2,323,559
and $220,309 for fiscal year 2000, and $2,422,928 and $128,634 for fiscal year
1999.
Part of the sales charge may be paid to selling dealers who have agreements with
the Distributor. The Distributor will retain the balance of the sales charge. At
times the entire sales charge may be paid to selling dealers.
SHAREHOLDER SERVICE AGREEMENT
With respect to Class Y shares, 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 average daily net assets.
PLAN AND AGREEMENT OF DISTRIBUTION
For Class A, Class B and Class C shares, to help defray the cost of distribution
and servicing not covered by the sales charges received under the Distribution
Agreement, the Fund and the Distributor entered into a Plan and Agreement of
Distribution (Plan) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
the Fund pays a fee up to actual expenses incurred at an annual rate of 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. Each class has exclusive voting
rights on the Plan as it applies to that class. In addition, because Class B
shares convert to Class A shares, Class B shareholders have the right to vote on
any material change to expenses charged under the Class A plan.
Expenses covered under this Plan include sales commissions; business, employee
and financial advisor expenses charged to distribution of Class A, Class B and
Class C shares; and overhead appropriately allocated to the sale of Class A,
Class B and Class C shares. These expenses also include costs of providing
personal service to shareholders. A substantial portion of the costs are not
specifically identified to any one of the American Express mutual funds.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the relevant class of shares or by the Distributor. The
Plan (or any agreement related to it) will terminate in the event of its
assignment, as that term is defined in the 1940 Act. The Plan may not be amended
to increase the amount to be spent for distribution without shareholder
approval, and all material amendments to the Plan must be approved by a majority
of the board members, including a majority of the board members who are not
interested persons of the Fund and who do not have a financial interest in the
operation of the Plan or any agreement related to it. The selection and
nomination of disinterested board members is the responsibility of the other
disinterested board members. No board member who is not an interested person has
any direct or indirect financial interest in the operation of the Plan or any
related agreement. For the most recent fiscal year, the Fund paid fees of
$1,126,970 for Class A shares, $2,887,923 for Class B shares and $1,897 for
Class C shares. The fee is not allocated to any one service (such as
advertising, payments to underwriters, or other uses). However, a significant
portion of the fee is generally used for sales and promotional expenses.
CUSTODIAN AGREEMENT
The Fund's securities and cash are held by American Express Trust Company, 200
AXP Financial Center, Minneapolis, MN 55474, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities in central
depository systems as allowed by federal law. For its services, the Fund pays
the custodian a maintenance charge and a charge per transaction in addition to
reimbursing the custodian's out-of-pocket expenses.
Organizational Information
The Fund is an open-end management investment company. The Fund headquarters are
at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
SHARES
The shares of the Fund represent an interest in that fund's assets only (and
profits or losses), and, in the event of liquidation, each share of the Fund
would have the same rights to dividends and assets as every other share of that
Fund.
VOTING RIGHTS
As a shareholder in the Fund, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each share you own.
Each class, if applicable, has exclusive voting rights with respect to matters
for which separate class voting is appropriate under applicable law. All shares
have cumulative voting rights with respect to the election of board members.
This means that you have as many votes as the number of shares you own,
including fractional shares, multiplied by the number of members to be elected.
DIVIDEND RIGHTS
Dividends paid by the Fund, if any, with respect to each class of shares, if
applicable, will be calculated in the same manner, at the same time, on the same
day, and will be in the same amount, except for differences resulting from
differences in fee structures.
AMERICAN EXPRESS FINANCIAL CORPORATION
AEFC has been a provider of financial services since 1894. Its family of
companies offers not only mutual funds but also insurance, annuities, investment
certificates and a broad range of financial management services.
In addition to managing assets of more than $83 billion for the American Express
Funds, AEFC manages investments for itself and its subsidiaries, American
Express Certificate Company and IDS Life Insurance Company. Total assets owned
and managed as of the end of the most recent fiscal year were more than $227
billion.
The Distributor serves individuals and businesses through its nationwide network
of more than 600 supervisory offices, more than 3,800 branch offices and more
than 9,600 financial advisors.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
FUND HISTORY TABLE FOR ALL PUBLICLY OFFERED AMERICAN EXPRESS FUNDS*
Date of Form of State of Fiscal
Fund organization organization organization year end Diversified
AXP Bond Fund, Inc. 6/27/74, 6/31/86*** Corporation NV/MN 8/31 Yes
AXP California Tax-Exempt Trust 4/7/86 Business Trust**** MA 6/30
AXP California Tax-Exempt Fund No
AXP Discovery Fund, Inc. 4/29/81, 6/13/86*** Corporation NV/MN 7/31 Yes
AXP Equity Select Fund, Inc.** 3/18/57, 6/13/86*** Corporation NV/MN 11/30 Yes
AXP Extra Income Fund, Inc. 8/17/83 Corporation MN 5/31 Yes
AXP Federal Income Fund, Inc. 3/12/85 Corporation MN 5/31 Yes
AXP Global Series, Inc. 10/28/88 Corporation MN 10/31
AXP Emerging Markets Fund Yes
AXP Global Balanced Fund Yes
AXP Global Bond Fund No
AXP Global Growth Fund Yes
AXP Innovations Fund Yes
AXP Growth Series, Inc. 5/21/70, 6/13/86*** Corporation NV/MN 7/31
AXP Growth Fund Yes
AXP Research Opportunities Fund Yes
AXP High Yield Tax-Exempt Fund, Inc. 12/21/78, 6/13/86*** Corporation NV/MN 11/30 Yes
AXP International Fund, Inc. 7/18/84 Corporation MN 10/31
AXP European Equity Fund No
AXP International Fund Yes
AXP Investment Series, Inc. 1/18/40, 6/13/86*** Corporation NV/MN 9/30
AXP Diversified Equity Income Fund Yes
AXP Mutual Yes
AXP Managed Series, Inc. 10/9/84 Corporation MN 9/30
AXP Managed Allocation Fund Yes
AXP Market Advantage Series, Inc. 8/25/89 Corporation MN 1/31
AXP Blue Chip Advantage Fund Yes
AXP International Equity Index Fund No
AXP Mid Cap Index Fund No
AXP Nasdaq 100 Index Fund No
AXP S&P 500 Index Fund No
AXP Small Company Index Fund Yes
AXP Total Stock Market Index Fund No
AXP Money Market Series, Inc. 8/22/75, 6/13/86*** Corporation NV/MN 7/31
AXP Cash Management Fund Yes
AXP New Dimensions Fund, Inc. 2/20/68, 6/13/86*** Corporation NV/MN 7/31
AXP Growth Dimensions Fund Yes
AXP New Dimensions Fund Yes
AXP Precious Metals Fund, Inc. 10/5/84 Corporation MN 3/31 No
AXP Progressive Fund, Inc. 4/23/68, 6/13/86*** Corporation NV/MN 9/30 Yes
AXP Selective Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 5/31 Yes
AXP Stock Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 9/30 Yes
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Date of Form of State of Fiscal
Fund organization organization organization year end Diversified
AXP Partners International Series, Inc. 5/9/01 Corporation MN 10/31
AXP Partners International Aggressive Growth Fund Yes
AXP Partners International Select Value Fund Yes
AXP Partners Series, Inc. 3/20/01 Corporation MN 5/31
AXP Partners Fundamental Value Fund Yes
AXP Partners Small Cap Value Fund No
AXP Partners Value Fund Yes
AXP Special Tax-Exempt Series Trust 4/7/86 Business Trust**** MA 6/30
AXP Insured Tax-Exempt Fund Yes
AXP Massachusetts Tax-Exempt Fund No
AXP Michigan Tax-Exempt Fund No
AXP Minnesota Tax-Exempt Fund No
AXP New York Tax-Exempt Fund No
AXP Ohio Tax-Exempt Fund No
AXP Strategy Series, Inc. 1/24/84 Corporation MN 3/31
AXP Equity Value Fund** Yes
AXP Focus 20 Fund No
AXP Small Cap Advantage Fund Yes
AXP Small Cap Growth Fund Yes
AXP Strategy Aggressive Fund** Yes
AXP Tax-Exempt Series, Inc. 9/30/76, 6/13/86*** Corporation NV/MN 11/30
AXP Intermediate Tax-Exempt Fund Yes
AXP Tax-Exempt Bond Fund Yes
AXP Tax-Free Money Fund, Inc. 2/29/80, 6/13/86*** Corporation NV/MN 12/31 Yes
AXP Utilities Income Fund, Inc. 3/25/88 Corporation MN 6/30 Yes
* At the shareholders meeting held on June 16, 1999, shareholders approved
the name change from IDS to AXP. In addition to substituting AXP for IDS,
the following series changed their names: IDS Growth Fund, Inc. to AXP
Growth Series, Inc., IDS Managed Retirement Fund, Inc. to AXP Managed
Series, Inc., IDS Strategy Fund, Inc. to AXP Strategy Series, Inc., and IDS
Tax-Exempt Bond Fund, Inc. to AXP Tax-Exempt Series, Inc.
** At the shareholders meeting held on Nov. 9, 1994, IDS Equity Plus Fund,
Inc. changed its name to IDS Equity Select Fund, Inc. At that same time IDS
Strategy Aggressive Equity Fund changed its name to IDS Strategy Aggressive
Fund, and IDS Strategy Equity Fund changed its name to IDS Equity Value
Fund.
*** Date merged into a Minnesota corporation incorporated on 4/7/86.
**** Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the
trust itself is unable to meet its obligations.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees 15
Master Trust portfolios and 68 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
Position held
with
Name, Registrant and
address, length of Principal occupations Other Committee
age service during past 5 years directorships memberships
------------------------------ ---------------- ------------------------ -------------------- --------------------
H. Brewster Atwater, Jr. Board member Retired chairman and Merck & Co., Inc. Board
4900 IDS Tower since 1996 chief executive (pharmaceuticals) Effectiveness,
Minneapolis, MN 55402 officer, General Investment Review
Born in 1931 Mills, Inc. (consumer
foods)
------------------------------ ---------------- ------------------------ -------------------- --------------------
Arne H. Carlson Chair of the Chairman, Board Contracts,
901 S. Marquette Ave. Board since Services Corporation Executive,
Minneapolis, MN 55402 1999 (provides Investment Review,
Born in 1934 administrative Board Effectiveness
services to boards)
Former Governor of
Minnesota
------------------------------ ---------------- ------------------------ -------------------- --------------------
Lynne V. Cheney Board member Distinguished Fellow, The Reader's Joint Audit,
American Enterprise since 1994 AEI Digest Association Contracts
Institute for Public Policy Inc.
Research (AEI)
1150 17th St., N.W.
Washington, D.C. 20036
Born in 1941
------------------------------ ---------------- ------------------------ -------------------- --------------------
Livio D. DeSimone Board member Retired chair of the Cargill, Joint Audit,
30 Seventh Street since 2001 board and chief Incorporated Contracts
St. Paul, MN 55101-4901 executive officer, (commodity
Born in 1936 Minnesota Mining and merchants and
Manufacturing (3M) processors),
Target Corporation
(department
stores), General
Mills, Inc.
(consumer foods)
and Vulcan
Materials Company
(construction
materials/
chemicals)
------------------------------ ---------------- ------------------------ -------------------- --------------------
Ira D. Hall Board member Treasurer, Texaco Inc. Joint Audit,
Texaco, Inc. since 2001 since 1998. Prior to Investment Review
2000 Westchester Avenue that, director,
White Plains, NY 10650 International
Born in 1944 Operations IBM Corp.
------------------------------ ---------------- ------------------------ -------------------- --------------------
Heinz F. Hutter Board member Retired president and Board
P.O. Box 2187 since 1994 chief operating Effectiveness,
Minneapolis, MN 55402 officer, Cargill, Investment Review
Born in 1929 Incorporated
(commodity merchants
and processors)
------------------------------ ---------------- ------------------------ -------------------- --------------------
Anne P. Jones Board member Attorney and Motorola, Inc. Joint Audit, Board
5716 Bent Branch Rd. since 1985 telecommunications (electronics) Effectiveness
Bethesda, MD 20816 consultant
Born in 1935
------------------------------ ---------------- ------------------------ -------------------- --------------------
William R. Pearce Board member RII Weyerhaeuser World Executive,
2050 One Financial Plaza since 1980 Timberfund, L.P. Investment Review,
Minneapolis, MN 55402 (develops timber Board Effectiveness
Born in 1927 resources)--
management committee;
Former chair, American
Express Funds
------------------------------ ---------------- ------------------------ -------------------- --------------------
Alan K. Simpson Board member Former three-term Biogen, Inc. Joint Audit,
1201 Sunshine Ave. since 1997 United States Senator (bio- Contracts
Cody, WY 82414 for Wyoming pharmaceuticals)
Born in 1931
------------------------------ ---------------- ------------------------ -------------------- --------------------
C. Angus Wurtele Board member Retired chair of the The Valspar Contracts,
Suite 1700 Foshay Tower since 1994 board and chief Corporation Investment Review
Minneapolis, MN 55402 executive officer, The (paints), Bemis
Born in 1934 Valspar Corporation Corporation
(packaging)
------------------------------ ---------------- ------------------------ -------------------- --------------------
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Board Members Affiliated with American Express Financial Corporation (AEFC)
Position held
with
Name, Registrant and
address, length of Principal occupations Other Committee
age service during past 5 years directorships memberships
--------------------------- ------------------------ ------------------------ ------------------------ ------------------------
David R. Hubers Board member since 1993 Retired chief Chronimed Inc.
50643 AXP Financial Center executive officer, (specialty
Minneapolis, MN 55474 director and chair of pharmaceutical
Born in 1943 the board of AEFC distribution), RTW
Inc. (manages worker's
compensation
programs), Lawson
Software, Inc.
(technology based
business applications)
--------------------------- ------------------------ ------------------------ ------------------------ ------------------------
John R. Thomas Board member since Senior vice president Executive, Investment
50652 AXP Financial Center 1987, president since - information and Review
Minneapolis, MN 55474 1997 technology of AEFC
Born in 1937
--------------------------- ------------------------ ------------------------ ------------------------ ------------------------
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. Thomas, who is president, the Fund's
other officers are:
Other Officers
Position held
with
Name, Registrant and
address, length of Principal occupations Other Committee
age service during past 5 years directorships memberships
----------------------------- --------------- --------------------------- -------------------------- --------------------------
John M. Knight Treasurer Vice president -
50005 AXP Financial Center since 1999 investment accounting of
Minneapolis, MN 55474 AEFC
Born in 1952
----------------------------- --------------- --------------------------- -------------------------- --------------------------
Leslie L. Ogg Vice President of Board
901 S. Marquette Ave. president, Services Corporation
Minneapolis, MN 55402 general
Born in 1938 counsel, and
secretary
since 1978
----------------------------- --------------- --------------------------- -------------------------- --------------------------
Frederick C. Quirsfeld Vice Senior vice president -
53609 AXP Financial Center president fixed income of AEFC
Minneapolis, MN 55474 since 1998
Born in 1947
----------------------------- --------------- --------------------------- -------------------------- --------------------------
Compensation for Board Members
During the most recent fiscal year, the independent members of the Fund and
Portfolio boards, for attending up to 26 meetings, received the following
compensation:
Compensation Table
Total cash compensation from
Aggregate Aggregate American Express Funds and
Board member compensation from the Fund compensation from the Portfolio Preferred Master Trust Group
H. Brewster Atwater, Jr. $1,050 $1,050 $123,558
Lynne V. Cheney 717 783 84,492
Livio D. DeSimone 558 617 68,717
Ira D. Hall 925 1,000 103,817
Heinz F. Hutter 950 1,050 116,608
Anne P. Jones 950 1,050 116,258
William R. Pearce 1,050 1,150 123,608
Alan K. Simpson 900 1,000 112,408
C. Angus Wurtele 950 1,050 116,158
As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Principal Holders of Securities
As of 30 days prior to the date of this SAI, Pierre B. Balliett, San Diego, CA
held 18.18% of the Fund's Class C shares; Katrina L. and Michael C. Farah as
Trustee, Bloomfield, MI held 9.33% of the Fund's Class C shares; and James R.
and Marcia E. Glenn, Crete, NE held 7.40% of the Fund's Class C shares.
Independent Auditors
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG LLP, 4200 Wells Fargo Center, 90 S. Seventh St.,
Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
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AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Appendix A
DESCRIPTION OF RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
-37-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Moody's Long-Term Debt Ratings
AAaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present that suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative
elements--their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds that are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
-38-
AXP(R) Growth Series, Inc.
AXP(R) Research Opportunities Fund
--------------------------------------------------------------------------------
Standard & Poor's Note Ratings
An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to possess
very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-l (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-l repayment
ability will often be evidenced by many of the following characteristics:
(i) leading market positions in well-established industries, (ii) high
rates of return on funds employed, (iii) conservative capitalization
structure with moderate reliance on debt and ample asset protection, (iv)
broad margins in earnings coverage of fixed financial charges and high
internal cash generation, and (v) well established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the
level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's & S&P's
Short-Term Muni Bonds and Notes
Short-term municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
-39-
Appendix B
UTILITIES AND ENERGY INDUSTRIES
Utilities industry: Utility stocks, including electric, gas, telephone, and
other energy-related (e.g., nuclear) utilities stocks, generally offer dividend
yields that exceed those of industrial companies and their prices tend to be
less volatile than stocks of industrial companies. However, utility companies
are often highly leveraged and utility stocks can be affected by the risks of
the stock market in general, as well as factors specific to public utilities
companies. Many utility companies, especially electric utility companies,
historically have been subject to the risk of increases in fuel and other
operating costs, changes in interest rates on borrowing for capital improvement
programs, changes in applicable laws and regulations, and costs and operating
constraints associated with compliance with environmental regulations. In
addition, because securities issued by utility companies are particularly
sensitive to movements in interest rates, the equity securities of these
companies are more affected by movements in interest rates than the equity
securities of other companies. Each of these risks could adversely affect the
ability of public utilities companies to declare or pay dividends and the
ability of holders of common stock, such as the Fund, to realize any value from
the assets of the company upon liquidation or bankruptcy.
Energy industry: Energy companies include the conventional areas of oil, gas,
electricity and coal, as well as newer sources of energy such as geothermal,
nuclear, oil shale and solar power. These companies include those that produce,
transmit, market or measure energy, as well as those companies involved in
exploring for new sources of energy. Securities of companies in the energy field
are subject to changes in value and dividend yield which depend largely on the
price and supply of energy fuels. Swift price and supply fluctuations may be
caused by events relating to international politics, energy conservation, the
success of exploration projects and tax or other governmental regulatory
policies.
S-6356-20 J (9/01)
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities of AXP
Growth Fund (a series of AXP Growth Series, Inc.) as of July 31, 2001, 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, 2001, and the financial highlights for each of the years in the five-year
period ended July 31, 2001. These financial statements and the financial
highlights are the responsibility of fund management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AXP Growth Fund as of July 31,
2001, 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 7, 2001
--------------------------------------------------------------------------------
12 AXP GROWTH FUND -- ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Growth Fund
July 31, 2001
Assets
Investment in Growth Portfolio (Note 1) $6,344,602,347
Captial shares receivable 61,831
------
Total assets 6,344,664,178
-------------
Liabilities
Capital shares payable 274,561
Accrued distribution fee 68,022
Accrued service fee 2,658
Accrued transfer agency fee 30,523
Accrued administrative services fee 6,862
Other accrued expenses 603,529
-------
Total liabilities 986,155
-------
Net assets applicable to outstanding capital stock $6,343,678,023
==============
Represented by
Capital stock -- $.01 par value (Note 1) $ 2,162,803
Additional paid-in capital 6,182,863,386
Accumulated net realized gain (loss) (Note 7) (988,875,680)
Unrealized appreciation (depreciation) on investments 1,147,527,514
-------------
Total -- representing net assets applicable to outstanding capital stock $6,343,678,023
==============
Net assets applicable to outstanding shares: Class A $3,851,155,705
Class B $1,510,173,533
Class C $ 8,798,341
Class Y $ 973,550,444
Net asset value per share of outstanding capital stock: Class A shares 129,745,372 $ 29.68
Class B shares 53,731,152 $ 28.11
Class C shares 312,923 $ 28.12
Class Y shares 32,490,892 $ 29.96
---------- --------------
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
13 AXP GROWTH FUND -- ANNUAL REPORT
Statement of operations
AXP Growth Fund
Year ended July 31, 2001
Investment income
Income:
Dividends $ 33,660,208
Interest 21,287,289
Less foreign taxes withheld (196,561)
--------
Total income 54,750,936
----------
Expenses (Note 2):
Expenses allocated from Growth Portfolio 47,082,352
Distribution fee
Class A 13,034,501
Class B 20,253,042
Class C 70,471
Transfer agency fee 9,844,523
Incremental transfer agency fee
Class A 644,200
Class B 556,742
Class C 3,855
Service fee -- Class Y 1,259,734
Administrative services fees and expenses 3,193,208
Compensation of board members 17,675
Printing and postage 1,252,174
Registration fees 608,465
Audit fees 9,500
Other 36,715
------
Total expenses 97,867,157
Earnings credits on cash balances (Note 2) (318,650)
--------
Total net expenses 97,548,507
----------
Investment income (loss) -- net (42,797,571)
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (835,378,279)
Options contracts written 19,707,300
----------
Net realized gain (loss) on investments (815,670,979)
Net change in unrealized appreciation (depreciation) on investments (3,839,599,804)
--------------
Net gain (loss) on investments (4,655,270,783)
--------------
Net increase (decrease) in net assets resulting from operations $(4,698,068,354)
===============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
14 AXP GROWTH FUND -- ANNUAL REPORT
Statements of changes in net assets
AXP Growth Fund
Year ended July 31, 2001 2000
Operations and distributions
Investment income (loss) -- net $ (42,797,571) $ (40,646,714)
Net realized gain (loss) on investments (815,670,979) 282,481,456
Net change in unrealized appreciation (depreciation) on investments (3,839,599,804) 2,000,202,891
-------------- -------------
Net increase (decrease) in net assets resulting from operations (4,698,068,354) 2,242,037,633
-------------- -------------
Distributions to shareholders from:
Net realized gain
Class A (275,937,694) (87,059,276)
Class B (112,812,229) (31,046,847)
Class C (393,960) --
Class Y (66,853,330) (17,842,638)
----------- -----------
Total distributions (455,997,213) (135,948,761)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Notes 2 and 5) 1,814,580,315 2,328,546,079
Class B shares 458,556,597 766,835,307
Class C shares 13,298,672 1,181,005
Class Y shares 742,021,470 838,486,439
Reinvestment of distributions at net asset value
Class A shares 267,787,656 81,857,352
Class B shares 111,916,442 30,846,821
Class C shares 392,962 --
Class Y shares 54,657,205 17,838,677
Payments for redemptions
Class A shares (1,726,848,684) (1,719,179,723)
Class B shares (Note 2) (278,484,800) (240,842,800)
Class C shares (Note 2) (1,416,128) --
Class Y shares (615,784,347) (502,331,403)
------------ ------------
Increase (decrease) in net assets from capital share transactions 840,677,360 1,603,237,754
----------- -------------
Total increase (decrease) in net assets (4,313,388,207) 3,709,326,626
Net assets at beginning of year 10,657,066,230 6,947,739,604
-------------- -------------
Net assets at end of year $ 6,343,678,023 $10,657,066,230
=============== ===============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
15 AXP GROWTH FUND -- 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.
Class C shares of the Fund were offered to the public on June 26, 2000. Prior to
this date, American Express Financial Corporation (AEFC) purchased 36 shares of
capital stock at $54.97 per share, which represented the initial capital in
Class C.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year of
ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
Investment in Growth Portfolio
The Fund invests all of its assets in Growth Portfolio (the Portfolio), a series
of Growth Trust (the Trust), an open-end investment company that has the same
objectives as the Fund. The Portfolio invests primarily in 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, 2001 was 99.99%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements" (included elsewhere in this report).
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
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.
--------------------------------------------------------------------------------
16 AXP GROWTH FUND -- ANNUAL REPORT
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
$42,797,571 and accumulated net realized loss has been increased by $341,441
resulting in a net reclassification adjustment to decrease paid-in capital by
$43,139,012.
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
2. EXPENSES AND SALES CHARGES
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
The Fund has an agreement with AEFC to provide administrative services. Under an
Administrative Services Agreement, the Fund pays AEFC a fee for administration
and accounting services at a percentage of the Fund's average daily net assets
in reducing percentages from 0.05% to 0.02% annually. A minor portion of
additional administrative service expenses paid by the Fund are consultants'
fees and fund office expenses. Under this agreement, the Fund also pays taxes,
audit and certain legal fees, registration fees for shares, compensation of
board members, corporate filing fees, and any other expenses properly payable by
the Fund and approved by the board.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $19.00
o Class B $20.00
o Class C $19.50
o Class Y $17.00
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 distribution 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.
--------------------------------------------------------------------------------
17 AXP GROWTH FUND -- ANNUAL REPORT
Sales charges received by the Distributor for distributing Fund shares were
$12,669,734 for Class A, $1,585,932 for Class B and $4,327 for Class C for the
year ended July 31, 2001.
During the year ended July 31, 2001, the Fund's transfer agency fees were
reduced by $318,650 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, 2001
Class A Class B Class C Class Y
Sold 45,406,835 11,151,197 319,605 18,291,747
Issued for reinvested distributions 7,266,962 3,192,141 11,202 1,470,465
Redeemed (45,033,906) (8,057,822) (39,744) (15,592,053)
----------- ---------- ------- -----------
Net increase (decrease) 7,639,891 6,285,516 291,063 4,170,159
--------- --------- ------- ---------
Year ended July 31, 2000
Class A Class B Class C* Class Y
Sold 46,185,191 15,828,819 21,860 16,314,629
Issued for reinvested distributions 1,627,914 638,655 -- 352,892
Redeemed (34,302,245) (4,884,036) -- (9,918,250)
----------- ---------- ------ ----------
Net increase (decrease) 13,510,860 11,583,438 21,860 6,749,271
---------- ---------- ------ ---------
* Inception date was June 26, 2000.
4. BANK BORROWINGS
The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund
is permitted to have bank borrowings for temporary or emergency purposes to fund
shareholder redemptions. The Fund must have asset coverage for borrowings not to
exceed the aggregate of 333% of advances equal to or less than five business
days plus 367% of advances over five business days. The agreement, which enables
the Fund to participate with other American Express mutual funds, permits
borrowings up to $200 million, collectively. Interest is charged to each Fund
based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or
the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to
90 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 0.05%
per annum. The Fund had no borrowings outstanding during the year ended July 31,
2001.
--------------------------------------------------------------------------------
18 AXP GROWTH FUND -- ANNUAL REPORT
5. FUND MERGER
As of the close of business on July 14, 2000, AXP Growth Fund acquired the
assets and assumed the identified liabilities of Strategist Growth Fund.
The aggregate net assets of AXP Growth Fund immediately before the acquisition
were $11,413,475,167.
The merger was accomplished by a tax-free exchange of 535,806 shares of
Strategist Growth Fund valued at $33,112,239.
In exchange for the Strategist Growth Fund shares and net assets, AXP Growth
Fund issued the following number of shares:
Shares Net assets
Class A 564,295 $33,112,239
Strategist Growth Fund's net assets at that date consisted of capital stock of
$11,047,368 and unrealized appreciation of $22,064,871.
6. NEW ACCOUNTING PRONOUNCEMENT
In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits
of Investment Companies, which is effective for fiscal years beginning after
Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant
impact on the Fund's financial position, results of operations or changes in its
net assets.
7. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$949,420,217 as of July 31, 2001, that if not offset by subsequent capital
gains, will expire in 2010. 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.
--------------------------------------------------------------------------------
19 AXP GROWTH FUND -- 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, 2001 2000 1999 1998 1997
Net asset value, beginning of period $ 54.36 $42.14 $36.58 $35.47 $23.16
------- ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) (.14) (.14) (.03) (.07) (.05)
Net gains (losses) (both realized and unrealized) (22.34) 13.14 7.29 2.14 13.04
------ ----- ---- ---- -----
Total from investment operations (22.48) 13.00 7.26 2.07 12.99
------ ----- ---- ---- -----
Less distributions:
Distributions from realized gains (2.20) (.78) (1.70) (.96) (.68)
----- ---- ----- ---- ----
Net asset value, end of period $ 29.68 $54.36 $42.14 $36.58 $35.47
------- ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $3,851 $6,637 $4,576 $3,681 $3,215
------ ------ ------ ------ ------
Ratio of expenses to average daily net assets(c) .99% .99% .89% .87% .97%
--- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets (.34%) (.30%) (.08%) (.22%) (.18%)
---- ---- ---- ---- ----
Portfolio turnover rate
(excluding short-term securities) 41% 23% 17% 28% 24%
-- -- -- -- --
Total return(e) (42.14%) 31.01% 20.49% 6.32% 57.00%
------ ----- ----- ---- -----
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997
Net asset value, beginning of period $ 52.02 $40.65 $35.61 $34.82 $22.92
------- ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) (.42) (.46) (.28) (.29) (.22)
Net gains (losses) (both realized and unrealized) (21.29) 12.61 7.02 2.04 12.80
------ ----- ---- ---- -----
Total from investment operations (21.71) 12.15 6.74 1.75 12.58
------ ----- ---- ---- -----
Less distributions:
Distributions from realized gains (2.20) (.78) (1.70) (.96) (.68)
----- ---- ----- ---- ----
Net asset value, end of period $ 28.11 $52.02 $40.65 $35.61 $34.82
------- ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $1,510 $2,468 $1,458 $1,021 $713
------ ------ ------ ------ ----
Ratio of expenses to average daily net assets(c) 1.75% 1.75% 1.65% 1.63% 1.74%
---- ---- ---- ---- ----
Ratio of net investment income (loss)
to average daily net assets (1.11%) (1.06%) (.85%) (.97%) (.94%)
----- ----- ---- ---- ----
Portfolio turnover rate
(excluding short-term securities) 41% 23% 17% 28% 24%
-- -- -- -- --
Total return(e) (42.57%) 30.02% 19.58% 5.52% 55.81%
------ ----- ----- ---- -----
See accompanying notes to financial highlights.
--------------------------------------------------------------------------------
20 AXP GROWTH FUND -- ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000(b)
Net asset value, beginning of period $ 52.03 $52.65
------- ------
Income from investment operations:
Net investment income (loss) (.42) (.04)
Net gains (losses) (both realized and unrealized) (21.29) (.58)
------ ----
Total from investment operations (21.71) (.62)
------ ----
Less distributions:
Distributions from realized gains (2.20) --
----- ----
Net asset value, end of period $ 28.12 $52.03
------- ------
Ratios/supplemental data
Net assets, end of period (in millions) $9 $1
-- --
Ratio of expenses to average daily net assets(c) 1.75% 1.75%(d)
---- ----
Ratio of net investment income (loss)
to average daily net assets (1.10%) (1.30%)(d)
----- -----
Portfolio turnover rate
(excluding short-term securities) 41% 23%
-- --
Total return(e) (42.56%) (1.18%)
------ -----
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997
Net asset value, beginning of period $ 54.75 $42.37 $36.74 $35.60 $23.21
------- ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) (.07) (.06) -- (.04) (.01)
Net gains (losses) (both realized and unrealized) (22.52) 13.22 7.33 2.14 13.08
------ ----- ---- ---- -----
Total from investment operations (22.59) 13.16 7.33 2.10 13.07
------ ----- ---- ---- -----
Less distributions:
Distributions from realized gains (2.20) (.78) (1.70) (.96) (.68)
----- ---- ----- ---- ----
Net asset value, end of period $ 29.96 $54.75 $42.37 $36.74 $35.60
------- ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $974 $1,551 $914 $582 $179
---- ------ ---- ---- ----
Ratio of expenses to average daily net assets(c) .83% .83% .80% .80% .85%
--- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets (.18%) (.14%) --% (.12%) (.07%)
---- ---- ---- ---- ----
Portfolio turnover rate
(excluding short-term securities) 41% 23% 17% 28% 24%
-- -- -- -- --
Total return(e) (42.04%) 31.20% 20.59% 6.40% 57.23%
------ ----- ----- ---- -----
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 26, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
--------------------------------------------------------------------------------
21 AXP GROWTH FUND -- ANNUAL REPORT
Independent Auditors' Report
THE BOARD OF TRUSTEES AND UNITHOLDERS
GROWTH TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Growth Portfolio (a series of
Growth Trust) as of July 31, 2001, the related statement of operations for the
year then ended and the statements of changes in net assets for each of the
years in the two-year period ended July 31, 2001. These financial statements are
the responsibility of portfolio management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 2001, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Growth Portfolio as of July 31,
2001, and the results of its operations and the changes in its net assets for
each of the periods stated in the first paragraph above, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
September 7, 2001
--------------------------------------------------------------------------------
22 AXP GROWTH FUND -- ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
Growth Portfolio
July 31, 2001
Assets
Investments in securities, at value (Note 1)
(identified cost $5,286,583,796) $6,434,120,695
Dividends and accrued interest receivable 461,530
Receivable for investment securities sold 21,724,322
----------
Total assets 6,456,306,547
-------------
Liabilities
Disbursements in excess of cash on demand deposit 423,234
Payable for investment securities purchased 36,427,931
Payable upon return of securities loaned (Note 4) 74,615,000
Accrued investment management services fee 95,247
Other accrued expenses 87,907
------
Total liabilities 111,649,319
-----------
Net assets $6,344,657,228
==============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
23 AXP GROWTH FUND -- ANNUAL REPORT
Statement of operations
Growth Portfolio
Year ended July 31, 2001
Investment income Income:
Dividends $ 33,660,496
Interest 21,286,383
Less foreign taxes withheld (196,562)
--------
Total income 54,750,317
----------
Expenses (Note 2):
Investment management services fee 46,332,635
Compensation of board members 28,725
Custodian fees 563,377
Audit fees 28,500
Other 146,484
-------
Total expenses 47,099,721
Earnings credits on cash balances (Note 2) (16,966)
-------
Total net expenses 47,082,755
----------
Investment income (loss) -- net 7,667,562
---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (including loss of $1,474,339 on sale of affiliated
issuers) (Note 3) (835,426,595)
Options contracts written (Note 5) 19,707,363
----------
Net realized gain (loss) on investments (815,719,232)
Net change in unrealized appreciation (depreciation) on investments (3,839,591,149)
--------------
Net gain (loss) on investments (4,655,310,381)
--------------
Net increase (decrease) in net assets resulting from operations $(4,647,642,819)
===============
Statements of changes in net assets
Growth Portfolio
Year ended July 31, 2001 2000
Operations
Investment income (loss) -- net $ 7,667,562 $ 8,205,713
Net realized gain (loss) on investments (815,719,232) 283,936,086
Net change in unrealized appreciation (depreciation) on investments (3,839,591,149) 2,008,602,545
-------------- -------------
Net increase (decrease) in net assets resulting from operations (4,647,642,819) 2,300,744,344
Net contributions (withdrawals) from partners 334,889,696 1,384,517,514
----------- -------------
Total increase (decrease) in net assets (4,312,753,123) 3,685,261,858
Net assets at beginning of year 10,657,410,351 6,972,148,493
-------------- -------------
Net assets at end of year $ 6,344,657,228 $10,657,410,351
=============== ===============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
24 AXP GROWTH FUND -- 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 stocks of U.S. and foreign companies that appear to offer growth
opportunities. The Declaration of Trust permits the Trustees to issue
non-transferable interests in the Portfolio.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends upon the credit standing of the other party. The
Portfolio also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Portfolio may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an option is
that the Portfolio pays a premium whether or not the option is exercised. The
Portfolio also has the additional risk of being unable to enter into a closing
transaction if a liquid secondary market does not exist.
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
--------------------------------------------------------------------------------
25 AXP GROWTH FUND -- ANNUAL REPORT
contracts and related options include the possibility of an illiquid market and
that a change in the value of the contract or option may not correlate with
changes in the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts Securities and
other assets and liabilities denominated in foreign currencies are translated
daily into U.S. dollars. Foreign currency amounts related to the purchase or
sale of securities and income and expenses are translated at the exchange rate
on the transaction date. The effect of changes in foreign exchange rates on
realized and unrealized security gains or losses is reflected as a component of
such gains or losses. In the statement of operations, net realized gains or
losses from foreign currency transactions, if any, may arise from sales of
foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete its contract obligations.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore
does not pay any income dividends or capital gain distributions.
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 level-yield amortization of premium and discount, is accrued daily.
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with AEFC to manage its portfolio. Under this agreement, AEFC
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Portfolio's average daily net assets in reducing
percentages from 0.6% 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 AXP Growth Fund to the Lipper Large-Cap
Growth Index. The maximum adjustment is 0.12% of the Portfolio's average daily
net assets after deducting 1% from the performance difference. If the
performance difference is less than 1%, the adjustment will be zero. The
adjustment increased the fee by $770,306 for the year ended July 31, 2001.
--------------------------------------------------------------------------------
26 AXP GROWTH FUND -- ANNUAL REPORT
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended July 31, 2001, the Portfolio's custodian fees were reduced
by $16,966 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 $3,875,180,128 and $3,386,967,512, respectively, for the
year ended July 31, 2001. For the same period, the portfolio turnover rate was
41%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $147,507 for the
year ended July 31, 2001.
4. LENDING OF PORTFOLIO SECURITIES
As of July 31, 2001, securities valued at $74,591,360 were on loan to brokers.
For collateral, the Portfolio received $74,615,000 in cash. Income from
securities lending amounted to $928,549 for the year ended July 31, 2001. 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. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written are as
follows:
Year ended July 31, 2001
Calls
Contracts Premium
Balance July 31, 2000 10,000 $ 6,625,000
Opened 35,000 21,099,447
Closed (15,000) (10,625,000)
Exercised (13,096) (7,392,084)
Expired (16,904) (9,707,363)
------- ----------
Balance July 31, 2001 -- $ --
------- -----------
See "Summary of significant accounting policies."
6. NEW ACCOUNTING PRONOUNCEMENT
In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits
of Investment Companies, which is effective for fiscal years beginning after
Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant
impact on the Portfolio's financial position, results of operations or changes
in its net assets.
--------------------------------------------------------------------------------
27 AXP GROWTH FUND -- ANNUAL REPORT
Investments in Securities
Growth Portfolio
July 31, 2001
(Percentages represent value of investments compared to net assets)
Common stocks (93.4%)
Issuer Shares Value(a)
Airlines (2.1%)
Southwest Airlines 6,750,000 $135,067,500
Banks and savings & loans (4.3%)
State Street 1,750,000 94,097,500
Zions Bancorp 3,085,900 180,370,855
Total 274,468,355
Communications equipment & services (3.5%)
Brocade Communications
Systems 2,000,000(b) 65,880,000
CIENA 1,000,000(b) 33,140,000
Ericsson (LM) ADR Cl B 2,000,000(c) 10,720,000
Nokia ADR Cl A 4,000,000(c) 87,240,000
Sonus Networks 1,200,000(b,e) 26,328,000
Total 223,308,000
Computer software & services (9.8%)
BEA Systems 3,000,000(b) 66,150,000
Microsoft 4,350,000(b) 287,926,500
Peregrine Systems 2,250,000(b) 61,537,500
Siebel Systems 2,000,000(b) 68,920,000
VeriSign 1,000,000(b,e) 54,610,000
VERITAS Software 2,000,000(b) 84,820,000
Total 623,964,000
Computers & office equipment (14.5%)
AOL Time Warner 3,800,000(b) 172,710,000
Check Point
Software Technologies 1,000,000(b,c) 44,240,000
Cisco Systems 10,000,000(b) 192,200,000
EMC 7,400,000(b) 145,928,000
Extreme Networks 1,500,000(b) 42,045,000
First Data 750,000 51,990,000
Intl Business Machines 1,700,000 178,857,000
Juniper Networks 1,000,000(b) 25,690,000
Mercury Interactive 1,000,000(b) 38,660,000
Openwave Systems 1,000,000(b) 25,560,000
Total 917,880,000
Electronics (14.6%)
Applied Materials 3,190,400(b) 146,311,744
Broadcom Cl A 1,500,000(b) 65,445,000
Intel 5,000,000 149,050,000
Maxim Integrated Products 3,500,000(b) 161,595,000
PMC-Sierra 1,000,000(b) 30,310,000
STMicroelectronics 1,800,000(c) 57,312,000
Symbol Technologies 4,100,000 50,881,000
Texas Instruments 7,600,000 262,200,000
Total 923,104,744
Energy (0.9%)
Anadarko Petroleum 1,000,000 56,800,000
Energy equipment & services (3.0%)
Halliburton 3,000,000 105,030,000
Schlumberger 1,600,000 86,000,000
Total 191,030,000
Financial services (11.7%)
Citigroup 7,400,000 371,554,000
Fannie Mae 1,000,000 83,250,000
Merrill Lynch 2,975,000 161,364,000
Providian Financial 2,500,000 123,425,000
Total 739,593,000
Health care (13.3%)
Amgen 2,000,000(b) 125,420,000
Biomet 497,500 24,153,625
Genentech 3,500,000(b) 148,050,000
Medtronic 3,000,000 144,090,000
Pfizer 9,000,000 370,980,000
Stryker 550,000 32,989,000
Total 845,682,625
Health care services (0.5%)
Applera-Celera
Genomics Group 1,100,000(b) 33,693,000
Leisure time & entertainment (2.4%)
Harley-Davidson 3,000,000 154,830,000
Media (2.8%)
Omnicom Group 900,000 78,633,000
Sony ADR 2,000,000(c) 99,040,000
Total 177,673,000
Miscellaneous (1.3%)
Nasdaq-100 Shares 1,900,000(b,e) 79,344,000
Restaurants & lodging (2.3%)
Marriott Intl Cl A 3,000,000 143,250,000
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
28 AXP GROWTH FUND -- ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Retail (5.2%)
Home Depot 4,000,000 $201,480,000
Kohl's 1,000,000(b) 57,280,000
Tiffany 1,000,000 35,300,000
Walgreen 1,100,000 37,070,000
Total 331,130,000
Utilities -- telephone (1.2%)
Sprint (PCS Group) 3,000,000(b) 77,760,000
Total common stocks
(Cost: $4,772,884,704) $5,928,578,224
Bonds (2.9%)
Issuer Coupon Principal Value(a)
rate amount
Resolution Funding Corp
Zero Coupon
07-15-20 5.93% $400,000,000(f) $125,836,000
10-15-20 6.03 185,000,000(e,f) 57,318,550
Total bonds
(Cost: $191,244,743) $183,154,550
Short-term securities (5.1%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (3.4%)
Federal Home Loan Bank Disc Nts
08-03-01 3.79% $17,700,000 $17,694,234
08-22-01 3.60 13,500,000 13,469,308
09-19-01 3.55 6,600,000 6,565,991
09-21-01 3.57 39,900,000 39,688,391
09-21-01 3.68 9,400,000 9,347,974
10-19-01 3.55 35,100,000 34,813,740
Federal Home Loan Mtge Corp Disc Nts
08-07-01 3.74 5,800,000 5,795,782
08-24-01 3.63 40,000,000 39,903,464
09-18-01 3.59 3,600,000 3,582,507
Federal Natl Mtge Assn Disc Nts
08-09-01 3.89 12,000,000 11,988,077
08-13-01 3.60 4,400,000 4,394,280
10-04-01 3.60 23,600,000 23,443,617
10-11-01 3.59 2,400,000 2,382,384
Total 213,069,749
Commercial paper (1.7%)
Bayer
09-18-01 3.65 2,200,000(d) 2,189,130
BellSouth
08-20-01 3.64 1,100,000(d) 1,097,782
09-25-01 3.65 4,700,000(d) 4,672,875
Coca-Cola
10-12-01 3.67 600,000 595,535
Gannett
08-22-01 3.72 13,900,000(d) 13,868,485
08-22-01 3.74 4,000,000(d) 3,990,882
Intl Lease Finance
08-17-01 3.72 12,000,000 11,978,976
Morgan Stanley, Dean Witter, Discover & Co
08-28-01 3.73 15,700,000 15,654,573
Natl Rural Utilities
08-21-01 3.73 6,500,000 6,485,895
08-28-01 3.71 21,300,000 21,238,702
Scripps (EW)
09-18-01 3.67 3,200,000(d) 3,183,666
Sheffield Receivables
08-24-01 3.75 6,500,000(d) 6,483,793
Southern Company Funding
09-24-01 3.65 17,982,000(d) 17,877,878
Total 109,318,172
Total short-term securities
(Cost: $322,454,349) $322,387,921
Total investments in securities
(Cost: $5,286,583,796)(g,h) $6,434,120,695
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
29 AXP GROWTH FUND -- 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, 2001,
the value of foreign securities represented 4.71% of net assets.
(d) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors." This security has been determined to be liquid
under guidelines established by the board.
(e) Security is partially or fully on loan. See Note 4 to the financial
statements.
(f) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(g) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that were affiliates during the
year ended July 31, 2001 are as follows:
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
MasTec* $66,123,100 $-- $66,123,100 $-- $-- $--
* Issuer was not an affiliate for the entire year ended July 31, 2001.
(h) At July 31, 2001, the cost of securities for federal income tax purposes
was $5,329,648,915 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $1,761,078,144
Unrealized depreciation (656,606,364)
------------
Net unrealized appreciation $1,104,471,780
--------------
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities of AXP
Research Opportunities Fund (a series of AXP Growth Series, Inc.) as of July 31,
2001, 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, 2001, and the financial highlights for each of the years in the
four-year period ended July 31, 2001, and for the period from August 19, 1996
(commencement of operations) to July 31, 1997. These financial statements and
the financial highlights are the responsibility of fund management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AXP Research Opportunities Fund
as of July 31, 2001, 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 7, 2001
--------------------------------------------------------------------------------
11 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Research Opportunities Fund
July 31, 2001
Assets
Investment in Aggressive Growth Portfolio (Note 1) $ 600,139,538
Capital shares receivable 1,223
-----
Total assets 600,140,761
-----------
Liabilities
Accrued distribution fee 8,947
Accrued service fee 1
Accrued transfer agency fee 3,766
Accrued administrative services fee 926
Other accrued expenses 82,088
------
Total liabilities 95,728
------
Net assets applicable to outstanding capital stock $ 600,045,033
=============
Represented by
Capital stock -- $.01 par value (Note 1) $ 1,138,145
Additional paid-in capital 741,581,836
Undistributed net investment income 548,546
Accumulated net realized gain (loss) (Note 7) (106,032,382)
Unrealized appreciation (depreciation) on investments (37,191,112)
-----------
Total -- representing net assets applicable to outstanding capital stock $ 600,045,033
=============
Net assets applicable to outstanding shares: Class A $ 364,714,877
Class B $ 234,749,843
Class C $ 265,758
Class Y $ 314,555
Net asset value per share of outstanding capital stock: Class A shares 67,857,675 $ 5.37
Class B shares 45,846,846 $ 5.12
Class C shares 51,849 $ 5.13
Class Y shares 58,085 $ 5.42
------ -------------
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
12 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Statement of operations
AXP Research Opportunities Fund
Year ended July 31, 2001
Investment income
Income:
Dividends $ 6,757,871
Interest 4,544,136
Less foreign taxes withheld (2,952)
------
Total income 11,299,055
----------
Expenses (Note 2):
Expenses allocated from Aggressive Growth Portfolio 4,558,756
Distribution fee
Class A 1,126,970
Class B 2,887,923
Class C 1,897
Transfer agency fee 1,295,273
Incremental transfer agency fee
Class A 90,130
Class B 93,228
Class C 87
Service fee -- Class Y 315
Administrative services fees and expenses 412,205
Compensation of board members 8,050
Printing and postage 184,140
Registration fees 120,076
Audit fees 6,000
Other 746
---
Total expenses 10,785,796
Earnings credits on cash balances (Note 2) (35,287)
-------
Total net expenses 10,750,509
----------
Investment income (loss) -- net 548,546
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (73,672,771)
Futures contracts (29,712,464)
Options contracts written 299,665
-------
Net realized gain (loss) on investments (103,085,570)
Net change in unrealized appreciation (depreciation) on investments (38,537,820)
-----------
Net gain (loss) on investments (141,623,390)
------------
Net increase (decrease) in net assets resulting from operations $(141,074,844)
=============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
13 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Statements of changes in net assets
AXP Research Opportunities Fund
Year ended July 31, 2001 2000
Operations and distributions
Investment income (loss) -- net $ 548,546 $ (2,315,065)
Net realized gain (loss) on investments (103,085,570) 124,226,458
Net change in unrealized appreciation (depreciation) on investments (38,537,820) (60,246,113)
----------- -----------
Net increase (decrease) in net assets resulting from operations (141,074,844) 61,665,280
------------ ----------
Distributions to shareholders from:
Net realized gain
Class A (63,547,161) (63,710,249)
Class B (42,332,023) (39,244,541)
Class C (27,210) --
Class Y (37,723) (48,595)
------- -------
Total distributions (105,944,117) (103,003,385)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Notes 2 and 5) 60,791,841 166,386,521
Class B shares 24,966,464 95,693,551
Class C shares 265,362 59,404
Class Y shares 110,852 104,177
Reinvestment of distributions at net asset value
Class A shares 62,625,709 60,899,683
Class B shares 41,987,018 39,015,490
Class C shares 27,210 --
Class Y shares 37,724 48,595
Payments for redemptions
Class A shares (150,872,613) (144,633,828)
Class B shares (Note 2) (69,396,656) (56,592,557)
Class C shares (Note 2) (14,432) --
Class Y shares (26,197) (235,274)
------- --------
Increase (decrease) in net assets from capital share transactions (29,497,718) 160,745,762
----------- -----------
Total increase (decrease) in net assets (276,516,679) 119,407,657
Net assets at beginning of year 876,561,712 757,154,055
----------- -----------
Net assets at end of year $ 600,045,033 $ 876,561,712
============= =============
Undistributed net investment income $ 548,546 $ --
------------- -----------
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
14 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Notes to Financial Statements
AXP Research Opportunities Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth Series, Inc. has 10 billion authorized
shares of capital stock that can be allocated among the separate series as
designated by the board.
Class C shares of the Fund were offered to the public on June 26, 2000. Prior to
this date, American Express Financial Corporation (AEFC) purchased 260 shares of
capital stock at $7.69 per share, which represented the initial capital in Class
C.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year of
ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
Investment in Aggressive Growth Portfolio
The Fund invests all of its assets in Aggressive Growth Portfolio (the
Portfolio), a series of Growth Trust (the Trust), an open-end investment company
that has the same objectives as the Fund. The Portfolio invests primarily in
equity securities of companies that comprise the S&P 500.
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, 2001, was 99.99%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements" (included elsewhere in this report).
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
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.
--------------------------------------------------------------------------------
15 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
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, accumulated net realized loss has been decreased by $462 resulting
in a net reclassification adjustment to decrease paid-in capital by $462.
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
2. EXPENSES AND SALES CHARGES
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
The Fund has an agreement with AEFC to provide administrative services. Under an
Administrative Services Agreement, the Fund pays AEFC a fee for administration
and accounting services at a percentage of the Fund's average daily net assets
in reducing percentages from 0.06% to 0.03% annually. A minor portion of
additional administrative service expenses paid by the Fund are consultants'
fees and fund office expenses. Under this agreement, the Fund also pays taxes,
audit and certain legal fees, registration fees for shares, compensation of
board members, corporate filing fees and any other expenses properly payable by
the Fund and approved by the board.
Under a 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 $19.00
o Class B $20.00
o Class C $19.50
o Class Y $17.00
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 distribution 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
$677,645 for Class A, $226,413 for Class B and $59 for Class C for the year
ended July 31, 2001.
--------------------------------------------------------------------------------
16 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
During the year ended July 31, 2001, the Fund's transfer agency fees were
reduced by $35,287 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, 2001
Class A Class B Class C Class Y
Sold 9,614,169 3,961,702 41,810 17,678
Issued for reinvested distributions 10,668,858 7,468,880 4,841 6,383
Redeemed (23,350,130) (11,279,771) (2,624) (4,028)
----------- ----------- ------ ------
Net increase (decrease) (3,067,103) 150,811 44,027 20,033
---------- ------- ------ ------
Year ended July 31, 2000
Class A Class B Class C* Class Y
Sold 21,031,597 12,460,910 7,822 12,602
Issued for reinvested distributions 7,628,858 5,032,734 -- 6,067
Redeemed (18,245,115) (7,378,944) -- (30,613)
----------- ---------- ----- -------
Net increase (decrease) 10,415,340 10,114,700 7,822 (11,944)
---------- ---------- ----- -------
* Inception date was June 26, 2000.
4. BANK BORROWINGS
The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund
is permitted to have bank borrowings for temporary or emergency purposes to fund
shareholder redemptions. The Fund must have asset coverage for borrowings not to
exceed the aggregate of 333% of advances equal to or less than five business
days plus 367% of advances over five business days. The agreement, which enables
the Fund to participate with other American Express mutual funds, permits
borrowings up to $200 million, collectively. Interest is charged to each Fund
based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or
the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to
90 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 0.05%
per annum. The Fund had no borrowings outstanding during the year ended July 31,
2001.
5. FUND MERGER
As of the close of business on July 14, 2000, AXP Research Opportunities Fund
acquired the assets and assumed the identified liabilities of Strategist Special
Growth Fund.
The aggregate net assets of AXP Research Opportunities Fund immediately before
the acquisition were $946,240,117.
The merger was accomplished by a tax-free exchange of 363,505 shares of
Strategist Special Growth Fund valued at $2,013,472.
In exchange for the Strategist Special Growth Fund shares and net assets, AXP
Research Opportunities Fund issued the following number of shares:
Shares Net assets
Class A 246,489 $2,013,472
Strategist Special Growth Fund's net assets at that date consisted of capital
stock of $1,877,754 and unrealized appreciation of $135,718.
--------------------------------------------------------------------------------
17 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
6. NEW ACCOUNTING PRONOUNCEMENT
In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits
of Investment Companies, which is effective for fiscal years beginning after
Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant
impact on the Fund's financial position, results of operations or changes in its
net assets.
7. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$100,482,475 as of July 31, 2001, that if not offset by subsequent capital
gains, will expire in 2010. 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.
--------------------------------------------------------------------------------
18 AXP RESEARCH OPPORTUNITIES FUND -- 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, 2001 2000 1999 1998 1997(b)
Net asset value, beginning of period $ 7.61 $7.94 $6.98 $6.86 $5.00
------ ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .02 -- (.01) .02 .01
Net gains (losses) (both realized and unrealized) (1.27) .66 1.32 .65 1.86
----- --- ---- --- ----
Total from investment operations (1.25) .66 1.31 .67 1.87
----- --- ---- --- ----
Less distributions:
Distributions from realized gains (.99) (.99) (.35) (.55) (.01)
---- ---- ---- ---- ----
Net asset value, end of period $ 5.37 $7.61 $7.94 $6.98 $6.86
------ ----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $365 $540 $481 $337 $205
---- ---- ---- ---- ----
Ratio of expenses to average daily net assets(d) 1.16% 1.14% 1.12% 1.12% 1.52%(e)
---- ---- ---- ---- ----
Ratio of net investment income
(loss) to average daily net assets .37% .02% .04% .30% .20%(e)
--- --- --- --- ---
Portfolio turnover rate
(excluding short-term securities) 234% 160% 143% 148% 171%
--- --- --- --- ---
Total return(f) (17.54%) 7.73% 19.21% 10.76% 37.44%
------ ---- ----- ----- -----
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997(b)
Net asset value, beginning of period $ 7.36 $7.76 $6.88 $6.82 $5.00
------ ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) (.02) (.05) (.02) (.02) (.02)
Net gains (losses) (both realized and unrealized) (1.23) .64 1.25 .63 1.85
----- --- ---- --- ----
Total from investment operations (1.25) .59 1.23 .61 1.83
----- --- ---- --- ----
Less distributions:
Distributions from realized gains (.99) (.99) (.35) (.55) (.01)
---- ---- ---- ---- ----
Net asset value, end of period $ 5.12 $7.36 $7.76 $6.88 $6.82
------ ----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $235 $336 $276 $184 $96
---- ---- ---- ---- ---
Ratio of expenses to average daily net assets(d) 1.92% 1.91% 1.88% 1.88% 2.25%(e)
---- ---- ---- ---- ----
Ratio of net investment income (loss)
to average daily net assets (.39%) (.73%) (.72%) (.46%) (.53%)(e)
---- ---- ---- ---- ----
Portfolio turnover rate
(excluding short-term securities) 234% 160% 143% 148% 171%
--- --- --- --- ---
Total return(f) (18.19%) 7.03% 18.31% 9.92% 36.48%
------ ---- ----- ---- -----
See accompanying notes to financial highlights.
--------------------------------------------------------------------------------
19 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000(c)
Net asset value, beginning of period $ 7.36 $7.50
------ -----
Income from investment operations:
Net investment income (loss) (.02) .02
Net gains (losses) (both realized and unrealized) (1.22) (.16)
----- ----
Total from investment operations (1.24) (.14)
----- ----
Less distributions:
Distributions from realized gains (.99) --
---- -----
Net asset value, end of period $ 5.13 $7.36
------ -----
Ratios/supplemental data
Net assets, end of period (in millions) $-- $--
--- ---
Ratio of expenses to average daily net assets(d) 1.92% 1.91%(e)
---- ----
Ratio of net investment income (loss)
to average daily net assets (.36%) (.50%)(e)
---- ----
Portfolio turnover rate
(excluding short-term securities) 234% 160%
--- ---
Total return(f) (18.03%) (1.87%)
------ -----
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2001 2000 1999 1998 1997(b)
Net asset value, beginning of period $ 7.65 $7.96 $7.01 $6.88 $5.00
------ ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .04 .01 -- .03 .01
Net gains (losses) (both realized and unrealized) (1.28) .67 1.32 .65 1.88
----- --- ---- --- ----
Total from investment operations (1.24) .68 1.32 .68 1.89
----- --- ---- --- ----
Less distributions:
Dividends from net investment income -- -- (.02) -- --
Distributions from realized gains (.99) (.99) (.35) (.55) (.01)
---- ---- ---- ---- ----
Total distributions (.99) (.99) (.37) (.55) (.01)
---- ---- ---- ---- ----
Net asset value, end of period $ 5.42 $7.65 $7.96 $7.01 $6.88
------ ----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $-- $-- $--
---- ---- ---- ---- ----
Ratio of expenses to average daily net assets(d) 1.00% .97% 1.02% .87% 1.45%(e)
---- --- ---- --- ----
Ratio of net investment income (loss)
to average daily net assets .54% .17% .12% .40% .33%(e)
--- --- --- --- ---
Portfolio turnover rate
(excluding short-term securities) 234% 160% 143% 148% 171%
--- --- --- --- ---
Total return(f) (17.29%) 7.99% 19.34% 10.93% 37.66%
------ ---- ----- ----- -----
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was Aug. 19, 1996.
(c) Inception date was June 26, 2000.
(d) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
--------------------------------------------------------------------------------
20 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Independent Auditors' Report
THE BOARD OF TRUSTEES AND UNITHOLDERS
GROWTH TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Aggressive Growth Portfolio (a
series of Growth Trust) as of July 31, 2001, the related statement of operations
for the year then ended and the statements of changes in net assets for each of
the years in the two-year period ended July 31, 2001. These financial statements
are the responsibility of portfolio management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 2001, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aggressive Growth Portfolio as
of July 31, 2001 and the results of its operations and the changes in its net
assets for each of the periods stated in the first paragraph above, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Minneapolis, Minnesota
September 7, 2001
--------------------------------------------------------------------------------
21 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
Aggressive Growth Portfolio
July 31, 2001
Assets
Investments in securities, at value (Note 1)
(identified cost $629,807,159) $592,529,339
Cash in bank on demand deposit 149,435
Dividends receivable 401,086
Receivable for investment securities sold 25,026,506
----------
Total assets 618,106,366
-----------
Liabilities
Payable for investment securities purchased 12,745,670
Payable upon return of securities loaned (Note 4) 5,109,000
Accrued investment management services fee 10,400
Other accrued expenses 23,579
------
Total liabilities 17,888,649
----------
Net assets $600,217,717
============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
22 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Statement of operations
Aggressive Growth Portfolio
Year ended July 31, 2001
Investment income
Income:
Dividends $ 6,758,672
Interest 4,551,410
Less foreign taxes withheld (2,952)
------
Total income 11,307,130
----------
Expenses (Note 2):
Investment management services fee 4,445,702
Compensation of board members 8,850
Custodian fees 78,475
Audit fees 18,000
Other 14,733
------
Total expenses 4,565,760
Earnings credits on cash balances (Note 2) (6,465)
------
Total net expenses 4,559,295
---------
Investment income (loss) -- net 6,747,835
---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (73,682,590)
Futures contracts (29,716,150)
Options contracts written (Note 6) 299,693
-------
Net realized gain (loss) on investments (103,099,047)
Net change in unrealized appreciation (depreciation) on investments (38,541,226)
-----------
Net gain (loss) on investments (141,640,273)
------------
Net increase (decrease) in net assets resulting from operations $(134,892,438)
=============
Statements of changes in net assets
Aggressive Growth Portfolio
Year ended July 31, 2001 2000
Operations
Investment income (loss) -- net $ 6,747,835 $ 4,657,284
Net realized gain (loss) on investments (103,099,047) 124,551,441
Net change in unrealized appreciation
(depreciation) on investments (38,541,226) (60,287,301)
----------- -----------
Net increase (decrease)
in net assets resulting from operations (134,892,438) 68,921,424
Net contributions (withdrawals) from partners (141,695,453) 48,785,614
------------ ----------
Total increase (decrease) in net assets (276,587,891) 117,707,038
Net assets at beginning of year 876,805,608 759,098,570
----------- -----------
Net assets at end of year $ 600,217,717 $876,805,608
============= ============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
23 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Notes to Financial Statements
Aggressive Growth Portfolio
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Aggressive Growth Portfolio (the Portfolio) is a series of Growth Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company. Aggressive Growth
Portfolio invests primarily in equity securities of companies that comprise the
S&P 500. The Declaration of Trust permits the Trustees to issue non-transferable
interests in the Portfolio.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends upon the credit standing of the other party. The
Portfolio also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Portfolio may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an option is
that the Portfolio pays a premium whether or not the option is exercised. The
Portfolio also has the additional risk of being unable to enter into a closing
transaction if a liquid secondary market does not exist.
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
--------------------------------------------------------------------------------
24 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
contracts and related options include the possibility of an illiquid market and
that a change in the value of the contract or option may not correlate with
changes in the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete its contract obligations.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore
does not pay any income dividends or capital gain distributions.
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 level-yield amortization of premium and discount, is accrued daily.
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with AEFC to manage its portfolio. Under this agreement, AEFC
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Portfolio's average daily net assets in reducing
percentages from 0.65% to 0.50% annually. The fee may be adjusted upward or
downward by a performance incentive adjustment based on a comparison of the
performance of Class A shares of AXP Research Opportunities Fund to the Lipper
Large-Cap Core Index. The maximum adjustment is 0.12% of the Portfolio's average
daily net assets after deducting 1% from the performance difference. If the
performance difference is less than 1%, the adjustment will be zero. The
adjustment decreased the fee by $191,412 for the year ended July 31, 2001.
--------------------------------------------------------------------------------
25 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended July 31, 2001, the Portfolio's custodian fees were reduced
by $6,465 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 $1,548,667,962 and $1,605,039,501, respectively, for the
year ended July 31, 2001. For the same period, the portfolio turnover rate was
234%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $40,815 for the
year ended July 31, 2001.
4. LENDING OF PORTFOLIO SECURITIES
As of July 31, 2001, securities valued at $4,913,810 were on loan to brokers.
For collateral, the Portfolio received $5,109,000 in cash. Income from
securities lending amounted to $621 for the year ended July 31, 2001. The risks
to the Portfolio of securities lending are that the borrower may not provide
additional collateral when required or return securities when due.
5. STOCK INDEX FUTURES CONTRACTS
As of July 31, 2001, investments in securities included securities valued at
$2,264,600 that were pledged as collateral to cover initial margin deposits on
36 open purchase contracts. The market value of the open purchase contracts as
of July 31, 2001 was $10,937,700 with a net unrealized gain of $81,947.
6. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written are as
follows:
Year ended July 31, 2001
Calls
Contracts Premium
Balance July 31, 2000 -- $ --
Opened 3,380 421,175
Closed (3,380) (421,175)
------ --------
Balance July 31, 2001 -- $ --
------ --------
7. NEW ACCOUNTING PRONOUNCEMENT
In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits
of Investment Companies, which is effective for fiscal years beginning after
Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant
impact on the Portfolio's financial position, results of operations or changes
in its net assets.
--------------------------------------------------------------------------------
26 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Investments in Securities
Aggressive Growth Portfolio
July 31, 2001
(Percentages represent value of investments compared to net assets)
Common stocks (98.1%)
Issuer Shares Value(a)
Airlines (1.3%)
AMR 66,900(b) $2,351,535
Delta Air Lines 129,200 5,733,896
Total 8,085,431
Banks and savings & loans (9.8%)
Bank of America 175,000 11,133,500
Bank of New York 158,500 7,110,310
FleetBoston Financial 209,500 7,860,440
Mellon Financial 173,200 6,585,064
State Street 115,800 6,226,566
U.S. Bancorp 389,100 9,237,234
Washington Mutual 258,750 10,484,550
Total 58,637,664
Beverages & tobacco (4.9%)
Anheuser-Busch 159,200 6,894,952
Coca-Cola 232,900 10,387,340
Philip Morris 169,600 7,716,800
UST 135,400 4,190,630
Total 29,189,722
Chemicals (2.4%)
Dow Chemical 201,700 7,341,880
du Pont (EI) de Nemours 166,200 7,116,684
Total 14,458,564
Communications equipment & services (0.7%)
Brocade Communications
Systems 36,900(b,d) 1,215,486
Tellabs 180,300(b) 2,969,541
Total 4,185,027
Computer software & services (1.2%)
Citrix Systems 207,300(b) 6,938,331
Computers & office equipment (11.8%)
AOL Time Warner 328,700(b) 14,939,415
Cabletron Systems 266,700(b) 4,952,619
Cisco Systems 574,500(b) 11,041,890
Compaq Computer 535,500 8,000,370
EMC 401,800(b) 7,923,496
Equifax 167,200 3,955,952
First Data 114,700 7,951,004
Juniper Networks 53,200(b) 1,366,708
Palm 1,253,000(b) 6,728,610
Solectron 237,900(b) 4,158,492
Total 71,018,556
Electronics (5.8%)
Applied Materials 192,000(b) 8,805,120
Intel 394,500 11,760,045
PMC-Sierra 73,300(b) 2,221,723
Texas Instruments 236,700 8,166,150
Xilinx 102,300(b) 4,092,000
Total 35,045,038
Energy (4.2%)
Apache 139,400 7,241,830
Chevron 99,700 9,111,583
Kerr-McGee 56,200 3,550,716
Mirant 173,500(b) 5,366,355
Total 25,270,484
Energy equipment & services (3.3%)
Halliburton 197,900 6,928,479
Schlumberger 144,700 7,777,625
Transocean Sedco Forex 164,900 5,324,621
Total 20,030,725
Financial services (4.9%)
Fannie Mae 107,400 8,941,050
Lehman Brothers Holdings 91,300 6,573,600
MBNA 225,900 7,996,860
Providian Financial 114,500 5,652,865
Total 29,164,375
Food (0.2%)
ConAgra 48,800 1,048,712
Health care (12.4%)
Allergan 61,300 4,615,277
Amgen 71,100(b) 4,458,681
Baxter Intl 195,200 9,720,960
Biomet 145,600 7,068,880
Johnson & Johnson 220,300 11,918,230
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
27 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Health care (cont.)
Medtronic 183,800 $8,827,914
Pfizer 457,900 18,874,637
Pharmacia 197,300 8,803,526
Total 74,288,105
Health care services (2.2%)
UnitedHealth Group 144,000 9,708,480
Wellpoint Health Networks 32,400(b) 3,465,504
Total 13,173,984
Insurance (5.7%)
Allstate 211,500 7,394,040
American Intl Group 159,400 13,270,050
Marsh & McLennan 70,800 7,108,320
St. Paul Companies 144,350 6,329,748
Total 34,102,158
Leisure time & entertainment (1.5%)
Viacom Cl B 181,792(b) 9,053,242
Media (1.6%)
Clear Channel Communications 98,800(b) 5,789,680
Univision Communications
Cl A 99,700(b,d) 3,806,546
Total 9,596,226
Metals (2.1%)
Alcan Aluminum 131,200(c,e) 4,921,312
Alcoa 197,200 7,736,156
Total 12,657,468
Miscellaneous (0.9%)
Convergys 177,300(b) 5,522,895
Multi-industry conglomerates (8.9%)
Danaher 100,000 5,659,000
General Electric 641,400 27,900,900
Minnesota Mining & Mfg 68,600 7,674,968
Robert Half Intl 40,200(b) 1,047,210
Textron 53,200 2,996,224
Tyco Intl 156,700(c) 8,336,440
Total 53,614,742
Paper & packaging (0.1%)
Intl Paper 14,300 584,298
Real estate investment trust (1.4%)
Starwood Hotels &
Resorts Worldwide 227,200 8,108,768
Retail (4.2%)
Gap 282,500 7,715,075
Home Depot 216,200 10,889,994
Kroger 258,300(b) 6,808,788
Total 25,413,857
Utilities -- electric (0.9%)
Calpine 151,800(b) 5,463,282
Utilities -- gas (0.6%)
Dynegy Cl A 80,600 3,738,228
Utilities -- telephone (5.0%)
BellSouth 159,600 6,495,720
SBC Communications 228,900 10,307,367
Sprint (FON Group) 150,400 3,510,336
Verizon Communications 183,500 9,936,525
Total 30,249,948
Total common stocks
(Cost: $625,917,003) $588,639,830
Short-term securities (0.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (0.1%)
Federal Natl Mtge Assn Disc Nts
08-30-01 3.77% $500,000 $498,404
09-20-01 3.51 400,000 397,863
Total 896,267
Commercial paper (0.5%)
UBS Finance (Delaware)
09-06-01 3.78 700,000 697,229
Verizon Network Funding
08-17-01 3.68 2,300,000 2,296,013
Total 2,993,242
Total short-term securities
(Cost: $3,890,156) $3,889,509
Total investments in securities
(Cost: $629,807,159)(f) $592,529,339
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
28 AXP RESEARCH OPPORTUNITIES FUND -- 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, 2001,
the value of foreign securities represented 2.21% of net assets.
(d) Partially pledged as initial margin deposit on the following open stock
index futures contracts (see Note 5 to the financial statements):
Type of security Contracts
Purchase contracts
S&P 500 Index, Sept. 2001 36
(e) Security is partially or fully on loan. See Note 4 to the financial
statements.
(f) At July 31, 2001, the cost of securities for federal income tax purposes
was $635,275,535 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 23,758,086
Unrealized depreciation (66,504,282)
-----------
Net unrealized depreciation $(42,746,196)
------------
PART C. OTHER INFORMATION
Item 23. Exhibits.
(a)(1) Articles of Incorporation, as amended November 10, 1988, filed as
Exhibit 1 to Post-Effective Amendment No. 38 to Registration Statement
No. 2-38355, are incorporated by reference.
(a)(2) Articles of Amendment to the Articles of Incorporation, dated
June 16, 1999, are filed electronically herewith.
(b) By-laws, as amended January 11, 2001 are filed electronically
herewith.
(c) Stock certificate, filed as Exhibit No. 3 to Registrant's Amendment
No. 1 to Registration Statement No. 2-38355, dated Feb. 2, 1971, is
incorporated by reference.
(d)(1) Investment Management and Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 5 to Registrant's Post-Effective Amendment
No. 54 to Registration Statement No. 2-38355, is incorporated by
reference. The Agreement was assumed by the Portfolio when IDS Growth
Fund adopted the master/feeder structure.
(d)(2) Investment Management Services Agreement between Growth Trust, on
behalf of Aggressive Growth Portfolio, and American Express Financial
Corporation, dated July 1, 1999, filed as Exhibit (d)(2) to
Registrant's Post-Effective Amendment No. 63 to Registration Statement
No. 2-38355, is incorporated by reference.
(d)(3) Amendment to Investment Management Services Agreement dated March 9,
1999 between Growth Trust on behalf of its underlying Series
Portfolios, Growth Portfolio and Growth Trends Portfolio and American
Express Financial Corporation is incorporated by reference to Exhibit
(d)(3) to Registrant's Post-Effective Amendment No. 66 filed on or
about Sept. 29, 2001.
(e) Distribution Agreement, dated July 8, 1999, between AXP Utilities
Income Fund, Inc. and American Express Financial Advisors Inc. is
incorporated by reference to Exhibit (e) to AXP Utilities Income Fund,
Inc. Post-Effective Amendment No. 22, to Registration Statement File
No. 33-20872 filed on or about August 27, 1999. Registrant's
Distribution Agreement differs from the one incorporated by reference
only by the fact that Registrant is one executing party.
(f) All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.
(g)(1) Custodian Agreement between Registrant and American Express Trust
Company, dated March 20, 1995, filed electronically as Exhibit 8(a) to
Registrant's Post-Effective Amendment No. 54 to Registration Statement
No. 2-38355, is incorporated by reference.
(g)(2) Addendum to the Custodian Agreement, dated March 20, 1995, between IDS
Growth Fund, Inc. and American Express Trust Company executed on May
13, 1996, filed electronically as Exhibit 8(c) to Registrant's
Post-Effective Amendment No. 60 to Registration Statement No. 2-38355,
is incorporated by reference.
(g)(3) Custodian Agreement between Registrant, on behalf of IDS Research
Opportunities Fund, and American Express Trust Company, dated August
19, 1996, filed electronically as Exhibit No. 8 to Post Effective
Amendment No. 58 to Registration Statement No. 2-38355, is
incorporated by reference.
(g)(4) Addendum to the Custodian Agreement, dated August 19, 1996, between
Registrant, on behalf of IDS Research Opportunities Fund, and American
Express Trust Company, filed electronically as Exhibit 8(c) to
Registrant's Post-Effective Amendment No. 61 to Registration Statement
No. 2-38355, is incorporated by reference.
(g)(5) Custodian Agreement dated May 13, 1999 between American Express Trust
Company and The Bank of New York is incorporated by reference to
Exhibit (g)(3) to IDS Precious Metals Fund, Inc. Post-Effective
Amendment No. 33, File No. 2-93745 filed on or about May 24, 1999.
(g)(6) Custodian Agreement Amendment between IDS International Fund, Inc. and
American Express Trust Company, dated October 9, 1997, filed
electronically on or about December 23, 1997 as Exhibit 8(c) to IDS
International Fund, Inc.'s Post-Effective Amendment No. 26 to
Registration Statement No. 2-92309, is incorporated by reference.
Registrant's Custodian Agreement Amendment differs from the one
incorporated by reference only by the fact that Registrant is one
executing party.
(h)(1) Administrative Services Agreement between Registrant and American
Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 9(e) to Registrant's Post-Effective
Amendment No. 54 to Registration Statement No. 2-38355, is
incorporated by reference.
(h)(2) Amendment to Administrative Services Agreement dated March 9, 1999
between AXP Growth Fund and American Express Financial Corporation is
incorporated by reference to Exhibit (h)(2) to Registrant's
Post-Effective Amendment No. 66 filed on or about Sept. 29, 2000.
(h)(3) Administrative Services Agreement between Registrant, on behalf of IDS
Research Opportunities Fund, and American Express Financial
corporation, dated August 19, 1996, filed electronically as Exhibit
No. 9(e) to Post-Effective Amendment No. 58 to Registration Statement
No. 2-38355, is incorporated by reference.
(h)(4) Agreement of Merger, dated April 10, 1986, filed as Exhibit No. 9 to
Post-Effective Amendment No. 33 to Registration Statement No. 2-38355,
is incorporated by reference.
(h)(5) Agreement and Plan of Reorganization, dated March 10, 2000, between
Strategist Growth Fund, Inc. on behalf of Strategist Growth Fund and
AXP Growth Series, Inc. on behalf of AXP Growth Fund is incorporated
by reference to Exhibit (h)(11), to Registrant's Post-Effective
Amendment No. 66 filed on or about Sept. 29, 2000.
(h)(6) Agreement and Plan of Reorganization, dated March 10, 2000, between
Strategist Growth Fund, Inc. on behalf of Strategist Special Growth
Fund and AXP Growth Series, Inc. on behalf of AXP Research
Opportunities Fund is incorporated by reference to Exhibit (h)(12),
to Registrant's Post-Effective Amendment No. 66 filed on or about
Sept. 29, 2000.
(h)(7) License Agreement between Registrant and IDS Financial Corporation,
dated January 25, 1988, filed as Exhibit 9(c) to Post-Effective
Amendment No. 38 to Registration Statement No. 2-38355, is
incorporated by reference.
(h)(8) License Agreement between Registrant, on behalf of IDS Research
Opportunities Fund, and American Express Financial Corporation, dated
August 19, 1996, filed electronically as Exhibit No. 9(c) to
Post-Effective Amendment No. 58 to Registration Statement No. 2-38355,
is incorporated by reference.
(h)(9) License Agreement, dated June 17, 1999, between the American Express
Funds and American Express Company, filed electronically on or about
September 23, 1999 as Exhibit (h)(4) to AXP Stock Fund, Inc.'s
Post-Effective Amendment No. 98 to Registration Statement No. 2-11358,
is incorporated by reference.
(h)(10) Class Y Shareholder Service Agreement between IDS Precious Metals
Fund, Inc. and American Express Financial Advisors Inc., dated May 9,
1997, filed electronically on or about May 27, 1997 as Exhibit 9(e) to
IDS Precious Metals Fund, Inc.'s Amendment No. 30 to Registration
Statement No. 2-93745, is incorporated by reference. Registrant's
Class Y Shareholder Service Agreement differs from the one
incorporated by reference only by the fact that Registrant is one
executing party.
(h)(11) Transfer Agency Agreement, dated May 10, 2000 between Registrant on
behalf of AXP Growth Fund and AXP Research Opportunities Fund and
American Express Client Service Corporation is filed electronically
herewith.
(i) Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
(j) Independent Auditors' consent is filed electronically herewith.
(k) Omitted Financial Statements: Not Applicable.
(l) Initial Capital Agreements: Not Applicable.
(m)(1) Plan and Agreement of Distribution dated July 1, 1999 between
Registrant on behalf of its underlying series funds and American
Express Financial Advisors Inc., is incorporated by reference to
Exhibit (m) to AXP Discovery Fund, Inc.'s Post-Effective Amendment No.
36, file No. 2-72174 filed on or about July 30, 1999.
(m)(2) Plan and Agreement of Distribution For Class C Shares dated March 9,
2000 between AXP Bond Fund, Inc. and American Express Financial
Advisors Inc. is incorporated by reference to Exhibit (m)(2) to AXP
Bond Fund, Inc.'s Post-Effective Amendment No. 51 to Registration
Statement File No. 2-51586 filed on or about June 26, 2000.
Registrant's Plan and Agreement of Distribution for Class C Shares
differs from the one incorporated by reference only by the fact that
Registrant is one executing party.
(n) Rule 18f-3 Plan dated March 9, 2000, is incorporated by reference to
Exhibit (n) to AXP Bond Fund Inc.'s Post-Effective Amendment No. 51 to
Registration Statement File No. 2-51586 filed on or about June 26,
2000
(o) Reserved.
(p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed
electronically on or about March 30, 2000 as Exhibit (p)(1) to AXP
Market Advantage Series, Inc.'s Post-Effective Amendment No. 24 to
Registration Statement No. 33-30770 is incorporated by reference.
(p)(2) Code of Ethics adopted under Rule 17j-1 for Registrant's investment
advisor and principal underwriter filed electronically on or about
March 30, 2000 as Exhibit (p)(2) to AXP Market Advantage Series,
Inc.'s Post-Effective Amendment No. 24 to Registration Statement No.
33-30770 is incorporated by reference.
(q)(1) Directors' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 11, 2001, is filed electronically herewith as
Exhibit (q)(1).
(q)(2) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 11, 2001, is filed electronically herewith as
Exhibit (q)(2).
(q)(3) Trustees Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 11, 2001, is filed electronically herewith as
Exhibit (q)(3).
(q)(4) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 11, 2001, is filed electronically herewith as
Exhibit (q)(4).
Item 24. Persons Controlled by or Under Common Control with Registrant.
None.
Item 25. Indemnification
The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser (American Express Financial Corporation)
Directors and officers of American Express Financial Corporation who are
directors and/or officers of one or more other companies:
Name and Title Other company(s) Address Title within other
company(s)
------------------------- ----------------------- ------------------------- -----------------------
Ronald G. Abrahamson American Express Financial 70100 AXP Financial Center Vice President - Business
Vice President - Business Advisors Inc. Minneapolis, MN 55474 Transformation
Transformation
Public Employee Payment Director and Vice President
Company
Ruediger Adolf American Express Financial 70100 AXP Financial Center Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55474
Douglas A. Alger American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Human Resources
Human Resources
Gumer C. Alvero American Centurion Life 20 Madison Ave. Extension Director
Vice President - Variable Assurance Company P.O. Box 5555
Annuities Albany, NY 12205-0555
American Enterprise Life 829 AXP Financial Center Director and Chairman of the Board
Insurance Company Minneapolis, MN 55474
American Express Financial 70100 AXP Financial Center Vice President - Annuities
Advisors Inc. Minneapolis, MN 55474
American Partners Life 1751 AXP Financial Center Director, President
Insurance Company Minneapolis MN 55474 and Chief Executive Officer
IDS Life Insurance Company 20 Madison Ave. Extension Director and Executive Vice President -
P.O. Box 5555 Assured Assets
Albany, NY 12205-0555
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
IDS Life Series Fund, Inc. Director, Chairman of the Board,
President and Chief Executive
Officer
IDS Life Variable Annuity Manager, Chairman of the Board,
Funds A & B President and Chief Executive Officer
Ward D. Armstrong American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Retirement Services
Retirement Services
American Express Service Vice President - Workplace
Corporation Financial Services
American Express Trust Director and Chairman of
Company the Board
John M. Baker American Express Financial 70100 AXP Financial Center Vice President - Plan
Vice President - Plan Sponsor Advisors Inc. Minneapolis, MN 55474 Sponsor Services
Services
American Express Trust Senior Vice President
Company
Dudley Barksdale American Express Financial 70100 AXP Financial Center Vice President - Service
Vice President - Service Advisors Inc. Minneapolis, MN 55474 Development
Development
Joseph M. Barsky III American Express Financial 70100 AXP Financial Center Vice President - Mutual
Vice President - Mutual Fund Advisors Inc. Minneapolis, MN 55474 Fund Equities
Equities
Timothy V. Bechtold American Centurion Life 20 Madison Ave. Extension Director and President
Vice President - Risk Assurance Company P.O. Box 5555
Management Products Albany, NY 12205-0555
American Express Financial 70100 AXP Financial Center Vice President - Risk
Advisors Inc. Minneapolis, MN 55474 Management Products
American Express Insurance Director, President and Chief
Agency of Alabama Inc. Executive Officer
American Express Insurance Director, President and Chief
Agency of Arizona Inc. Executive Officer
American Express Insurance Director, President and Chief
Agency of Idaho Inc. Executive Officer
American Express Insurance Director and President
Agency of Indiana Inc.
American Express Insurance Director, President and Chief
Agency of Massachusetts Inc. Executive Officer
American Express Insurance Director, President and Chief
Agency of Nevada Inc. Executive Officer
American Express Insurance Director, President and Chief
Agency of New Mexico Inc. Executive Officer
American Express Insurance Director and President
Agency of Oklahoma Inc.
American Express Insurance Director, President and Chief
Agency of Oregon Inc. Executive Officer
American Express Insurance Director, President and Chief
Agency of Wyoming Inc. Executive Officer
American Partners Life Director and Chairman of the Board
Insurance Company
IDS Insurance Agency of Director, President and Chief
Arkansas Inc. Executive Officer
IDS Insurance Agency of Director, President and Chief
Ohio Inc. Executive Officer
IDS Life Insurance Company 70100 AXP Financial Center Director and President
Minneapolis, MN 55474
IDS Life Insurance Company P.O. Box 5144 Director, President and Chief
of New York Albany, NY 12205 Executive Officer
IDS Life Series Fund, Inc. 70100 AXP Financial Center Director
Minneapolis, MN 55474
IDS Life Variable Annuity 70100 AXP Financial Center Manager
Funds A & B Minneapolis, MN 55474
Douglas W. Brewers American Express Financial 70100 AXP Financial Center Vice President - Sales
Vice President - Sales Support Advisors Inc. Minneapolis, MN 55474 Support
Kenneth I. Chenaut American Express Company American Express Tower President and Chief
Director World Financial Center Operating Officer
New York, NY 10285
Kenneth J. Ciak AMEX Assurance Company 70100 AXP Financial Center Director, President and Chief
Vice President and General Minneapolis, MN 55474 Executive Officer
Manager - IDS Property
Casualty
American Express Financial 70100 AXP Financial Center Vice President and General
Advisors Inc. Minneapolis, MN 55474 Manager - IDS Property
Casualty
American Express Property Director, President and Chief
Casualty Insurance Agency Executive Officer
of Kentucky Inc.
American Express Property Director, President and Chief
Casualty Insurance Agency Executive Officer
of Maryland Inc.
American Express Property Director, President and Chief
Casualty Insurance Agency Executive Officer
of Pennsylvania Inc.
IDS Property Casualty 1 WEG Blvd. Director and President
Insurance Company DePere, WI 54115
Paul A. Connolly American Express Financial 70100 AXP Financial Center Vice President - Retail
Vice President - Retail Advisors Inc. Minneapolis, MN 55474 Distribution Services
Distribution Services
James M. Cracchiolo American Express Financial 70100 AXP Financial Center Director, Chairman, President and
Director, Chairman of Advisors Inc. Minneapolis, MN 55474 Chief Executive Officer
the Board, President and
Chief Executive Officer
Colleen Curran American Express Financial 70100 AXP Financial Center Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55474 Assistant General Counsel
General Counsel
American Express Financial Executive Representative
Advisors Japan Inc.
American Express Service Vice President and Chief
Corporation Legal Counsel
Luz Maria Davis American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Advisors Inc. Minneapolis, MN 55474 Communications
Communications
Robert M. Elconin American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Government Advisors Inc. Minneapolis, MN 55474 Government Relations
Relations
IDS Life Insurance Company 70100 AXP Financial Center Vice President
Minneapolis, MN 55474
Gordon M. Fines American Express Asset 70100 AXP Financial Center Senior Vice President and
Vice President - Mutual Fund Management Group Inc. Minneapolis, MN 55474 Chief Investment Officer
Equity Investments
American Express Financial 70100 AXP Financial Center Vice President - Mutual
Advisors Inc. Minneapolis, MN 55474 Fund Equity Investments
Douglas L. Forsberg American Express Financial 70100 AXP Financial Center Vice President -
Vice President - International Advisors Inc. Minneapolis, MN 55474 International
American Express Financial 70100 AXP Financial Center Director, President and
Advisors Japan Inc. Minneapolis, MN 55474 Chief Executive Officer
Peter A. Gallus American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Investment Advisors Inc. Minneapolis, MN 55474 Investment Administration
Administration
American Express Financial 70100 AXP Financial Center Vice President and Chief
Advisors Japan Inc. Minneapolis, MN 55474 Financial Officer
IDS Capital Holdings, Inc. Vice President and Controller
Derek M. Gledhill American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Integrated Advisors Inc. Minneapolis, MN 55474 Integrated Financial
Financial Services Field Services Field
Implementation Implementation
David A. Hammer American Express Financial 70100 AXP Financial Center Vice President and
Vice President and Marketing Advisors Inc. Minneapolis, MN 55474 Marketing Controller
Controller
Teresa A. Hanratty American Express Financial 70100 AXP Financial Center Senior Vice
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 President - Field Management
Field Management
Lorraine R. Hart AMEX Assurance Company 70100 AXP Financial Center Vice President -
Vice President - Insurance Minneapolis, MN 55474 Investments
Investments
American Centurion Life 20 Madison Ave. Extension Vice President
Assurance Company P.O. Box 5555
Albany, NY 12205-0555
American Enterprise Life 829 AXP Financial Center Vice President
Insurance Company Minneapolis, MN 55474
American Express Director, President and Chief
Corporation Executive Officer
American Express Financial 70100 AXP Financial Center Vice President - Insurance
Advisors Inc. Minneapolis, MN 55474 Investments
American Partners Life 1751 AXP Financial Center Director and Vice
Insurance Company Minneapolis, MN 55474 President
American Express Certificate Vice President - Investments
Company
IDS Life Insurance Company 70100 AXP Financial Center Vice President - Investments
Minneapolis, MN 55474
IDS Life Series Fund, Inc. 70100 AXP Financial Center Vice President - Investments
Minneapolis, MN 55474
IDS Life Variable Annuity 70100 AXP Financial Center Vice President - Investments
Funds A and B Minneapolis, MN 55474
Investors Syndicate Director and Vice
Development Corp. President - Investments
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
IDS Property Casualty 1 WEG Blvd. Vice President - Investment Officer
Insurance Company DePere, WI 54115
Janis K. Heaney American Express Financial 70100 AXP Financial Center Vice President - Incentive
Vice President - Incentive Advisors Inc. Minneapolis, MN 55474 Management
Management
Brian M. Heath American Express Financial 70100 AXP Financial Center Senior Vice President and
Senior Vice President Advisors Inc. Minneapolis, MN 55474 General Sales Manager
and General Sales Manager
Carol A. Holton American Centurion Life 20 Madison Ave. Extension Director
Vice President - Third Party Assurance Company Albany, NY 12205-0555
Distribution
American Express Financial 70100 AXP Financial Center Vice President - Third
Advisors Inc. Minneapolis, MN 55474 Party Distribution
American Enterprise Life 829 AXP Financial Center Director, President and
Insurance Company Minneapolis, MN 55474 Chief Executive Officer
IDS Life Insurance Company 20 Madison Ave. Extension Director
of New York P.O. Box 5555
Albany, NY 12205-0555
Darryl G. Horsman American Express Trust 70100 AXP Financial Center Director, President and Chief
Vice President - Product Company Minneapolis, MN 55474 Executive Officer
Development and Technology,
American Express Retirement American Express Asset Vice President
Services Management International
Inc.
Debra A. Hutchinson American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Relationship Advisors Inc. Minneapolis, MN 55474 Relationship Leader
Leader
James M. Jensen American Express Financial 70100 AXP Financial Center Vice President - Advice
Vice President - Advice and Advisors Inc. Minneapolis, MN 55474 and Retail Distribution
Retail Distribution Group, Group, Product,
Product, Compensation and Compensation and Field
Field Administration Administration
Marietta L. Johns American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Field Management
Field Management
Nancy E. Jones American Express Financial 70100 AXP Financial Center Vice President - Business
Vice President - Business Advisors Inc. Minneapolis, MN 55474 Development
Development
American Express Service Vice President - Business
Corporation Development
John C. Junek American Express Financial 70100 AXP Financial Center Senior Vice President and
Senior Vice President Advisors Inc. Minneapolis, MN 55474 General Counsel
and General Counsel
American Express Financial 70100 AXP Financial Center Vice President
Advisors Japan Inc. Minneapolis, MN 55474
American Express Insurance Director and Vice President
Agency of Alabama Inc.
American Express Insurance Director and Vice President
Agency of Arizona Inc.
American Express Insurance Director and Vice President
Agency of Idaho Inc.
American Express Insurance Director and Vice President
Agency of Indiana Inc.
American Express Insurance Director and Vice President
Agency of Massachusetts Inc.
American Express Insurance Director and Vice President
Agency of Nevada Inc.
American Express Insurance Director and Vice President
Agency of New Mexico Inc.
American Express Insurance Director and Vice President
Agency of Oklahoma Inc.
American Express Insurance Director and Vice President
Agency of Oregon Inc.
American Express Insurance Director and Vice President
Agency of Wyoming Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Director and Vice President
Arkansas Inc.
IDS Insurance Agency of Director and Vice President
Ohio Inc.
IDS Real Estate Vice President
Services, Inc.
Investors Syndicate Director
Development Corp.
Ora J. Kaine American Express Financial 70100 AXP Financial Center Vice President - Financial
Vice President - Financial Advisors Inc. Minneapolis, MN 55474 Advisory Services
Advisory Services
Linda B. Keene American Express Financial 70100 AXP Financial Center Vice President - Market
Vice President - Market Advisors Inc. Minneapolis, MN 55474 Development
Development
John M. Knight American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Investment Advisors Minneapolis, MN 55474 Investment Accounting
Accounting
Claire Kolmodin American Express Financial 70100 AXP Financial Center Vice President - Service
Vice President - Service Advisors Inc. Minneapolis, MN 55474 Quality
Quality
Steven C. Kumagai American Express Financial 70100 AXP Financial Center Director and Senior Vice
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 President-Direct and
Direct and Interactive Interactive Group
Group
AMEX Assurance Company 70100 AXP Financial Center Director
Minneapolis, MN 55474
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
Kurt A Larson American Express Financial 70100 AXP Financial Center Vice President - Senior
Vice President - Senior Advisors Inc. Minneapolis, MN 55474 Portfolio Manager
Portfolio Manager
Lori J. Larson American Express Financial 70100 AXP Financial Center Vice President - Brokerage
Vice President - Brokerage Advisors Inc. Minneapolis, MN 55474 and Direct Services
and Direct Services
Daniel E. Laufenberg American Express Financial 70100 AXP Financial Center Vice President and Chief
Vice President and Chief Advisors Inc. Minneapolis, MN 55474 U.S. Economist
U.S. Economist
Jane W. Lee American Express Financial 70100 AXP Financial Center Vice President - New
Vice President - New Business Advisors Inc. Minneapolis, MN 55474 Business Development and
Development and Marketing Marketing
Peter A. Lefferts American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Corporate Strategy and
Corporate Strategy and Development
Development
American Express Trust Director
Company
Fred A. Mandell American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Distribution Advisors Inc. Minneapolis, MN 55474 Distribution Channel
Channel Marketing Marketing
Timothy J. Masek American Express Financial 70100 AXP Financial Center Vice President and
Vice President and Director Advisors Inc. Minneapolis, MN 55474 Director of Global Research
of Global Research
Paula R. Meyer American Express Financial 70100 AXP Financial Center Vice President - Mutual
Vice President - Mutual Funds Advisors Inc. Minneapolis, MN 55474 Funds
American Express Certificate Director, President and Chief
Company Executive Officer
Investors Syndicate Director, President and Chief
Development Corp. Executive Officer
Shashank B. Modak American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Technology Advisors Inc. Minneapolis, MN 55474 Technology Leader
Leader
Pamela J. Moret American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Products Group
Products Group
American Express Trust Vice President
Company
AMEX Assurance Company 70100 AXP Financial Center Director
Minneapolis, MN 55474
American Express Certificate Director and Chairman of the Board
Company
IDS Life Insurance Company 70100 AXP Financial Center Director, Chairman and
Minneapolis, MN 55474 Chief Executive Officer
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
Barry J. Murphy American Express Client 70100 AXP Financial Center Director, Chairman, President
Executive Vice President - Service Corporation Minneapolis, MN 55474 and Chief Executive Officer
U.S. Retail Group
American Express Financial 70100 AXP Financial Center Executive Vice President -
Advisors Inc. Minneapolis, MN 55474 U.S. Retail Group
IDS Life Insurance Company 70100 AXP Financial Center Director
Minneapolis, MN 55474
Mary Owens Neal American Express Financial 70100 AXP Financial Center Vice President - Consumer
Vice President - Consumer Advisors Inc. Minneapolis, MN 55474 Marketing
Marketing
Francois B. Odouard American Express Financial 70100 AXP Financial Center Vice President
Vice President Advisors Inc. Minneapolis, MN 55474
Michael J. O'Keefe American Express Financial 70100 AXP Financial Center Vice President - Advisory
Vice President - Advisory Advisors Inc. Minneapolis, MN 55474 Business Systems
Business Systems
James R. Palmer American Express Director
Vice President - Taxes Corporation
American Express Financial 70100 AXP Financial Center Vice President - Taxes
Advisors Inc. Minneapolis, MN 55474
IDS Life Insurance Company 70100 AXP Financial Center Vice President
Minneapolis, MN 55474
Carla P. Pavone American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Product Advisors Inc. Minneapolis, MN 55474 Business Development
Business Development
Kris Petersen American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Advisors Inc. Minneapolis, MN 55474 Non-proprietary Products
Non-proprietary Products
IDS Cable Corporation Director, President and Chief
Executive Officer
IDS Cable II Corporation Director, President and Chief
Executive Officer
IDS Futures Corporation Director and President
IDS Management Corporation Director, President and Chief
Executive Officer
IDS Partnership Services Director, President and Chief
Corporation Executive Officer
IDS Realty Corporation Director, President and Chief
Executive Officer
Susan B. Plimpton American Express Financial 70100 AXP Financial Center Vice President - Marketing
Vice President - Marketing Advisors Inc. Minneapolis, MN 55474 Services
Services
Ronald W. Powell American Express Financial 70100 AXP Financial Center Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55474 Assistant General Counsel
General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Vice President and
Corporation Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
James M. Punch American Express Financial 70100 AXP Financial Center Vice President - Branded
Vice President and Project Advisors Inc. Minneapolis, MN 55474 Platform Project
Manager - Branded Platform
Project
Frederick C. Quirsfeld American Express Asset 70100 AXP Financial Center Senior Vice President and
Senior Vice President - Management Group Inc. Minneapolis, MN 55474 Senior Portfolio Manager
Fixed Income
American Express Financial 70100 AXP Financial Center Senior Vice President -
Advisors Inc. Minneapolis, MN 55474 Fixed Income
IDS Life Series Fund, Inc. Vice President, Investments
Teresa J. Rasmussen American Express Financial 70100 AXP Financial Center Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55474 Assistant General Counsel
General Counsel
American Enterprise Life 829 AXP Financial Center Director, Vice President, General
Insurance Company Minneapolis, MN 55474 Counsel and Secretary
American Express Corporation Director, Vice President and Secretary
American Partners Life Director, Vice President, General
Insurance Company Counsel and Secretary
IDS Life Insurance Company Vice President and General Counsel
IDS Life Insurance Company Assistant General Counsel and
of New York Assistant Secretary
IDS Life Series Fund, Inc. General Counsel and Assistant Secretary
IDS Life Variable Annuity General Counsel and Assistant Secretary
Funds A & B
Rollyn C. Renstrom American Express Financial 70100 AXP Financial Center Vice President - Corporate
Vice President - Corporate Advisors Inc. Minneapolis, MN 55474 Planning and Analysis
Planning and Analysis
ReBecca K. Roloff American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Field Management and
Field Management Financial Advisory Services
and Financial Advisory
Services
Stephen W. Roszell Advisory Capital 70100 AXP Financial Center Director
Senior Vice President - Strategies Group Inc. Minneapolis, MN 55474
Institutional
Group American Express Asset Director, President and
Management Group Inc. Chief Executive Officer
American Express Asset Director
Management International,
Inc.
American Express Asset Director
Management Ltd.
American Express Financial 70100 AXP Financial Center Senior Vice President -
Advisors Inc. Minneapolis, MN 55474 Institutional
American Express Trust Director
Company
Erven A. Samsel American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Field Management
Field Management
American Express Insurance Vice President
Agency of Alabama Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Indiana Inc.
American Express Insurance Vice President
Agency of Massachusetts Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of New Mexico Inc.
American Express Insurance Vice President
Agency of Oklahoma Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Insurance Vice President
Agency of Wyoming Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
Theresa M. Sapp American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Relationship Advisors Inc. Minneapolis, MN 55474 Relationship Leader
Leader
Stuart A. Sedlacek American Enterprise Life 829 AXP Financial Center Executive Vice President
Director, Senior Vice Insurance Company Minneapolis, MN 55474
President and Chief Financial
Officer
American Express Financial 70100 AXP Financial Center Senior Vice President and
Advisors Inc. Minneapolis, MN 55474 Chief Financial Officer
American Express Trust Director
Company
American Partners Life 1751 AXP Financial Center Director and Vice President
Insurance Company Minneapolis, MN 55474
IDS Life Insurance Company 70100 AXP Financial Center Director and Executive Vice President
Minneapolis, MN 55474
Donald K. Shanks AMEX Assurance Company 70100 AXP Financial Center Senior Vice President
Vice President - Property Minneapolis, MN 55474
Casualty
American Express Financial 70100 AXP Financial Center Vice President - Property
Advisors Inc. Minneapolis, MN 55474 Casualty
IDS Property Casualty 1 WEG Blvd. Senior Vice President
Insurance Company DePere, WI 54115
Judy P. Skoglund American Express Financial 70100 AXP Financial Center Vice President - Quality
Vice President - Quality and Advisors Inc. Minneapolis, MN 55474 and Service Support
Service Support
Bridget Sperl American Enterprise Director
Senior Vice President - Investment Services Inc.
Client Service
American Express Client 70100 AXP Financial Center Vice President
Service Corporation Minneapolis, MN 55474
American Express Financial 70100 AXP Financial Center Senior Vice President -
Advisors Inc. Minneapolis, MN 55474 Client Service
IDS Life Insurance Company Executive Vice President -
Client Service
IDS Property Casualty Director
Insurance Company
Public Employee Payment Director, President and Chief
Company Executive Officer
Lisa A. Steffes American Express Financial 70100 AXP Financial Center Vice President - Marketing
Vice President - Marketing Advisors Inc. Minneapolis, MN 55474 Offer Development
Offer Development
AMEX Assurance Company 70100 AXP Financial Center Director
Minneapolis, MN 55474
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
James J. Strauss American Express Financial 70100 AXP Financial Center Vice President and General
Vice President and General Advisors Inc. Minneapolis, MN 55474 Auditor
Auditor
Jeffrey J. Stremcha American Express Financial 70100 AXP Financial Center Vice President -
Vice President - Information Advisors Inc. Minneapolis, MN 55474 Information Resource
Resource Management/ISD Management/ISD
John R. Thomas American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Information and Technology
Information and Technology
Keith N. Tufte American Express Financial 70100 AXP Financial Center Vice President and
Vice President and Director Advisors Inc. Minneapolis, MN 55474 Director of Equity Research
of Equity Research
Norman Weaver Jr. American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Alliance Group
Alliance Group
American Express Insurance Vice President
Agency of Alabama Inc.
American Express Insurance Vice President
Agency of Arizona Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Indiana Inc.
American Express Insurance Vice President
Agency of Massachusetts Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of New Mexico Inc.
American Express Insurance Vice President
Agency of Oklahoma Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Insurance Vice President
Agency of Wyoming Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
Jeffry F. Welter American Express Financial 70100 AXP Financial Center Vice President - Equity
Vice President - Equity and Advisors Inc. Minneapolis, MN 55474 and Fixed Income Trading
Fixed Income Trading
Michael D. Wolf American Express Asset 70100 AXP Financial Center Executive Vice President
Vice President - Senior Management Group Inc. Minneapolis, MN 55474 and Senior Portfolio
Portfolio Manager Manager
American Express Financial 70100 AXP Financial Center Vice President - Senior
Advisors Inc. Minneapolis, MN 55474 Portfolio Manager
Michael R. Woodward American Express Financial 70100 AXP Financial Center Senior Vice President -
Senior Vice President - Advisors Inc. Minneapolis, MN 55474 Field Management
Field Management
American Centurion Life 20 Madison Ave. Extension Director
Assurance Company Albany, NY 12205-0555
American Express Insurance Vice President
Agency of Alabama Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Indiana Inc.
American Express Insurance Vice President
Agency of Massachusetts Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of New Mexico Inc.
American Express Insurance Vice President
Agency of Oklahoma Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Insurance Vice President
Agency of Wyoming Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
Doretta R. Wright American Express Financial Vice President
Vice President Advisors Inc.
David L. Yowan American Centurion Life 20 Madison Ave. Extension Vice President and Treasurer
Vice President and Corporate Assurance Company Albany, NY 12205-0555
Treasurer
American Enterprise Vice President and
Investment Services Treasurer
American Enterprise Life 829 AXP Financial Center Vice President and
Insurance Company Minneapolis, MN 55474 Treasurer
American Express Asset Vice President and
Management Group Inc. Treasurer
American Express Asset Vice President and
Management International Treasurer
Inc.
American Express Vice President and
Certificate Company Treasurer
American Express Client 70100 AXP Financial Center Vice President and
Service Corporation Minneapolis, MN 55474 Treasurer
American Express Vice President and
Corporation Treasurer
American Express Financial 70100 AXP Financial Center Vice President and
Advisors Inc. Minneapolis, MN 55474 Treasurer
American Express Financial Vice President and
Advisors Japan Inc. Treasurer
American Express Insurance Vice President and
Agency of Alabama Inc. Treasurer
American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer
American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer
American Express Insurance Vice President and
Agency of Indiana Inc. Treasurer
American Express Insurance Vice President and
Agency of Massachusetts Inc. Treasurer
American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer
American Express Insurance Vice President and
Agency of New Mexico Inc. Treasurer
American Express Insurance Vice President and
Agency of Oklahoma Inc. Treasurer
American Express Insurance Vice President and
Agency of Oregon Inc. Treasurer
American Express Insurance Vice President and
Agency of Wyoming Inc. Treasurer
American Express Personal Treasurer
Trust Services, FSB
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.
American Partners Life 1751 AXP Financial Center Vice President and
Insurance Company Minneapolis, MN 55474 Treasurer
IDS Cable Corporation Director, Vice President and
Treasurer
IDS Cable II Corporation Director, Vice President and
Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer
and Assistant Secretary
IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer
IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer
IDS Life Insurance Company 20 Madison Ave. Extension Vice President, Treasurer
P.O. Box 5555 and Assistant Secretary
Albany, NY 12205-0555
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Treasurer
IDS Life Series Fund, Inc. 70100 AXP Financial Center Vice President and
Minneapolis, MN 55474 Treasurer
IDS Life Variable Annuity 70100 AXP Financial Center Vice President and
Funds A & B Minneapolis, MN 55474 Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Vice President and
Corporation Treasurer
IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary
IDS Real Estate Services, Vice President and
Inc. Treasurer
IDS Realty Corporation Vice President and
Treasurer
Investors Syndicate Vice President and
Development Corporation Treasurer
Public Employee Payment Vice President and
Company Treasurer
Item 27. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for the following investment companies:
AXP Bond Fund, Inc.; AXP California Tax-Exempt Trust; AXP Discovery Fund, Inc.; AXP Equity Select Fund,
Inc.; AXP Extra Income Fund, Inc.; AXP Federal Income Fund, Inc.; AXP Global Series, Inc.; AXP Growth
Series, Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP International Fund, Inc.; AXP Investment Series,
Inc.; AXP Managed Series, Inc.; AXP Market Advantage Series, Inc.; AXP Money Market Series, Inc.; AXP
New Dimensions Fund, Inc.; AXP Partners Series, Inc.; AXP Precious Metals Fund, Inc.; AXP Progressive
Fund, Inc.; AXP Selective Fund, Inc.; AXP Special Tax-Exempt Series Trust; AXP Stock Fund, Inc.; AXP
Strategy Series, Inc.; AXP Tax-Exempt Series, Inc.; AXP Tax-Free Money Fund, Inc.; AXP Utilities Income
Fund, Inc., Growth Trust; Growth and Income Trust; Income Trust; Tax-Free Income Trust; World Trust;
American Express Certificate Company.
(b) As to each director, officer or partner of the principal underwriter:
Name and Principal Position and Offices with Offices with Registrant
Business Address Underwriter
Ronald G. Abrahamson Vice President - None
70100 AXP Financial Center Business Transformation
Minneapolis, MN 55474
Ruediger Adolf Senior Vice President None
70100 AXP Financial Center
Minneapolis, MN 55474
Douglas A. Alger Senior Vice President - None
70100 AXP Financial Center Human Resources
Minneapolis, MN 55474
Gumer C. Alvero Vice President - None
70100 AXP Financial Center Annuities
Minneapolis, MN 55474
Ward D. Armstrong Senior Vice President - None
70100 AXP Financial Center Retirement Services
Minneapolis, MN 55474
John M. Baker Vice President - Plan None
70100 AXP Financial Center Sponsor Services
Minneapolis, MN 55474
Dudley Barksdale Vice President - Service None
70100 AXP Financial Center Development
Minneapolis, MN 55474
Joseph M. Barsky III Vice President - Mutual None
70100 AXP Financial Center Fund Equities
Minneapolis, MN 55474
Timothy V. Bechtold Vice President - Risk None
70100 AXP Financial Center Management Products
Minneapolis, MN 55474
Brent L. Bisson Group Vice President - None
Suite 900, E. Westside Twr Los Angeles Metro
11835 West Olympic Blvd.
Los Angeles, CA 90064
Walter K. Booker Group Vice President - None
Suite 200, 3500 Market New Jersey
Street
Camp Hill, NJ 17011
Bruce J. Bordelon Group Vice President - None
1333 N. California Blvd., San Francisco Bay Area
Suite 200
Walnut Creek, CA 94596
Charles R. Branch Group Vice President - None
Suite 200 Northwest
West 111 North River Dr.
Spokane, WA 99201
Douglas W. Brewers Vice President - Sales None
70100 AXP Financial Center Support
Minneapolis, MN 55474
Kenneth J. Ciak Vice President and None
IDS Property Casualty General Manager - IDS
1400 Lombardi Avenue Property Casualty
Green Bay, WI 54304
Paul A. Connolly Vice President - Retail None
70100 AXP Financial Center Distribution Services
Minneapolis, MN 55474
Henry J. Cormier Group Vice President - None
Commerce Center One Connecticut
333 East River Drive
East Hartford, CT 06108
James M. Crachhiolo Director, Chairman, President and None
70100 AXP Financial Center Chief Executive Officer
Minneapolis, MN 55474
John M. Crawford Group Vice President - None
Suite 200 Arkansas/
10800 Financial Ctr Pkwy Springfield/Memphis
Little Rock, AR 72211
Kevin F. Crowe Group Vice President - None
Suite 312 Carolinas/Eastern Georgia
7300 Carmel Executive Pk
Charlotte, NC 28226
Colleen Curran Vice President and None
70100 AXP Financial Center Assistant General Counsel
Minneapolis, MN 55474
Luz Maria Davis Vice President - None
70100 AXP Financial Center Communications
Minneapolis, MN 55474
Arthur E. DeLorenzo Group Vice President - None
4 Atrium Drive, #100 Upstate New York
Albany, NY 12205
Scott M. DiGiammarino Group Vice President - None
Suite 500, 8045 Leesburg Washington/Baltimore
Pike
Vienna, VA 22182
Bradford L. Drew Group Vice President - None
Two Datran Center Eastern Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
Douglas K. Dunning Vice President - Assured None
70100 AXP Financial Center Assets Product
Minneapolis, MN 55474 Development and
Management
James P. Egge Group Vice President - None
4305 South Louise, Western Iowa, Nebraska,
Suite 202 Dakotas
Sioux Falls, SD 57103
Robert M. Elconin Vice President - None
70100 AXP Financial Center Government Relations
Minneapolis, MN 55474
Gordon M. Fines Vice President - Mutual None
70100 AXP Financial Center Fund Equity Investments
Minneapolis, MN 55474
Douglas L. Forsberg Vice President - None
70100 AXP Financial Center International
Minneapolis, MN 55474
William P. Fritz Group Vice President - Gateway None
12323 Olive Blvd/Westview Place #200
Creve Couer, MO 63141
Peter A. Gallus Vice President - None
70100 AXP Financial Center Investment
Minneapolis, MN 55474 Administration
Derek M. Gledhill Vice President - None
70100 AXP Financial Center Integrated Financial
Minneapolis, MN 55474 Services Field
Implementation
David A. Hammer Vice President and None
70100 AXP Financial Center Marketing Controller
Minneapolis, MN 55474
Teresa A. Hanratty Senior Vice President - None
Suites 6&7 Field Management
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President - None
Two Constitution Plaza Boston Metro
Boston, MA 02129
Lorraine R. Hart Vice President - None
70100 AXP Financial Center Insurance Investments
Minneapolis, MN 55474
Janis K. Heaney Vice President - None
70100 AXP Financial Center Incentive Management
Minneapolis, MN 55474
Brian M. Heath Senior Vice President None
Suite 150 and General Sales Manager
801 E. Campbell Road
Richardson, TX 75081
Jon E. Hjelm Group Vice President - None
319 Southbridge Street Rhode Island/Central -
Auburn, MA 01501 Western Massachusetts
David J. Hockenberry Group Vice President - None
30 Burton Hills Blvd. Tennessee Valley
Suite 175
Nashville, TN 37215
`
Carol A. Holton Vice President - Third None
70100 AXP Financial Center Party Distribution
Minneapolis, MN 55474
Debra A. Hutchinson Vice President - None
70100 AXP Financial Center Relationship Leader
Minneapolis, MN 55474
Diana R. Iannarone Group Vice President - None
3030 N.W. Expressway Kansas/Oklahoma
Suite 900
Oklahoma City, OK 73112
Theodore M. Jenkin Group Vice President - None
70100 AXP Financial Center Cleveland Metro
Minneapolis, MN 55474
James M. Jensen Vice President - None
70100 AXP Financial Center Advice and
Minneapolis, MN 55474 Retail Distribution
Group, Product,
Compensation and Field
Administration
Marietta L. Johns Senior Vice President - None
70100 AXP Financial Center Field Management
Minneapolis, MN 55474
Nancy E. Jones Vice President - None
70100 AXP Financial Center Business Development
Minneapolis, MN 55474
John C. Junek Senior Vice President, None
70100 AXP Financial Center General Counsel
Minneapolis, MN 55474
Ora J. Kaine Vice President - None
70100 AXP Financial Center Financial Advisory
Minneapolis, MN 55474 Services
Linda B. Keene Vice President - Market None
70100 AXP Financial Center Development
Minneapolis, MN 55474
Raymond G. Kelly Group Vice President - None
Suite 250 North Texas
801 East Campbell Road
Richardson, TX 75081
John M. Knight Vice President - Treasurer
70100 AXP Financial Center Investment Accounting
Minneapolis, MN 55474
Claire Kolmodin Vice President - Service None
70100 AXP Financial Center Quality
Minneapolis, MN 55474
Steven C. Kumagai Director and Senior Vice None
70100 AXP Financial Center President - Direct and
Minneapolis, MN 55474 Interactive Group
Mitre Kutanovski Group Vice President - None
Suite 680 Chicago Metro
8585 Broadway
Merrillville, IN 48410
Kurt A. Larson Vice President - Senior None
70100 AXP Financial Center Portfolio Manager
Minneapolis, MN 55474
Lori J. Larson Vice President - None
70100 AXP Financial Center Brokerage and Direct
Minneapolis, MN 55474 Services
Daniel E. Laufenberg Vice President and Chief None
70100 AXP Financial Center U.S. Economist
Minneapolis, MN 55474
Jane W. Lee Vice President - New None
70100 AXP Financial Center Business Development and
Minneapolis, MN 55474 Marketing
Peter A. Lefferts Senior Vice President - None
70100 AXP Financial Center Corporate Strategy and
Minneapolis, MN 55474 Development
Fred A. Mandell Vice President - None
70100 AXP Financial Center Distribution Channel
Minneapolis, MN 55474 Marketing
Timothy J. Masek Vice President and None
70100 AXP Financial Center Director of Global
Minneapolis, MN 55474 Research
Paula R. Meyer Vice President - Mutual None
70100 AXP Financial Center Funds
Minneapolis, MN 55474
Shashank B. Modak Vice President - None
70100 AXP Financial Center Technology Leader
Minneapolis, MN 55474
Pamela J. Moret Senior Vice President - None
70100 AXP Financial Center Products Group
Minneapolis, MN 55474
Barry J. Murphy Executive Vice President - None
70100 AXP Financial Center U.S. Retail Group
Minneapolis, MN 55474
Mary Owens Neal Vice President - None
70100 AXP Financial Center Consumer Marketing
Minneapolis, MN 55474
Scott M. Nelson Vice President - None
70100 AXP Financial Center Alternative Investments
Minneapolis, MN 55474
Thomas V. Nicolosi Group Vice President - None
Suite 220 New York Metro Area
500 Mamaroneck Ave.
Harrison, NY 10528
Francois B. Odouard Vice President None
70100 AXP Financial Center
Minneapolis, MN 55474
Michael J. O'Keefe Vice President - None
70100 AXP Financial Center Advisory Business Systems
Minneapolis, MN 55474
James R. Palmer Vice President - Taxes None
70100 AXP Financial Center
Minneapolis, MN 55474
Marc A. Parker Group Vice President - None
10200 SW. Greenburg Rd. Portland/Eugene
Suite 110
Portland, OR. 97223
Carla P. Pavone Vice President - None
70100 AXP Financial Center Business Development
Minneapolis, MN 55474
Kris Petersen Vice President - None
70100 AXP Financial Center Non-proprietary Products
Minneapolis, MN 55474
Susan B. Plimpton Vice President - None
70100 AXP Financial Center Marketing Services
Minneapolis, MN 55474
Larry M. Post Group Vice President - None
One Tower Bridge Philadelphia Metro and
100 Front Street 8th Fl Northern New England
West Conshohocken, PA
19428
Ronald W. Powell Vice President and None
70100 AXP Financial Center Assistant General Counsel
Minneapolis, MN 55474
James M. Punch Vice President - Branded None
70100 AXP Financial Center Platform Project
Minneapolis, MN 55474
Frederick C. Quirsfeld Senior Vice President - Vice President
70100 AXP Financial Center Fixed Income
Minneapolis, MN 55474
Teresa J. Rasmussen Vice President and None
70100 AXP Financial Center Assistant General Counsel
Minneapolis, MN 55474
Rollyn C. Renstrom Vice President - None
70100 AXP Financial Center Corporate Planning and
Minneapolis, MN 55474 Analysis
Ralph D. Richardson III Group Vice President - None
Suite 800 Southern Texas
Arboretum Plaza One
9442 Capital of Texas
Hyw. N.
Austin, TX 78759
ReBecca K. Roloff Senior Vice President - None
70100 AXP Financial Center Field Management and
Minneapolis, MN 55474 Financial Advisory
Services
Stephen W. Roszell Senior Vice President - None
70100 AXP Financial Center Institutional
Minneapolis, MN 55474
Max G. Roth Group Vice President - None
Suite 201 S. IDS Ctr Wisconsin/Upper Michigan
1400 Lombardi Avenue
Green Bay, WI 54304
Diane M. Ruebling Group Vice President - None
70100 AXP Financial Center Central
Minneapolis, MN 55474 California/Western Nevada
Erven A. Samsel Senior Vice President - None
45 Braintree Hill Park Field Management
Suite 402
Braintree, MA 02184
Theresa M. Sapp Vice President - None
70100 AXP Financial Center Relationship Leader
Minneapolis, MN 55474
Russell L. Scalfano Group Vice President - None
Suite 201 Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice President - None
Suite 205 Arizona/Las Vegas
7333 E. Doubletree Ranch
Rd.
Scottsdale AZ. 85258
Stuart A. Sedlacek Senior Vice President None
70100 AXP Financial Center and Chief Financial
Minneapolis, MN 55474 Officer
Donald K. Shanks Vice President - None
70100 AXP Financial Center Property Casualty
Minneapolis, MN 55474
Judy P. Skoglund Vice President - Quality None
70100 AXP Financial Center and Service Support
Minneapolis, MN 55474
Bridget Sperl Senior Vice President - None
70100 AXP Financial Center Client Service
Minneapolis, MN 55474
Paul J. Stanislaw Group Vice President - None
Suite 1100 Southern California
Two Park Plaza
Irvine, CA 92714
Lisa A. Steffes Vice President - None
70100 AXP Financial Center Marketing Offer
Minneapolis, MN 55474 Development
Lois A. Stilwell Group Vice President - None
Suite 433 Outstate Minnesota
9900 East Bren Rd. Area/North Dakota/
Minnetonka, MN 55343 Western Wisconsin
James J. Strauss Vice President and None
70100 AXP Financial Center General Auditor
Minneapolis, MN 55474
Jeffrey J. Stremcha Vice President - None
70100 AXP Financial Center Information Resource
Minneapolis, MN 55474 Management/ISD
Barbara Stroup Stewart Vice President - Channel None
70100 AXP Financial Center Development
Minneapolis, MN 55474
Craig P. Taucher Group Vice President - None
Suite 150 Orlando/Jacksonville
4190 Belfort Rd.
Jackonville, FL 32216
Neil G. Taylor Group Vice President - None
Suite 425 Seattle/Tacoma/Hawaii
101 Elliot Avenue West
Seattle, WA 98119
John R. Thomas Senior Vice President - Board Member
70100 AXP Financial Center Information and and President
Minneapolis, MN 55474 Technology
Keith N. Tufte Vice President and None
70100 AXP Financial Center Director of Equity
Minneapolis, MN 55474 Research
Janet M. Vandenbark Group Vice President - None
3951 Westerre Parkway, Suite 250 Virginia
Richmond, VA 23233
Peter S. Velardi Group Vice President - None
Suite 180 Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice President - None
Suite 100 Detroit Metro
Stanford Plaza II
7979 East Tufts Ave. Pkwy.
Denver, CO 80237
Donald F. Weaver Group Vice President - None
3500 Market Street, Greater Pennsylvania
Suite 200
Camp Hill, PA 17011
Norman Weaver Jr. Senior Vice President - None
1010 Main St., Suite 2B Alliance Group
Huntington Beach, CA
92648
Beth E. Weimer Chief Compliance Officer None
70100 AXP Financial Center
Minneapolis, MN 55474
Jeffry M. Welter Vice President - Equity None
70100 AXP Financial Center and Fixed Income Trading
Minneapolis, MN 55474
William J. Williams Group Vice President - None
70100 AXP Financial Center Twin Cities Metro
Minneapolis, MN 55474
Michael D. Wolf Vice President - Senior None
70100 AXP Financial Center Portfolio Manager
Minneapolis, MN 55474
Michael R. Woodward Senior Vice President - None
32 Ellicott St Field Management
Suite 100
Batavia, NY 14020
Doretta R. Wright Vice President None
70100 AXP Financial Center
Minneapolis, MN 55474
David L. Yowan Vice President and None
American Express Company Treasurer
New York
Rande L. Zellers Group Vice President - None
1 Galleria Blvd., Suite 1900 Gulf States
Metairie, LA 70001
Item 27 (c). Not Applicable.
Item 28. Location of Accounts and Records
American Express Financial Corporation
70100 AXP Financial Center
Minneapolis, MN 55474
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant, AXP Growth Series, Inc. certifies that it meets all of the
requirement for effectiveness of this Registration Statement under Rule 485(b)
under the Securities Act and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis and State of Minnesota on the 26th day of
September 2001.
AXP GROWTH SERIES, INC.
By /s/ John R. Thomas**
----------------------
John R. Thomas, President
By /s/ John M. Knight
--------------------
John M. Knight, Treasurer
Pursuant to the requirements of the Securities Act, this Amendment to its
Registration Statement has been signed below by the following persons in the
capacities indicated on the 26th day of September, 2001.
Signature Capacity
/s/ H. Brewster Atwater, Jr.* Director
------------------------------
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson* Chairman of the Board
--------------------
Arne H. Carlson
/s/ Lynne V. Cheney* Director
---------------------
Lynne V. Cheney
/s/ Livio D. DeSimone* Director
-----------------------
Livio D. DeSimone
/s/ Ira D. Hall* Director
-----------------
Ira D. Hall
/s/ David R. Hubers* Director
---------------------
David R. Hubers
/s/ Heinz F. Hutter* Director
---------------------
Heinz F. Hutter
/s/ Anne P. Jones* Director
-------------------
Anne P. Jones
/s/ William R. Pearce* Director
-----------------------
William R. Pearce
/s/ Alan K. Simpson* Director
---------------------
Alan K. Simpson
/s/ John R. Thomas* Director
--------------------
John R. Thomas
/s/ C. Angus Wurtele* Director
----------------------
C. Angus Wurtele
* Signed pursuant to Directors' Power of Attorney, dated Jan. 11, 2001, filed
electronically herewith as Exhibit (q)(1) by:
/s/ Leslie L. Ogg
-----------------
Leslie L. Ogg
** Signed pursuant to Officers' Power of Attorney, dated Jan. 11, 2001, filed
electronically herewith as Exhibit (q)(2) by:
/s/ Leslie L. Ogg
-----------------
Leslie L. Ogg
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, GROWTH TRUST consents to the filing of this Amendment to the Registration
Statement of AXP Growth Series, Inc. signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis and State of Minnesota on
the 26th day of September 2001.
GROWTH TRUST
By /s/ John R. Thomas****
------------------------
John R. Thomas
President
By /s/ John M. Knight
--------------------
John M. Knight
Treasurer
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities indicated on the 26th day of September 2001.
Signature Capacity
/s/ H. Brewster Atwater, Jr.*** Trustee
---------------------------------
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson*** Chairman of the Board
-----------------------
Arne H. Carlson
/s/ Lynne V. Cheney*** Trustee
-----------------------
Lynne V. Cheney
/s/ Livio D. DeSimone*** Trustee
-------------------------
Livio D. DeSimone
/s/ Ira D. Hall*** Trustee
-----------------
Ira D. Hall
/s/ David R. Hubers*** Trustee
-----------------------
David R. Hubers
/s/ Heinz F. Hutter*** Trustee
-----------------------
Heinz F. Hutter
/s/ Anne P. Jones*** Trustee
---------------------
Anne P. Jones
/s/ William R. Pearce*** Trustee
-------------------------
William R. Pearce
/s/ Alan K. Simpson*** Trustee
-----------------------
Alan K. Simpson
Signature Capacity
/s/ John R. Thomas*** Trustee
----------------------
John R. Thomas
/s/ C. Angus Wurtele*** Trustee
------------------------
C. Angus Wurtele
***Signed pursuant to Trustees' Power of Attorney dated Jan. 11, 2001, filed
electronically herewith as Exhibit (q)(3) by:
/s/ Leslie L. Ogg
------------------
Leslie L. Ogg
****Signed pursuant to Officers' Power of Attorney dated Jan. 11, 2001, filed
electronically herewith as Exhibit (q)(4) by:
/s/ Leslie L. Ogg
------------------
Leslie L. Ogg
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 67 TO REGISTRATION STATEMENT NO.
2-38355
This Post-Effective Amendment contains the following papers and documents:
The facing sheet.
Part A.
The prospectus for AXP Growth Fund.
The prospectus for AXP Research Opportunities Fund.
Part B.
Statement of Additional Information for AXP Growth Fund.
Statement of Additional Information for AXP Research Opportunities Fund.
Financial Statements for:
AXP Growth Fund
Growth Portfolio
AXP Research Opportunities
Aggressive Growth Portfolio
Part C.
Other information.
Exhibits.
The signatures.
EX-99
3
ex-index.txt
EXHIBIT INDEX
EXHIBIT INDEX
(a)(2) Articles of Amendment to the Articles of Incorporation, dated
June 16, 1999.
(b) By-laws, as amended January 11, 2001.
(h)(11) Transfer Agency Agreement, dated May 10, 2000 between Registrant on
behalf of AXP Growth Fund and AXP Research Opportunities Fund and
American Express Client Service Corporation.
(i) Opinion and consent of counsel as to the legality of the securities
being registered.
(j) Independent Auditors' consent.
(q)(1) Directors' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 11, 2001.
(q)(2) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 11, 2001.
(q)(3) Trustees Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 11, 2001.
(q)(4) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 11, 2001.
EX-99.A2 ARTICLES
4
a2-articles.txt
ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT
OF
IDS Growth Fund, Inc., Inc.
Pursuant to Section 302A.135 of the Minnesota Business Corporation Act,
IDS Growth Fund, Inc., incorporated under the laws of the State of Minnesota on
April 8, 1986, amends its Articles of Incorporation to change the name of the
corporation to AXP Growth Series, Inc., The new Article I shall be:
ARTICLE I - NAME
The name of this corporation (hereinafter called the "Fund") is:
AXP Growth Series, Inc., Inc.
The resolution to amend the Articles of Incorporation was approved by
the affirmative vote of a majority of the shares present and entitled to vote
at a regular meeting of shareholders on June 16, 1999, held pursuant to a
written notice given to each shareholder in the manner provided in Section
302A.435.
Dated this 16th day of June, 1999.
AXP Growth Series, Inc., Inc.
By /s/ Leslie L. Ogg
-----------------
Leslie L. Ogg
Vice President and Secretary
STATE OF MINNESOTA)
)ss.
COUNTY OF DAKOTA)
The foregoing instrument was acknowledge before me this 16th day of June, 1999.
By /s/ Diane R. Kepp
------------------
Diane R. Kepp
Notary Public
(notary symbol)
(Diane R. Kepp)
(NOTARY PUBLIC-MINNESOTA)
(DAKOTA COUNTY) (rubber stamp)
(JUN 17, 1999)
(Mary Kiffmeyer)
(Secretary of State)
EX-99.B BYLAWS
5
b-bylaws.txt
BY-LAWS
Effective: June 13, 1986
Amended: 5/14/87, 1/12/89, 9/8/99, 1/11/01
BY-LAWS
OF
AXP GROWTH SERIES, INC.
ARTICLE I
Corporate Seal
The corporate seal shall bear the inscription "Seal." 9/8/99
ARTICLE II
Meeting of Shareholders
Section 1. No regular meeting of shareholders need be held, however, a
majority of directors present at a duly held meeting may call a regular meeting
of shareholders by fixing the date, time and place for a meeting. A regular
meeting of the shareholders shall include an election of directors. No meeting
shall be considered a regular meeting unless specifically designated as such in
the notice of meeting. Regular meetings may be held no more frequently than once
per year. If a regular meeting of shareholders has not been held during the
immediately preceding 15 months, a shareholder or shareholders holding three
percent or more of the voting power of all shares entitled to vote may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or chief financial officer of the Fund. Within 30 days after
receipt of the demand by one of those officers, the Board of Directors shall
cause a regular meeting of shareholders to be called and held on notice no later
than 90 days after receipt of the demand, all at the expense of the Fund. If the
Board fails to cause a regular meeting to be called, the shareholder or
shareholders making the demand may call the regular meeting by giving notice as
required by the laws of Minnesota at the expense of the Fund.
Section 2. The holders of at least ten percent (10%) of the shares
outstanding and entitled to vote, present in person or by proxy, shall
constitute a quorum, but the holders of a smaller amount may adjourn from time
to time without further notice, other than by notice at the time, until a quorum
is secured at any such adjourned meeting. In case a quorum is not present, the
meeting may be adjourned from time to time without notice other than by notice
at the meeting. At any adjourned meeting at which a quorum may be present, any
business may be transacted which might have been transacted at the meeting as
originally called.
Section 3. At each meeting of the shareholders, the polls may be opened
and closed, the proxies and ballots may be received and taken in charge, and all
questions touching the qualification of voters, the validity of proxies, and
acceptances or rejections of votes may be decided by two (2) inspectors of
election. Inspectors may be appointed by the Board of Directors before or at the
meeting. If no such appointment shall have been made or if any inspector be
absent or fails to act, the presiding officer at the meeting shall appoint a
person or persons to fill such vacancy. Inspectors shall take charge of the
polls and, when the vote is completed, shall make a certificate of the result of
the vote taken and of such other facts as may be required by law.
-1-
Section 4. Special meetings of the shareholders may be called at any
time as provided for by the laws of the State of Minnesota.
Section 5. Shareholders shall take action by the affirmative vote of the
holders of a majority of the voting power of the shares present and entitled to
vote except where a larger portion is otherwise required.
ARTICLE III
Directors
9/8/99
Section 1. An organizational meeting of the Board of Directors shall be
held as soon as convenient to a majority of the directors, after the final
adjournment of each regular meeting of the shareholders, and no notice shall be
required. Other meetings of the Board of Directors may be previously scheduled
or called by the Chair of the Board and Chief Executive Officer or any two
directors. Notice of specially called meetings shall be sufficient if given to
each director at least five days prior thereto by mail or one day prior thereto
by telephone, telegraph or in person, unless such notice period is waived by
each director.
Section 2. The Board of Directors shall fix and change, as it may from
time to time determine, by majority vote, the compensation to be paid the
directors, officers and all employees appointed by the Board of Directors.
Section 3. A director may give advance written consent or opposition to
a proposal to be acted on at a Board meeting. If the director is not present at
the meeting, consent or opposition to a proposal does not constitute presence
for purposes of determining the existence of a quorum, but consent or opposition
shall be counted as a vote in favor of or against the proposal and shall be
entered in the minutes of the meeting, if the proposal acted on at the meeting
is substantially the same or has substantially the same effect as the proposal
to which the director has consented or objected.
Section 4. A majority of the directors shall constitute a quorum, but a
smaller number may adjourn from time to time without notice, other than by
announcement at the meeting, until a quorum is secured; and, likewise, in case a
quorum is present, the meeting may be adjourned from time to time without notice
other than by announcement at the meeting. At any adjourned meeting at which a
quorum may be present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 5. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate an Executive Committee of two or more
directors, which may meet at stated times or on notice to all by any of their
number during intervals between meetings of the Board. The Executive Committee
shall advise with and aid the officers of the Fund in all matters concerning its
interests and the management of its business, and generally perform such duties
and exercise such powers as may be delegated to it from time to time by the
Board of Directors. Vacancies in the membership of such Executive Committee
shall be filled by the Board of Directors.
Section 6. From time to time the Board of Directors may, by resolution
passed by a majority of the whole Board, appoint any other committee or
committees for any purpose or purposes, which committee or committees shall have
such powers as shall be specified in the resolution of appointment.
Section 7. The quorum for such committee established by the Board of
Directors is two members regardless of the number of members serving on the
committee.
-2-
Section 8. Any action required or permitted to be taken at any meeting
of the Board of Directors or of a duly appointed committee of the Board of
Directors may be taken in any manner permitted by law.
Section 9. The Board of Directors shall elect one independent member
to serve a Chair of the Board whose duties shall include serving as the lead
independent director. 1/11/01
ARTICLE IV
Officers
1/11/01
9/8/99
Section 1. The Fund shall have a President, a Treasurer and may have
such other officers as the Board of Directors may choose from time to time.
Section 2. The Treasurer shall be the chief financial officer of the
Fund, shall keep or cause to be kept full and accurate accounts of receipts and
disbursements in books belonging to the Fund, and shall perform such other
duties as the Board of Directors may from time to time prescribe or require.
Section 3. Any person designated by the Board of Directors as President
or Vice President shall be vested with all the powers and required to perform
all the duties of the Chair of the Board and Chief Executive Officer in the
Chair's absence or disability, shall at all times be vested with the same power
as the Chair to sign and deliver in the name of the Fund any deeds, mortgages,
bonds, contracts or other instruments pertaining to the business of the Fund,
and shall perform such other duties as may be prescribed by the Board of
Directors. 9/8/99
Section 4. Any person designated by the Board of Directors as Secretary
shall attend all meetings of the shareholders of the Fund, the Board of
Directors, and such other meetings as may be designated by the Board of
Directors. The Secretary shall record all of the proceedings of such meetings in
a book or books to be kept for that purpose; shall have custody of the seal,
stock certificate books and minute books of the Fund; may affix the seal of the
Fund to any instrument and perform such additional duties as shall be assigned
by the Board of Directors.
Section 5. The officers of the Fund shall hold office until their
successors are chosen and qualify in their stead. Any officer chosen and
appointed by the Board of Directors may be removed either with or without cause
at any time by the Board of Directors.
ARTICLE V
Capital Stock
Shares of capital stock shall be uncertificated. 1/12/89
ARTICLE VI
Transfers
1/12/89
Section 1. Shares of stock of the Fund shall be transferred on the books
of the Fund at the request of the holder thereof in person or of her or his duly
authorized attorney upon surrender of the certificate or certificates therefor,
if any, or in their absence by a request for transfer in a form acceptable to
the Fund that may include the request be in writing, and be signed by the
registered holder or by his duly authorized attorney in the manner specified by
the Fund. No transfer or assignment of shares shall affect the right of the Fund
to pay any dividend due upon the shares, or to treat the holder of record as the
holder in fact, until such transfer or assignment is registered on the books of
the Fund and the Fund shall be entitled to treat the holder of record of any of
its shares as the holder in fact thereof and accordingly shall not be bound to
recognize any equitable or other claim to, or interest in, such shares on the
part of any person whether or not it shall have express or other notice thereof,
save as may be expressly provided by law.
-3-
Section 2. The Board of Directors shall have power and authority from
time to time to appoint one or more transfer agents and/or clerks and registrars
for the securities issued by the Fund and to make such rules and regulations as
it may deem expedient concerning the issue, transfer and registration of such
securities.
Section 3. If any security issued by the Fund be lost, stolen, mutilated
or destroyed, the security may be transferred upon giving of a satisfactory bond
of indemnity in an amount which, in the judgment of the Board of Directors, is
sufficient to indemnify the Fund against any claim that may result therefrom.
ARTICLE VII
Definitions
For all purposes of the Articles of Incorporation and these By-Laws, the
term "business day" shall be defined as a day with respect to which the New York
Stock Exchange is open for business.
ARTICLE VIII
Custodian or Trustee Agreements
The Fund shall enter into a custodian or trustee agreement with a bank
or trust company having aggregate capital, surplus and undivided profits of not
less than $2,000,000 for the custody of the Fund's securities and other assets.
All securities and cash assets owned or acquired by the Fund shall be held by
such custodian or trustee pursuant to the terms of such agreement and the Fund
shall deposit or cause to be deposited with such custodian or trustee all such
securities and cash assets. The agreement between the Fund and the custodian or
trustee may be terminated at any time by a vote of a majority of the outstanding
shares of the Fund.
ARTICLE IX
Miscellaneous
Section 1. The fiscal year of the Fund shall begin on the first day of
August in each year and end on the thirty-first day of July following.
Section 2. If the sale of shares issued by the Fund shall at any time be
discontinued, the Board of Directors may in its discretion, pursuant to
resolution, deduct from the value of the assets an amount equal to the brokerage
commissions, transfer taxes, and charges, if any, which would be payable on the
sale of such securities if they were then being sold.
-4-
ARTICLE X
Indemnification
5/14/87
Section 1. Each person made or threatened to be made a party to or is
involved (including, without limitation, as a witness) in any actual or
threatened action, suit or proceeding whether civil, criminal, administrative,
arbitration, or investigative, including a proceeding by or in the right of the
Fund by reason of the former or present capacity as a director or officer of the
Fund or who, while a director or officer of the Fund, is or was serving at the
request of the Fund or whose duties as a director or officer involve or involved
service as a director, officer, partner, trustee or agent of another
organization or employee benefit plan, whether the basis of any proceeding is
alleged action in an official capacity or in any capacity while serving as a
director, officer, partner, trustee or agent, shall be indemnified and held
harmless by the Fund to the full extent authorized by the Minnesota Business
Corporation Act, as the same or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the Fund to
provide broader indemnification rights than the law permitted the Fund to
provide prior to such amendment, or by any other applicable law as then in
effect, against judgments, penalties, fines including, without limitation,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred in connection therewith and such indemnification shall
continue as to any person who has ceased to be a director or officer and shall
inure to the benefit of the person's heirs, executors and administrators
provided, however, in an action brought against the Fund to enforce rights to
indemnification, the director or officer shall be indemnified only if the action
was authorized by the Board of Directors of the Fund. The right to
indemnification conferred by this Section shall be a contract right and shall
include the right to be paid by the Fund in advance of the final disposition of
a proceeding for expenses incurred in connection therewith provided, however,
such payment of expenses shall be made only upon receipt of a written
undertaking by the director or officer to repay all amounts so paid if it is
ultimately determined that the director or officer is not entitled to
indemnification.
Section 2. Each person who upon written request to the Fund has not
received payment within thirty days may at any time thereafter bring suit
against the Fund to recover any unpaid amount and, to the extent successful, in
whole or in part, shall be entitled to be paid the expenses of prosecuting such
suit. Each person shall be presumed to be entitled to indemnification upon
filing a written request for payment and the Fund shall have the burden of proof
to overcome the presumption that the director or officer is not so entitled.
Neither the determination by the Fund, whether by the Board of Directors,
special legal counsel or by shareholder, nor the failure of the Fund to have
made any determination shall be a defense or create the presumption that the
director or officer is not entitled to indemnification.
Section 3. The right to indemnification and to the payment of expenses
prior to any final determination shall not be exclusive of any other right which
any person may have or hereinafter acquire under any statute, provision of the
Articles of Incorporation, by-law, agreement, vote of shareholders or otherwise
and notwithstanding any provisions in this Article X, the Fund is not obligated
to make any payment with respect to any claim for which payment is required to
be made to or on behalf of the director or officer under any insurance policy,
except with respect to any excess beyond the amount of required payment under
such insurance and no indemnification will be made in violation of the
provisions of the Investment Company Act of 1940.
-5-
EX-99.H11 TRANS AGMT
6
h11-tran.txt
TRANSFER AGENCY AGREEMENT
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of May 10, 2001 between AXP Growth Series, Inc., a Minnesota
corporation, (the "Company" or "Fund") on behalf of its underlying series AXP
Growth Fund and AXP Research Opportunities Fund, and American Express Client
Service Corporation (the "Transfer Agent"), a Minnesota corporation.
In consideration of the mutual promises set forth below, the Company and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Company hereby appoints the Transfer
Agent, as transfer agent for its shares and as shareholder servicing agent
for the Company, and the Transfer Agent accepts such appointment and agrees
to perform the duties set forth below.
2. Compensation. The Company will compensate the Transfer Agent for the
performance of its obligations as set forth in Schedule A. Schedule A does
not include out-of-pocket disbursements of the Transfer Agent for which the
Transfer Agent shall be entitled to bill the Company separately.
The Transfer Agent will bill the Company monthly. The fee provided for
hereunder shall be paid in cash by the Company to the Transfer Agent within
five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to, the
items specified in Schedule B. Reimbursement by the Company for expenses
incurred by the Transfer Agent in any month shall be made as soon as
practicable after the receipt of an itemized bill from the Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time to
time by attaching to this Agreement a revised Schedule A, dated and signed
by an officer of each party.
3. Documents. The Company will furnish from time to time such certificates,
documents or opinions as the Transfer Agent deems to be appropriate or
necessary for the proper performance of its duties.
4. Representations of the Company and the Transfer Agent.
(a) The Company represents to the Transfer Agent that all outstanding
shares are validly issued, fully paid and non-assessable by the
Company. When shares are hereafter issued in accordance with the terms
of the Company's Articles of Incorporation and its By-laws, such
shares shall be validly issued, fully paid and non-assessable by the
Company.
(b) The Transfer Agent represents that it is registered under Section
17A(c) of the Securities Exchange Act of 1934. The Transfer Agent
agrees to maintain the necessary facilities, equipment and personnel
to perform its duties and obligations under this agreement and to
comply with all applicable laws.
-1-
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible,
separately and through its subsidiaries or affiliates, for the following
functions:
(a) Sale of Fund Shares.
(1) On receipt of an application and payment, wired instructions and
payment, or payment identified as being for the account of a
shareholder, the Transfer Agent will deposit the payment, prepare
and present the necessary report to the Custodian and record the
purchase of shares in a timely fashion in accordance with the
terms of the Fund's prospectus. All shares shall be held in book
entry form and no certificate shall be issued unless the Fund is
permitted to do so by its prospectus and the purchaser so
requests.
(2) On receipt of notice that payment was dishonored, the Transfer
Agent shall stop redemptions of all shares owned by the purchaser
related to that payment, place a stop payment on any checks that
have been issued to redeem shares of the purchaser and take such
other action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to redeem shares
in accordance with the terms of the Fund's prospectus, the Transfer
Agent will record the redemption of shares of the Fund, prepare and
present the necessary report to the Custodian and pay the proceeds of
the redemption to the shareholder, an authorized agent or legal
representative upon the receipt of the monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt of
instructions or forms acceptable to the Transfer Agent to transfer the
shares to the name of a new owner, change the name or address of the
present owner or take other legal action, the Transfer Agent will take
such action as is requested.
(d) Exchange of Fund Shares. On receipt of instructions to exchange the
shares of the Fund for the shares of another American Express(R) Fund
or other American Express Financial Corporation product in accordance
with the terms of the prospectus, the Transfer Agent will process the
exchange in the same manner as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer,
exchange or redeem shares of the Fund or take any action requested by
a shareholder until it is satisfied that the requested transaction or
action is legally authorized or until it is satisfied there is no
basis for any claims adverse to the transaction or action. It may rely
on the provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code. The
Company shall indemnify the Transfer Agent for any act done or omitted
to be done in reliance on such laws or for refusing to transfer,
exchange or redeem shares or taking any requested action if it acts on
a good faith belief that the transaction or action is illegal or
unauthorized.
(f) Shareholder Records, Reports and Services.
(1) The Transfer Agent shall maintain all shareholder accounts, which
shall contain all required tax, legally imposed and regulatory
information; shall provide shareholders, and file with federal
and state agencies, all required tax and other reports pertaining
to shareholder accounts; shall prepare shareholder mailing lists;
shall cause to be printed and mailed all required prospectuses,
annual reports, semiannual reports, statements of additional
information (upon request), proxies and other mailings to
shareholders; and shall cause proxies to be tabulated.
-2-
(2) The Transfer Agent shall respond to all valid inquiries related
to its duties under this Agreement.
(3) The Transfer Agent shall create and maintain all records in
accordance with all applicable laws, rules and regulations,
including, but not limited to, the records required by Section
31(a) of the Investment Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare and
present the necessary report to the Custodian and shall cause to be
prepared and transmitted the payment of income dividends and capital
gains distributions or cause to be recorded the investment of such
dividends and distributions in additional shares of the Fund or as
directed by instructions or forms acceptable to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm each
transaction either at the time of the transaction or through periodic
reports as may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or stolen
checks issued to shareholders upon receipt of proper notification and
will maintain any stop payment orders against the lost or stolen
checks as it is economically desirable to do.
(j) Reports to Company. The Transfer Agent will provide reports pertaining
to the services provided under this Agreement as the Company may
request to ascertain the quality and level of services being provided
or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties to this
Agreement.
6. Ownership and Confidentiality of Records.
(a) General. The Transfer Agent agrees that all records prepared or
maintained by it relating to the services to be performed by it under
the terms of this Agreement are the property of the Company and may be
inspected by the Company or any person retained by the Company at
reasonable times. The Company and Transfer Agent agree to protect the
confidentiality of those records.
(b) Regulation S-P.
(1) In accordance with Regulation S-P of the Securities and Exchange
Commission "Nonpublic Personal Information" includes (1) all
personally identifiable financial information; (2) any list,
description, or other grouping of consumers (and publicly
available information pertaining to them) that is derived using
any personally identifiable financial information that is not
publicly available information; and (3) any information derived
therefrom.
(2) The Transfer Agent must not use or disclose Nonpublic Personal
Information for any purpose other than to carry out the purpose
for which Nonpublic Personal Information was provided to the
Transfer Agent as set forth in this Agreement, and agrees to
cause the Transfer Agent, and its employees, agents,
representatives, or any other party to whom the Transfer Agent
may provide access to or disclose Nonpublic Personal Information
to limit the use and disclosure of Nonpublic Personal Information
to that purpose.
-3-
(3) The Transfer Agent agrees to implement appropriate measures
designed to ensure the security and confidentiality of Nonpublic
Personal Information, to protect such information against any
anticipated threats or hazards to the security or integrity of
such information, and to protect against unauthorized access to,
or use of, Nonpublic Personal Information that could result in
substantial harm or inconvenience to any customer of the Company;
the Transfer Agent further agrees to cause all its agents,
representatives, subcontractors, or any other party to whom the
Transfer Agent may provide access to, or disclose, Nonpublic
Personal Information to implement appropriate measures designed
to meet the objectives set forth in this paragraph.
(4) With respect only to the provisions of this Section 6(b), the
Transfer Agent agrees to indemnify and hold harmless the Company,
and any officer or director of the Company, against losses,
claims, damages, expenses, or liabilities to which the Company,
or any officer or director of the Company, may become subject as
the result of (1) a material breach of the provisions of this
section of the Agreement or (2) any acts or omissions of the
Transfer Agent, or of any of its officers, directors, employees,
or agents, that are not in substantial accordance with this
Agreement, including, but not limited to, any violation of any
federal statute or regulation. Notwithstanding the foregoing, no
party shall be entitled to indemnification pursuant to this
Section 6(b)(4) if such loss, claim, damage, expense, or
liability is due to the willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty by the party seeking
indemnification.
7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on
resolutions of the Board of Directors (the "Board") or the Executive
Committee of the Board and on opinion of counsel for the Company.
8. Duty of Care. It is understood and agreed that, in furnishing the Company
with the services as herein provided, neither the Transfer Agent, nor any
officer, director or agent thereof shall be held liable for any loss
arising out of or in connection with their actions under this Agreement so
long as they act in good faith and with due diligence, and are not
negligent or guilty of any willful misconduct. It is further understood and
agreed that the Transfer Agent may rely upon information furnished to it
reasonably believed to be accurate and reliable. In the event the Transfer
Agent is unable to perform its obligations under the terms of this
Agreement because of an act of God, strike or equipment or transmission
failure reasonably beyond its control, the Transfer Agent shall not be
liable for any damages resulting from such failure.
9. Term and Termination. This Agreement shall become effective on the date
first set forth above (the "Effective Date") and shall continue in effect
from year to year thereafter as the parties may mutually agree; provided
that either party may terminate this Agreement by giving the other party
notice in writing specifying the date of such termination, which shall be
not less than 60 days after the date of receipt of such notice. In the
event such notice is given by the Company, it shall be accompanied by a
vote of the Board, certified by the Secretary, electing to terminate this
Agreement and designating a successor transfer agent or transfer agents.
Upon such termination and at the expense of the Company, the Transfer Agent
will deliver to such successor a certified list of shareholders of the Fund
(with name, address and taxpayer identification or Social Security number),
a historical record of the account of each shareholder and the status
thereof, and all other relevant books, records, correspondence, and other
data established or maintained by the Transfer Agent under this Agreement
in the form reasonably acceptable to the Company, and will cooperate in the
transfer of such duties and responsibilities, including provisions for
assistance from the Transfer Agent's personnel in the establishment of
books, records and other data by such successor or successors.
10. Amendment. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.
-4-
11. Subcontracting. The Company agrees that the Transfer Agent may subcontract
for certain of the services described under this Agreement with the
understanding that there shall be no diminution in the quality or level of
the services and that the Transfer Agent remains fully responsible for the
services. Except for out-of-pocket expenses identified in Schedule B, the
Transfer Agent shall bear the cost of subcontracting such services, unless
otherwise agreed by the parties.
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the
written consent of the other party.
(b) This Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
AXP GROWTH SERIES, INC.
AXP GROWTH FUND
AXP RESEARCH OPPORTUNITIES FUND
By: /s/ Lelise L. Ogg
-----------------
Leslie L. Ogg
Vice President
AMERICAN EXPRESS CLIENT SERVICE CORPORATION
By: /s/ Bridget Sperl
-----------------
Bridget Sperl
Senior Vice President
-5-
Schedule A
AXP GROWTH SERIES, INC.
AXP GROWTH FUND
AXP RESEARCH OPPORTUNITIES FUND
FEE
The annual per account fee for services under this agreement, accrued daily and
payable monthly, is as follows:
Class A Class B Class C Class Y
$19.00 $20.00 $19.50 $17.00
-6-
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return postage for
proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend
checks, records of account, purchase confirmations, exchange confirmations
and exchange prospectuses, redemption confirmations, redemption checks,
confirmations on changes of address and any other communication required to
be sent to shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses,
annual and semiannual reports, statements of additional information,
supplements for prospectuses and statements of additional information and
other required mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the Company
-7-
EX-99.I OPIN COUNSEL
7
i-opcon.txt
OPINION AND CONSENT OF COUNSEL
September 26, 2001
AXP Growth Series, Inc.
200 AXP Financial Center
Minneapolis, Minnesota 55474
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of AXP Growth
Series, Inc. (the Company) and all necessary certificates, permits, minute
books, documents and records of the Company, and the applicable statutes of the
State of Minnesota, and it is my opinion that the shares sold in accordance with
applicable federal and state securities laws will be legally issued, fully paid,
and nonassessable.
This opinion may be used in connection with the Post-Effective Amendment.
Sincerely,
/s/ Leslie L. Ogg
------------------
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, Minnesota 55402-3268
EX-99.J AUDIT CONSNT
8
j-audcon.txt
INDEPENDENT AUDITORS' CONSENT
Independent auditors' consent
----------------------------------------------------------------------
The board and shareholders AXP Growth Fund, Inc.:
AXP Growth Fund
AXP Research Opportunities Fund
The board of trustees and unitholders Growth Trust:
Growth Portfolio
Aggressive Growth Portfolio
We consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "Financial Highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
/s/ KPMG LLP
------------
KPMG LLP
Minneapolis, Minnesota
September 7, 2001
EX-99.Q1 PWR OF ATTY
9
q1-poa.txt
DIRECTORS' POWER OF ATTORNEY
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and trustees of the below listed
open-end, diversified investment companies that previously have filed
registration statements and amendments thereto pursuant to the requirements of
the Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
----------- -----------
AXP Bond Fund, Inc. 2-51586 811-2503
AXP California Tax-Exempt Trust 33-5103 811-4646
AXP Discovery Fund, Inc. 2-72174 811-3178
AXP Equity Select Fund, Inc. 2-13188 811-772
AXP Extra Income Fund, Inc. 2-86637 811-3848
AXP Federal Income Fund, Inc. 2-96512 811-4260
AXP Global Series, Inc. 33-25824 811-5696
AXP Growth Series, Inc. 2-38355 811-2111
AXP High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
AXP International Fund, Inc. 2-92309 811-4075
AXP Investment Series, Inc. 2-11328 811-54
AXP Managed Series, Inc. 2-93801 811-4133
AXP Market Advantage Series, Inc. 33-30770 811-5897
AXP Money Market Series, Inc. 2-54516 811-2591
AXP New Dimensions Fund, Inc. 2-28529 811-1629
AXP Precious Metals Fund, Inc. 2-93745 811-4132
AXP Progressive Fund, Inc. 2-30059 811-1714
AXP Selective Fund, Inc. 2-10700 811-499
AXP Special Tax-Exempt Series Trust 33-5102 811-4647
AXP Stock Fund, Inc. 2-11358 811-498
AXP Strategy Series, Inc. 2-89288 811-3956
AXP Tax-Exempt Series, Inc. 2-57328 811-2686
AXP Tax-Free Money Fund, Inc. 2-66868 811-3003
AXP Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints Arne H. Carlson and Leslie L. Ogg or either one
of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
Dated the 11th day of January, 2001.
/s/ Peter J. Anderson /s/ Heinz F. Hutter
---------------------- -------------------
Peter J. Anderson Heinz F. Hutter
/s/ H. Brewster Atwater, Jr /s/ Anne P. Jones
---------------------------- -----------------
H. Brewster Atwater, Jr Anne P. Jones
/s/ Arne H. Carlson /s/ William R. Pearce
-------------------- ---------------------
Arne H. Carlson William R. Pearce
/s/ Lynne V. Cheney /s/ Alan K. Simpson
-------------------- -------------------
Lynne V. Cheney Alan K. Simpson
/s/ Livio D. DeSimone /s/ John R. Thomas
---------------------- ------------------
Livio D. DeSimone John R. Thomas
/s/ Ira D. Hall /s/ C. Angus Wurtele
---------------- --------------------
Ira D. Hall C. Angus Wurtele
/s/ David R. Hubers
---------------------
David R. Hubers
EX-99.Q2 PWR OF ATTY
10
q2-poa.txt
OFFICERS' POWER OF ATTORNEY
OFFICERS' POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers of the below listed open-end,
diversified investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
----------- ---------
AXP Bond Fund, Inc. 2-51586 811-2503
AXP California Tax-Exempt Trust 33-5103 811-4646
AXP Discovery Fund, Inc. 2-72174 811-3178
AXP Equity Select Fund, Inc. 2-13188 811-772
AXP Extra-Income Fund, Inc. 2-86637 811-3848
AXP Federal Income Fund, Inc. 2-96512 811-4260
AXP Global Series, Inc. 33-25824 811-5696
AXP Growth Series, Inc. 2-38355 811-2111
AXP High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
AXP International Fund, Inc. 2-92309 811-4075
AXP Investment Series, Inc. 2-11328 811-54
AXP Variable Portfolio-Investment Series, Inc. 2-73115 811-3218
AXP Variable Portfolio-Managed Series, Inc. 2-96367 811-4252
AXP Variable Portfolio-Money Market Series, Inc. 2-72584 811-3190
AXP Variable Portfolio-Income Series, Inc. 2-73113 811-3219
AXP Managed Series, Inc. 2-93801 811-4133
AXP Market Advantage Series, Inc. 33-30770 811-5897
AXP Money Market Series, Inc. 2-54516 811-2591
AXP New Dimensions Fund, Inc. 2-28529 811-1629
AXP Precious Metals Fund, Inc. 2-93745 811-4132
AXP Progressive Fund, Inc. 2-30059 811-1714
AXP Selective Fund, Inc. 2-10700 811-499
AXP Special Tax-Exempt Series Trust 33-5102 811-4647
AXP Stock Fund, Inc. 2-11358 811-498
AXP Strategy Series, Inc. 2-89288 811-3956
AXP Tax-Exempt Series, Inc. 2-57328 811-2686
AXP Tax-Free Money Fund, Inc. 2-66868 811-3003
AXP Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints the other as his attorney-in-fact and agent, to
sign for him in his name, place and stead any and all further amendments to
said registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
Dated the 11th day of January, 2001.
/s/ Arne H. Carlson /s/ Leslie L. Ogg
------------------- -----------------
Arne H. Carlson Leslie L. Ogg
/s/ John R. Thomas /s/ Peter J. Anderson
------------------ ---------------------
John R. Thomas Peter J. Anderson
/s/ Frederick C. Quirsfeld /s/ John M. Knight
-------------------------- ------------------
Frederick C. Quirsfeld John M. Knight
EX-99.Q3 PWR OF ATTY
11
q3-poatrstt.txt
TRUSTEES POWER OF ATTORNEY
TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as trustees of the below listed open-end,
diversified investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the
Investment Company Act of 1940 with the Securities and Exchange Commission:
1940 Act
Reg. Number
-----------
Growth Trust 811-07395
Growth and Income Trust 811-07393
Income Trust 811-07307
Tax-Free Income Trust 811-07397
World Trust 811-07399
hereby constitutes and appoints Arne H. Carlson and Leslie L. Ogg or either one
of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Act and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
Dated the 11th day of January, 2001.
/s/ Peter J. Anderson /s/ Heinz F. Hutter
---------------------- -------------------
Peter J. Anderson Heinz F. Hutter
/s/ H. Brewster Atwater, Jr /s/ Anne P. Jones
---------------------------- -----------------
H. Brewster Atwater, Jr Anne P. Jones
/s/ Arne H. Carlson /s/ William R. Pearce
-------------------- ---------------------
Arne H. Carlson William R. Pearce
/s/ Lynne V. Cheney /s/ Alan K. Simpson
-------------------- -------------------
Lynne V. Cheney Alan K. Simpson
/s/ Livio D. DeSimone /s/ John R. Thomas
---------------------- ------------------
Livio D. DeSimone John R. Thomas
/s/ Ira D. Hall /s/ C. Angus Wurtele
---------------- --------------------
Ira D. Hall C. Angus Wurtele
/s/ David R. Hubers
---------------------
David R. Hubers
EX-99.Q4 PWR OF ATTY
12
q4-poatrsto.txt
OFFICERS' POWER OF ATTORNEY
OFFICERS' POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers of the below listed open-end,
diversified investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:
1940 Act
Reg. Number
-----------
Growth Trust 811-07395
Growth and Income Trust 811-07393
Income Trust 811-07307
Tax-Free Income Trust 811-07397
World Trust 811-07399
hereby constitutes and appoints the other as his attorney-in-fact and agent, to
sign for him in his name, place and stead any and all further amendments to
said registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
Dated the 11th day of January, 2001.
/s/ Arne H. Carlson /s/ Leslie L. Ogg
------------------- -----------------
Arne H. Carlson Leslie L. Ogg
/s/ John R. Thomas /s/ Peter J. Anderson
------------------ ---------------------
John R. Thomas Peter J. Anderson
/s/ Frederick C. Quirsfeld /s/ John M. Knight
-------------------------- ------------------
Frederick C. Quirsfeld John M. Knight