0000820027-01-500459.txt : 20011009 0000820027-01-500459.hdr.sgml : 20011009 ACCESSION NUMBER: 0000820027-01-500459 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010731 FILED AS OF 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: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02111 FILM NUMBER: 1747077 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 N-30D 1 s-6356j.txt AXP RESEARCH OPPORTUNITIES FUND AXP(R) Research Opportunities Fund 2001 ANNUAL REPORT (PROSPECTUS ENCLOSED) American Express(R) Funds (icon of) ruler AXP Research Opportunities Fund seeks to provide shareholders with long-term capital growth. (This annual report includes a prospectus that describes in detail the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money.) The Rewards of Research Behind every decision to buy or sell a stock is information -- in most cases, information gathered by a research analyst. AXP Research Opportunities Fund is designed to make the most of that research by investing mainly in Standard & Poor's 500 stocks that carry our analysts' highest rating. The intention is to construct a portfolio that has the potential to outperform the stock market as a whole. Table of Contents 2001 ANNUAL REPORT The purpose of this annual report is to tell investors how the Fund performed. From the Chairman 3 From the Portfolio Manager 3 Fund Facts 5 The 10 Largest Holdings 6 Making the Most of the Fund 7 The Fund's Long-term Performance 8 Board Members and Officers 9 Independent Auditors' Report (Fund) 11 Financial Statements (Fund) 12 Notes to Financial Statements (Fund) 15 Independent Auditors' Report (Portfolio) 21 Financial Statements (Portfolio) 22 Notes to Financial Statements (Portfolio) 24 Investments in Securities 27 Federal Income Tax Information 30 -------------------------------------------------------------------------------- 2 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT (picture of) Arne H. Carlson Arne H. Carlson Chairman of the board From the Chairman First, I want to thank you for being a shareholder in American Express funds. While we strongly believe in the virtues of investment, we also are very sensitive to the fluctuations of the financial markets. That is why we want to re-emphasize the importance of making certain that you frequently review your investments and regularly meet with your financial advisor. By doing so, you can take advantage of shifts in the markets to position your portfolio relative to expected market volatility and, possibly, achieve better overall performance. Second, I strongly advise that you keep a focus on the long-term. Reviewing past performance is helpful, but it should not be viewed as a leading indicator of the future. One constant is the necessity to have a financial plan based on appropriate asset allocation. Make sure that the plan provides what you need and expect. Our job, as a Board, is to monitor and confirm that the Fund complies with its investment objective and that its management style stays on target. We want the Fund to be able to deliver to you, the shareholder, the type of performance you expect and the best results that can be obtained. Toward that end, American Express has made significant changes in its investment management capability, and will continue to make changes as it strives to provide a consistent standard of excellence. On behalf of the Board, Arne H. Carlson (picture of) James M. Johnson, Jr. James M. Johnson, Jr. Portfolio manager From the Portfolio Manager It was a trying 12 months for the stock market, as a weakening economy and a decline in corporate profits took a toll on share prices. Reflecting the difficult environment, AXP Research Opportunities Fund's Class A shares lost 17.54% (excluding the sales charge) for the fiscal year -- August 2000 through July 2001. Investors were in good spirits as the period began, as evidenced by the market's sharp gain in August 2000. But by early September, the possibility of a slowdown in economic growth and, therefore, a slump in corporate profits began to create doubts about the future. The result was an almost uninterrupted stock slide that didn't level off until late December. -------------------------------------------------------------------------------- 3 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT A surprise cut in short-term interest rates by the Federal Reserve sparked a rally early in the new year. But that was followed by another downturn in February and March. The market managed to make up some of the lost ground during the spring, only to fall back again over the summer in the face of more disappointing economic and profit reports. TECH WRECK As has been the case in recent years, the market's ups and downs were largely driven by the fortunes of technology and telecommunications equipment stocks. For the Fund, such stocks also had a major effect on performance, as they comprised the largest area of investment (about a third of the portfolio at the peak). To stem the losses, we decreased the tech and telecom holdings as the period progressed and shifted more money into health care. That strategy paid off, as health care provided strong gains in late 2000. Looking at other sectors, utilities and energy were strong performers early in the period, while leisure/entertainment did well during the final months. On the other hand, performance was hurt by weakness in the retail and food/drug sectors late in the period. For the 12 months as a whole, the Fund's best-performing stocks included Wendy's, Philip Morris, Lehman Brothers, Alza, Cardinal Health, Deluxe Check, Fannie Mae and Kroger. Leading the losers were Corning, JDS Uniphase, Lucent, Yahoo, EMC, Juniper, Cisco Systems, Guidant, Brocade and Dell. Also affecting the Fund's performance were its investments in S&P 500 futures contracts, which, consistent with the Fund's guidelines, I periodically use to keep the Fund fully invested in stocks. Just like investments in individual stocks, investments in futures can have a positive or negative effect on performance, especially during times of high market volatility. Over the past period, they had a negative effect. As the new fiscal year begins, while the economy seems unlikely to slip into recession, I think growth will remain slow. In addition, I think there's the potential for somewhat higher inflation in the months ahead. Given those factors, I plan to maintain a conservative investment approach that centers on stocks that are less vulnerable in a sluggish economy, such as food and health care. James M. Johnson, Jr. CFA -------------------------------------------------------------------------------- 4 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT Fund Facts Class A -- 12-month performance (All figures per share) Net asset value (NAV) July 31, 2001 $5.37 July 31, 2000 $7.61 Decrease $2.24 Distributions -- Aug. 1, 2000 - July 31, 2001 From income $0.90 From long-term capital gains $0.09 Total distributions $0.99 Total return* -17.54% Class B -- 12-month performance (All figures per share) Net asset value (NAV) July 31, 2001 $5.12 July 31, 2000 $7.36 Decrease $2.24 Distributions -- Aug. 1, 2000 - July 31, 2001 From income $0.90 From long-term capital gains $0.09 Total distributions $0.99 Total return* -18.19% Class C -- 12-month performance (All figures per share) Net asset value (NAV) July 31, 2001 $5.13 July 31, 2000 $7.36 Decrease $2.23 Distributions -- Aug. 1, 2000 - July 31, 2001 From income $0.90 From long-term capital gains $0.09 Total distributions $0.99 Total return* -18.03% Class Y -- 12-month performance (All figures per share) Net asset value (NAV) July 31, 2001 $5.42 July 31, 2000 $7.65 Decrease $2.23 Distributions -- Aug. 1, 2000 - July 31, 2001 From income $0.90 From long-term capital gains $0.09 Total distributions $0.99 Total return* -17.29% * The total return is a hypothetical investment in the Fund with all distributions reinvested. Returns do not include sales load. The prospectus discusses the effect of sales charges, if any, on the various classes. -------------------------------------------------------------------------------- 5 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT The 10 Largest Holdings Percent Value (of net assets) (as of July 31, 2001) General Electric 4.65% $27,900,900 Pfizer 3.15 18,874,637 AOL Time Warner 2.49 14,939,415 American Intl Group 2.21 13,270,050 Johnson & Johnson 1.99 11,918,230 Intel 1.96 11,760,045 Bank of America 1.86 11,133,500 Cisco Systems 1.84 11,041,890 Home Depot 1.81 10,889,994 Washington Mutual 1.75 10,484,550 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (picture of) pie chart The 10 holdings listed here make up 23.71% of net assets -------------------------------------------------------------------------------- 6 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT Making the Most of the Fund BUILD YOUR ASSETS SYSTEMATICALLY One of the best ways to invest in the Fund is by dollar-cost averaging -- a time-tested strategy that can make market fluctuations work for you. To dollar-cost average, simply invest a fixed amount of money regularly. You'll automatically buy more shares when the Fund's share price is low, fewer shares when it is high. The chart below shows how dollar-cost averaging works. In these three hypothetical scenarios, you will see six months of share price fluctuations. This strategy does not ensure a profit or avoid a loss if the market declines. But, if you can continue to invest regularly through changing market conditions even when the price of your shares falls or the market declines, it can be an effective way to accumulate shares to meet your long-term goals. How dollar-cost averaging works Jan Feb Mar Apr May Jun $15 $16 $18 $20 $10 $10 $12 $14 $ 5 Accumulated shares* Average market Your average price per share cost per share 42.25 $15 $14.20 ------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun $15 $10 $10 $10 $ 5 $8 $5 $5 $8 Accumulated shares* Average market Your average price per share cost per share 85.0 $7.66 $7.05 ------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun $15 $10 $10 $ 5 $8 $6 $4 $4 $7 Accumulated shares* Average market Your average price per share cost per share 103.5 $6.50 $5.80 ------------------------------------------------------------------------------- $100 invested per month. Total invested: $600. * Shares purchased is determined by dividing the amount invested per month by the current share price. THREE WAYS TO BENEFIT FROM A MUTUAL FUND: o your shares increase in value when the Fund's investments do well o you receive capital gains when the gains on investments sold by the Fund exceed losses o you receive income when the Fund's stock dividends, interest and short-term gains exceed its expenses. All three make up your total return. You potentially can increase your investment if, like most investors, you reinvest your dividends and capital gain distributions to buy additional shares of the Fund or another fund. -------------------------------------------------------------------------------- 7 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT The Fund's Long-term Performance Value of your $10,000 in AXP Research Opportunities Fund (line chart) $30,000 $20,000 $15,634 S&P 500 Index AXP Research Opportunities $9,425 Fund Class A Lipper Large-Cap Core Index 9/1/96 7/97 7/98 7/99 7/00 7/01 Average Annual Total Returns (as of July 31, 2001) 1 year Since inception Class A -22.28% +8.82%* Class B -20.97% +9.18%* Class C -18.72% -18.01%** Class Y -17.29% +10.35%* * Inception date was Aug. 19, 1996. ** Inception date was June 26, 2000. Assumes: Holding period from 9/1/96 to 7/31/01. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $5,381. Also see "Past Performance" in the Fund's current prospectus. On the graph above you can see how the Fund's total return compared to two widely cited performance indexes, Standard & Poor's 500 Index (S&P 500 Index) and the Lipper Large-Cap Core Index. In comparing AXP Research Opportunities Fund (Class A) to these indexes, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indexes. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Average annual total return figures reflect the impact of the maximum applicable sales charge. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. 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. -------------------------------------------------------------------------------- 8 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT Board Members and Officers Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. Each member oversees 15 Master Trust portfolios and 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 ----------------- ---------------- ----------------- ------------------------- Name, address, Position held Principal Other directorships age with occupations Registrant and during past length of five years service ----------------- ---------------- ----------------- ------------------------- H. Brewster Board member Retired chair Merck & Co., Inc. Atwater, Jr. since 1996 and chief (pharmaceuticals) 4900 IDS Tower executive Minneapolis, MN officer, 55402 General Mills, Born in 1931 Inc. (consumer foods) ----------------- ---------------- ----------------- ------------------------- Arne H. Carlson Chair of the Chair, Board 901 S. Board since Services Marquette Ave. 1999 Corporation Minneapolis, MN (provides 55402 administrative Born in 1934 services to boards) Former Governor of Minnesota ----------------- ---------------- ----------------- ------------------------- Lynne V. Cheney Board member Distinguished The Reader's Digest American since 1994 Fellow, AEI Association Inc. Enterprise Institute for Public Policy Research (AEI) 1150 17th St., N.W. Washington, D.C. 20036 Born in 1941 ----------------- ---------------- ----------------- ------------------------- Livio D. Board member Retired chair Cargill, Incorporated DeSimone since 2001 of the board (commodity merchants 30 Seventh and chief and processors), Target Street executive Corporation (department St. Paul, MN officer, stores), General Mills, 55101-4901 Minnesota Inc. (consumer foods) Born in 1936 Mining and and Vulcan Materials Manufacturing Company (construction (3M) materials/chemicals) ----------------- ---------------- ----------------- ------------------------- Ira D. Hall Board member Treasurer, Texaco, Inc. since 2001 Texaco Inc. 2000 since 1998. Westchester Prior to that, Avenue White director, Plains, NY International 10650 Operations IBM Born in 1944 Corp. ----------------- ---------------- ----------------- ------------------------- Heinz F. Hutter Board member Retired P.O. Box 2187 since 1994 president and Minneapolis, MN chief operating 55402 officer, Born in 1929 Cargill, Incorporated (commodity merchants and processors) ----------------- ---------------- ----------------- ------------------------- Anne P. Jones Board member Attorney and Motorola, Inc. 5716 Bent since 1985 telecommunications (electronics) Branch Rd. consultant Bethesda, MD 20816 Born in 1935 ----------------- ---------------- ----------------- ------------------------- William R. Board member RII Pearce 2050 since 1980 Weyerhaeuser 2050 One World Financial Plaza Timberfund, Minneapolis, MN L.P. (develops 55402 timber Born in 1927 resources) - management committee; Former chair, American Express Funds -------------------------------------------------------------------------------- 9 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT Independent Board Members ----------------- ---------------- ----------------- ------------------------- Name, address, Position held Principal Other directorships age with occupations Registrant and during past length of five years service ----------------- ---------------- ----------------- ------------------------- Alan K. Simpson Board member Former Biogen, Inc. 1201 Sunshine since 1997 three-term (bio-pharmaceuticals) Ave. United States Cody, WY 82414 Senator for Born in 1931 Wyoming ----------------- ---------------- ----------------- ------------------------- C. Angus Board member Retired chair The Valspar Corporation Wurtele since 1994 of the board (paints), Bemis Sutie 1700, and chief Corporation (packaging) Foshay Tower executive Minneapolis, MN officer, 55402 The Valspar Born in 1934 Corporation ----------------- ---------------- ----------------- ------------------------- Board Members Affiliated with American Express Financial Corporation (AEFC) ----------------- ---------------- ----------------- ------------------------- Name, address, Position held Principal Other directorships age with occupations Registrant and during past length of five years service ----------------- ---------------- ----------------- ------------------------- David R. Hubers Board member Retired chief Chronimed Inc. 50643 AXP since 1993 executive (specialty Financial officer, pharmaceutical Center director and distribution) RTW Inc. Minneapolis, MN chair of the (manages workers 55474 board of AEFC compensation programs) Born in 1943 Lawson Software, Inc. (technology based business applications) ----------------- ---------------- ----------------- ------------------------- John R. Thomas Board member Senior vice 50652 AXP since 1987, president - Financial president information and Center since 1997 technology of Minneapolis, MN AEFC 55474 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 ----------------- ---------------- ----------------- ------------------------- Name, address, Position held Principal Other directorships age with occupations Registrant and during past length of five years service ----------------- ---------------- ----------------- ------------------------- John M. Knight Treasurer Vice president 50005 AXP since 1999 - investment Financial accounting of Center AEFC Minneapolis, MN 55474 Born in 1952 ----------------- ---------------- ----------------- ------------------------- Leslie L. Ogg Vice President of 901 S. president, Board Services Marquette Ave. general Corporation Minneapolis, MN counsel and 55402 secretary Born in 1938 since 1978 ----------------- ---------------- ----------------- ------------------------- Frederick C. Vice president Senior vice Quirsfeld since 1998 president - 53609 AXP fixed income of Financial AEFC Center Minneapolis, MN 55474 Born in 1947 ----------------- ---------------- ----------------- ------------------------- The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. -------------------------------------------------------------------------------- 10 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT 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) ------------ -------------------------------------------------------------------------------- 29 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT Federal Income Tax Information (Unaudited) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. AXP Research Opportunities Fund Fiscal year ended July 31, 2001 Class A Income distribution taxable as dividend income, none qualifying for deduction by corporations. Payable date Per share Dec. 21, 2000 $0.89653 Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 21, 2000 $0.09299 Total distributions $0.98952 The distributions of $0.98952 per share, payable Dec. 21, 2000, consisted of $0.89653 from net short-term capital gains and $0.09299 from net long-term capital gains. Class B Income distribution taxable as dividend income, none qualifying for deduction by corporations. Payable date Per share Dec. 21, 2000 $0.89653 Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 21, 2000 $0.09299 Total distributions $0.98952 The distributions of $0.98952 per share, payable Dec. 21, 2000, consisted of $0.89653 from net short-term capital gains and $0.09299 from net long-term capital gains. -------------------------------------------------------------------------------- 30 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT Class C Income distribution taxable as dividend income, none qualifying for deduction by corporations. Payable date Per share Dec. 21, 2000 $0.89653 Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 21, 2000 $0.09299 Total distributions $0.98952 The distributions of $0.98952 per share, payable Dec. 21, 2000, consisted of $0.89653 from net short-term capital gains and $0.09299 from net long-term capital gains. Class Y Income distribution taxable as dividend income, none qualifying for deduction by corporations. Payable date Per share Dec. 21, 2000 $0.89653 Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 21, 2000 $0.09299 Total distributions $0.98952 The distributions of $0.98952 per share, payable Dec. 21, 2000, consisted of $0.89653 from net short-term capital gains and $0.09299 from net long-term capital gains. -------------------------------------------------------------------------------- 31 AXP RESEARCH OPPORTUNITIES FUND -- ANNUAL REPORT AXP Research Opportunities Fund PRSRT STD AUTO 70100 AXP Financial Center U.S. POSTAGE Minneapolis, MN 55474 PAID AMERICAN americanexpress.com EXPRESS Ticker Symbol Class A: IRDAX Class B: IROBX Class C: N/A Class Y: N/A This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. (logo) American Express S-6356 J (9/01)