0000820027-01-500460.txt : 20011009 0000820027-01-500460.hdr.sgml : 20011009 ACCESSION NUMBER: 0000820027-01-500460 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: 1747079 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-6455v.txt AXP GROWTH FUND AXP(R) Growth Fund 2001 ANNUAL REPORT (PROSPECTUS ENCLOSED) American Express(R) Funds (icon of) ruler AXP Growth 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.) Going for Growth In the long run, a company's stock price usually reflects its business fortunes. Therefore, if a company thrives, its stock tends to follow suit. That's why many long-term investors, including AXP Growth Fund, focus on growth stocks -- those of companies that enjoy rising sales and profits. While there will be interruptions along the way, patient investors look forward to sharing in that same prosperity. 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 Managers 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 10 Independent Auditors' Report (Fund) 12 Financial Statements (Fund) 13 Notes to Financial Statements (Fund) 16 Independent Auditors' Report (Portfolio) 22 Financial Statements (Portfolio) 23 Notes to Financial Statements (Portfolio) 25 Investments in Securities 28 Federal Income Tax Information 31 -------------------------------------------------------------------------------- 2 AXP GROWTH 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 From the Portfolio Managers Large-capitalization growth stocks, particularly technology-related issues, were under severe selling pressure for much of the past 12 months. AXP Growth Fund's performance reflected the unfavorable environment, as its Class A shares experienced a loss of 42.14% (excluding the sales charge) for the past fiscal year -- August 2000 through July 2001. At the outset of the period, there was little indication of the pitfalls that lay ahead. The stock market was surging, and the Fund would go on to record a strong gain in August 2000. But within days, concerns that a slowdown in the economy might lead to weaker corporate profits began to cast a pall over the market. Much of investors' anxiety centered on technology stocks, whose generally lofty prices required that their respective companies continue to generate exceptional profit growth. The result was a wave of selling that continued largely unabated from September through May. Illustrating the force of the downturn, the Nasdaq Composite, a group of stocks that includes many leading technology names, declined by more than 60% during that time. -------------------------------------------------------------------------------- 3 AXP GROWTH FUND -- ANNUAL REPORT PROFIT CONCERNS RETURN Some optimism returned to the market in the spring, as a series of cuts in short-term interest rates by the Federal Reserve got investors thinking that the economy and, thus, corporate profits might improve before long. But, after a brief rally, disappointing economic data and weak profit reports quickly put a lid on further market advances. Because technology stocks comprised the Fund's largest area of investment (about 40% of the portfolio at the peak), the market downturn took a substantial toll on performance. Fortunately, gains from health care and financial services stocks, which together made up about 30% of the portfolio, picked up some of the slack. Looking at changes to the portfolio, while we reduced technology holdings overall, we added to investments in software stocks. They performed quite well during the final months of the period. We also weeded out the more vulnerable tech stocks, concentrating the bulk of tech investments in companies with leadership positions in their market segments. Also working to the Fund's benefit was its lack of utilities and energy stocks, which were especially weak performers late in the period. As the new fiscal year begins, the biggest question confronting the stock market continues to be when the economy and corporate profits will pick up. If we are right in expecting an upturn in the fourth quarter of 2001, stocks should begin performing better before the year is out. Meanwhile, we plan to keep the bulk of portfolio invested in technology, health care and financial services -- the three business sectors that we believe continue to offer the best long-term growth prospects. Lisa A. Costa Senior portfolio manager Scott Mullinix Portfolio manager -------------------------------------------------------------------------------- 4 AXP GROWTH FUND -- ANNUAL REPORT Fund Facts Class A -- 12-month performance (All figures per share) Net asset value (NAV) July 31, 2001 $29.68 July 31, 2000 $54.36 Decrease $24.68 Distributions -- Aug. 1, 2000 - July 31, 2001 From income $ -- From long-term capital gains $ 2.20 Total distributions $ 2.20 Total return* -42.14% Class B -- 12-month performance (All figures per share) Net asset value (NAV) July 31, 2001 $28.11 July 31, 2000 $52.02 Decrease $23.91 Distributions -- Aug. 1, 2000 - July 31, 2001 From income $ -- From long-term capital gains $ 2.20 Total distributions $ 2.20 Total return* -42.57% Class C -- 12-month performance (All figures per share) Net asset value (NAV) July 31, 2001 $28.12 July 31, 2000 $52.03 Decrease $23.91 Distributions -- Aug. 1, 2000 - July 31, 2001 From income $ -- From long-term capital gains $ 2.20 Total distributions $ 2.20 Total return* -42.56% Class Y -- 12-month performance (All figures per share) Net asset value (NAV) July 31, 2001 $29.96 July 31, 2000 $54.75 Decrease $24.79 Distributions -- Aug. 1, 2000 - July 31, 2001 From income $ -- From long-term capital gains $ 2.20 Total distributions $ 2.20 Total return* -42.04% * 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 GROWTH FUND -- ANNUAL REPORT The 10 Largest Holdings Percent Value (of net assets) (as of July 31, 2001) Citigroup 5.86% $371,554,000 Pfizer 5.85 370,980,000 Microsoft 4.54 287,926,500 Texas Instruments 4.13 262,200,000 Home Depot 3.18 201,480,000 Cisco Systems 3.03 192,200,000 Zions Bancorp 2.84 180,370,855 Intl Business Machines 2.82 178,857,000 AOL Time Warner 2.72 172,710,000 Maxim Integrated Products 2.55 161,595,000 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 37.52% of net assets -------------------------------------------------------------------------------- 6 AXP GROWTH 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 GROWTH FUND -- ANNUAL REPORT The Fund's Long-term Performance Value of your $10,000 in AXP Growth Fund $60,000 $50,000 $40,000 $30,000 S&P 500 Index $30,588 $20,000 AXP Growth Lipper Large-Cap Fund Class A $9,425 Growth Index Russell 1000(R) Growth Index '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 Average Annual Total Returns (as of July 31, 2001) 1 year 5 years 10 years Since inception Class A -45.47% +7.52% +11.83% N/A Class B -44.73% +7.83% N/A +11.33%* Class C -43.10% N/A N/A -40.36%** Class Y -42.04% +8.94% N/A +12.33%* * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 8/1/91 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 $15,610. 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 three widely cited unmanaged performance indexes, the Standard & Poor's 500 Index (S&P 500 Index), Russell 1000(R) Growth Index and the Lipper Large-Cap Growth Index. In comparing AXPGrowth Fund (Class A) to these three indexes, you should take into account the fact that the Fund's performancereflects the maximum sales charge of 5.75%, while suchcharges 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. -------------------------------------------------------------------------------- 8 AXP GROWTH FUND -- ANNUAL REPORT 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. 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. -------------------------------------------------------------------------------- 9 AXP GROWTH 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 director, White Plains, NY International 10650 Born in Operations IBM 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 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 ----------------- ---------------- ----------------- ------------------------- -------------------------------------------------------------------------------- 10 AXP GROWTH 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 Suite 1700, and chief Corporation (packaging) Foshay Tower executive Minneapolis, MN officer, The 55402 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. -------------------------------------------------------------------------------- 11 AXP GROWTH 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 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 -------------- -------------------------------------------------------------------------------- 30 AXP GROWTH 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 Growth Fund Fiscal year ended July 31, 2001 Class A Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 21, 2000 $2.20154 Total distribution $2.20154 Class B Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 21, 2000 $2.20154 Total distribution $2.20154 Class C Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 21, 2000 $2.20154 Total distribution $2.20154 Class Y Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 21, 2000 $2.20154 Total distribution $2.20154 -------------------------------------------------------------------------------- 31 AXP GROWTH FUND -- ANNUAL REPORT AXP Growth Fund PRSRT STD AUTO 70100 AXP Financial Center U.S. POSTAGE Minneapolis, MN 55474 PAID AMERICAN americanexpress.com EXPRESS Ticker Symbol Class A: INIDX Class B: IGRBX Class C: AXGCX Class Y: IGRYX (logo) American Express 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. S-6455 V (9/01)