-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GY9jau8s0otdFHNLMDgD4CNEf/uv6hgKpcCHTkPHFDDA0k2fDmu/dLVix4WE9EQ8 9FTlndZ1z6qN7xSSiHiBVw== 0000820027-02-000640.txt : 20021001 0000820027-02-000640.hdr.sgml : 20021001 20021001120746 ACCESSION NUMBER: 0000820027-02-000640 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020731 FILED AS OF DATE: 20021001 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP GROWTH SERIES INC/MN CENTRAL INDEX KEY: 0000049702 IRS NUMBER: 410962638 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: 02777884 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: IDS GROWTH FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AXP GROWTH FUND INC DATE OF NAME CHANGE: 20000829 N-30D 1 s6356k.txt AXP RESEARCH OPPORTUNITIES FUND AXP(R) Research Opportunities Fund 2002 ANNUAL REPORT (Prospectus Enclosed) 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.) - -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) - -------------------------------------------------------------------------------- (photo of) Arne H. Carlson From the Chairman Arne H. Carlson Chairman of the board Dear Shareholders, It is a very difficult period for investors caused by corporate management misconduct and its impact on the market as well as the economy. The integrity of corporations at large is being questioned. However, there is optimism that the resulting reforms will give Americans the kind of integrity they deserve. Many corporate leaders are strongly supportive of these reforms. We all have a right to expect financial statements to be fully accurate and business leaders to place the interests of shareholders above personal desires. Your Board is truly independent, comprised of 12 members (nominated by independent members) and three recommended by American Express Financial Corporation. These individuals come from a variety of geographic areas with the diverse skill sets necessary to oversee the operations of the Fund. Investment performance is, and remains, our primary concern. The Fund's auditors, KPMG LLP, are truly independent of American Express Financial Corporation. KPMG serves the interest of shareholders by supporting the work of the Board and certifying unbiased financial reports. The Board has confidence in Ted Truscott, American Express Financial Corporation's new Chief Investment Officer, and shares his enthusiasm in the management changes he has effected to improve the investment performance of all American Express funds. These changes include the hiring of several new portfolio managers and investment leaders and the addition of eight sub-advised funds. The focus of the Board and American Express Financial Corporation is simple; we strive for consistent, competitive investment performance. If you were a shareholder of record on September 14, you will receive a proxy statement for a shareholder meeting to be held on November 13, 2002. Please take time to consider each proposal and vote promptly. On behalf of the Board, Arne H. Carlson CONTENTS From the Chairman 2 Economic and Market Update 3 Fund Snapshot 5 Questions & Answers with Portfolio Management 6 The Fund's Long-term Performance 9 Investments in Securities 10 Financial Statements (Portfolio) 13 Notes to Financial Statements (Portfolio) 16 Independent Auditors' Report (Portfolio) 19 Financial Statements (Fund) 20 Notes to Financial Statements (Fund) 23 Independent Auditors' Report (Fund) 30 Federal Income Tax Information 31 Board Members and Officers 32 - -------------------------------------------------------------------------------- 2 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Economic and Market Update FROM CIO WILLIAM F. "TED" TRUSCOTT (photo of) William F. "Ted" Truscott William F. "Ted" Truscott Chief Investment Officer American Express Financial Corporation Dear Shareholders, Major U.S. financial markets lost ground for the three-month period ending July 31, 2002, although a late rally put them above earlier lows. The same factors that have driven markets down for most of the year so far were still in play during this period. These include concerns about the truthfulness of accounting practices and the perception that stocks remain too expensive relative to company earnings. I expect we'll need to see consistent improvement in earnings before stocks rebound significantly. If corporate revenue growth becomes apparent and widespread, it will effectively make stock valuations cheaper. Increased demand should then have a positive impact on prices. Economic fundamentals have continued to look positive despite volatility in the financial markets. Inflation and interest rates remain low, unemployment and job growth are at reasonable levels, and there are signs that business spending is beginning to pick up. In addition, a weaker dollar should help U.S. companies that export goods overseas, even though it crimps our wallets when we travel abroad. These and other factors make it highly unlikely that we will experience a so-called "double-dip" recession. I remain optimistic about the direction of the economy and believe that, eventually, markets will start paying attention to these very favorable conditions. Nevertheless, we should remember that risk still exists. For one, bonds have been experiencing their own bear market. This has created something of a credit crunch for businesses, as liquidity declines and spreads widen. Related to this has been a crisis of confidence -- the unfortunate legacy of recent corporate scandal. In some cases, investors who thought they were buying high-quality corporate bonds were actually getting riskier high-yield securities due to dishonest accounting. Everyone agrees that some type of reform is needed, but the challenge for regulators will be to discourage misleading practices without sacrificing entrepreneurial incentive. Prudent regulation will boost confidence, while misguided efforts will simply make markets less efficient. What I think all investors need to understand is that we're still working through the excess capacity and inflated demand forecasts that were created in the late `90s. This process has been painful, but it has helped to reorient expectations to levels that are more sustainable. Historically speaking, the late `90s were an aberration and will likely not be repeated soon. - -------------------------------------------------------------------------------- 3 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Economic and Market Update However, a more sober outlook need not be cause for special concern. We should all ask ourselves, "Have my goals changed in the last couple of years?" For many of us, the answer will be "no." If you're saving for long-term goals like retirement, I would still advise a substantial weighting in equities for your portfolio. Over time, stocks will probably continue to outperform bonds or other investments. And if you're in retirement or getting close, you may want to invest more heavily in bonds and cash, with a smaller portion devoted to equities. See your financial advisor or retirement plan administrator for more information about different types of securities and asset allocation. As always, thank you for investing with American Express Financial Advisors. William F. Truscott KEY POINTS - -- Economic fundamentals remain positive. - -- Credit "crunch" for business sector persists. - -- Re-evaluation of personal financial goals key. - -------------------------------------------------------------------------------- 4 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Fund Snapshot AS OF JULY 31, 2002 PORTFOLIO MANAGER Portfolio manager Joan Kampmeyer Tenure/since 1/10/02 Years in industry 17 Portfolio manager Tom Mahowald Tenure/since 6/5/02 Years in industry 12 FUND OBJECTIVE For investors seeking long-term growth of capital. Inception dates A: 8/19/96 B: 8/19/96 C: 6/26/00 Y: 8/19/96 Ticker symbols A: IRDAX B: IROBX C: -- Y: -- Total net assets $308.7 million Number of holdings approximately 110 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL PORTFOLIO ASSET MIX Percentage of portfolio assets (pie graph) Common stocks 97.4% Cash equivalents 2.6% TOP FIVE SECTORS Percentage of portfolio assets Health care 12.0% Retail 8.8 Banks and savings & loans 7.0 Multi-industry conglomerates 6.4 Insurance 6.2 TOP TEN HOLDINGS Percentage of portfolio assets General Electric 4.0% Microsoft 3.3 Wal-Mart Stores 3.2 Pfizer 3.0 Exxon Mobil 3.0 Citigroup 2.5 American Intl Group 2.5 Procter & Gamble 2.3 Johnson & Johnson 2.3 Wells Fargo 2.0 Stock prices of established companies that pay dividends may be less volatile than the stock market as a whole. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 5 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Questions & Answers WITH PORTFOLIO MANAGEMENT Q: How did AXP Research Opportunities Fund perform for the 12-month period ended July 31, 2002? A: The Fund's fiscal year performance was very disappointing. For the 12 months ended July 31, 2002, the Fund declined 27.24% (Class A shares, excluding sales charges), underperforming its benchmark, the S&P 500 Index, which fell 23.63%. The Lipper Large-Cap Core Funds Index fared somewhat better, and returned -22.18%. Q: What market conditions surrounded the Fund's fiscal year? A: During the past fiscal year, the U.S. equity market continued its slide with few interruptions. Weak corporate profits, a second-half 2001 recession and layoffs all started last summer off on a sour note. The September 11, 2001 terrorist attacks and their aftermath resulted in an unprecedented four-day closing of the U.S. equity markets and sparked considerable investor gloom. However, aggressive monetary easing by the Federal Reserve Board, a government stimulus package and early signs of economic improvement led to a nearly 11% rebound in the S&P 500 Index during the last three months of 2001. Unfortunately, investor optimism was short lived. In December 2001, Enron filed for bankruptcy, and a crisis of confidence among investors ensued. There was no shortage of corporate scandals: CEO resignations, criminal probes, accounting restatements, bankruptcies and Arthur Andersen's collapse. Adding fuel to the fire were rising tensions in the Middle East and the U.S. dollar weaker against several important currencies. Investors fled the "darlings" of the late 1990s -- especially large-cap growth stocks. (bar graph) PERFORMANCE COMPARISON For the year ended July 31, 2002 0% -5% - -10% - -15% - -20% (bar 1) (bar 2) (bar 3) - -25% -27.24% -23.63% -22.18% - -30% (bar 1) AXP Research Opportunities Fund Class A (excluding sales charge) (bar 2) S&P 500 Index (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in sales charges and fees. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 6 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Questions & Answers (begin callout quote) > At certain times during the year the Fund was slightly overweighted in technology, a poorly performing sector, which hurt results. (end callout quote) Q: What factors significantly impacted the Fund's performance? A: Two factors drove the Fund's fiscal year performance. A handful of stocks, primarily holdings in the financial and utilities sectors, accounted for most of the Fund's underperformance relative to the S&P 500 Index. Also, at certain times during the year the Fund was slightly overweighted in technology, a poorly performing sector, which hurt results. On the positive side, our strong stock selection within the healthcare and telecommunications sectors, as well as our decision to not own certain poorly performing stocks in these sectors, benefited performance. Q: What changes did you make to the portfolio? A: Halfway through the period, in January 2002 we assumed responsibility for managing the Fund. Since that time, we have enhanced the portfolio in several ways. First, the Fund is now sector neutral to the S&P 500 Index -- meaning that the Fund will now reflect the same sector weights as those in the Index. Fund performance is therefore tied exclusively to our research analysts' best stock ideas without the impact of AVERAGE ANNUAL TOTAL RETURNS as of July 31, 2002 At Net Asset Value (NAV)(1) Class A Class B Class C Class Y 1 year -27.24% -27.93% -28.05% -27.30% 5 years -3.12% -3.88% N/A -2.98% 10 years N/A N/A N/A N/A Since inception +2.72%(2) +1.92%(2) -22.96%(3) +2.87%(2) With Sales Charge Class A Class B Class C Class Y 1 year -31.43% -30.81% -28.05% -27.30% 5 years -4.26% -4.00% N/A -2.98% 10 years N/A N/A N/A N/A Since inception +1.70%(2) +1.92%(2) -22.96%(3) +2.87%(2) (1) Excluding sales charge. (2) Inception date was Aug. 19, 1996. (3) Inception date was June 26, 2000. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. The performance shown for each class of shares will vary due to differences in sales charges and fees. Short term performance may be higher or lower than the figures shown. Visit americanexpress.com for current information. - -------------------------------------------------------------------------------- 7 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Questions & Answers sector "bets." This change has effectively reduced the Fund's technology weighting from 30% to 15%. Second, the Fund at all times owns the largest S&P 500 Index stocks that combined represent 20% of the Index. Our rationale here is to ensure that the Fund always has representation in large influential stocks. Lastly, we have reduced the Fund's portfolio turnover -- that is, the volume of stocks purchased and sold during the year, which in turn lowered transaction costs. For the second half of the Fund's fiscal year, this approach did not, however, generate the returns we'd hoped. Additionally, our stock selection across the board was somewhat unsuccessful, thereby suppressing performance further. Q: How are you positioning the Fund moving forward? A: We believe the Fund is well positioned for these challenging times. Our research staff's focus on fundamental analysis -- identifying solid companies at attractive valuations -- is consistent with current market conditions. The enhancements made to the Fund's portfolio construction process earlier this year should help future performance. With its sector-neutral structure and range of 80-125 holdings, we believe AXP Research Opportunities Fund offers a relatively lower risk alternative for those investors seeking a large-cap blend mutual fund investment with the potential for long-term capital growth. - -------------------------------------------------------------------------------- 8 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- The Fund's Long-Term Performance This chart illustrates the total value of an assumed $10,000 investment in AXP Research Opportunities Fund Class A shares (from 9/1/96 to 7/31/02) as compared to the performance of two widely cited performance indices, Standard & Poor's 500 Index and the Lipper Large-Cap Core Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. Past performance is no guarantee of future results. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Returns do not reflect taxes payable on distributions and redemptions. Also see "Past Performance" in the Fund's current prospectus. (line graph) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP RESEARCH OPPORTUNITIES FUND $30,000 $22,500 (solid line) AXP Research Opportunities Fund Class A $15,000 (dotted line) S&P 500 Index $7,500 (dashed line) Lipper Large-Cap Core Funds Index 9/1/96 7/97 7/98 7/99 7/00 7/01 7/02 (solid line) AXP Research Opportunities Fund Class A $11,055 (dotted line) S&P 500 Index(1) $15,230 (dashed line) Lipper Large-Cap Core Funds Index(2) $14,380 (1) Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the S&P 500 companies may be generally larger than those in which the Fund invests. (2) The Lipper Large-Cap Core Funds Index, 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. Average Annual Total Returns Class A with Sales Charge as of July 31, 2002 1 year -31.43% 5 years -4.26% 10 years N/A Since inception (8/19/96) +1.70% Results for other share classes can be found on page 7. - -------------------------------------------------------------------------------- 9 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Investments in Securities Aggressive Growth Portfolio July 31, 2002 (Percentages represent value of investments compared to net assets) Common stocks (96.9%) Issuer Shares Value(a) Aerospace & defense (1.5%) Boeing 36,400 $1,511,328 General Dynamics 7,000 566,440 Lockheed Martin 19,000 1,218,090 United Technologies 18,600 1,292,700 Total 4,588,558 Airlines (0.6%) Southwest Airlines 132,700 1,832,587 Automotive & related (1.1%) General Motors 53,300 2,481,115 Johnson Controls 9,900 802,098 Total 3,283,213 Banks and savings & loans (6.9%) Bank of America 62,200 4,136,300 J.P. Morgan Chase 127,200 3,174,912 U.S. Bancorp 140,300 3,001,017 Washington Mutual 82,500 3,086,325 Wells Fargo 120,500 6,128,630 Zions Bancorp 38,200 1,929,482 Total 21,456,666 Beverages & tobacco (3.8%) Anheuser-Busch 36,100 1,866,731 Coca-Cola 102,600 5,123,844 PepsiCo 61,500 2,640,810 UST 70,400 2,071,872 Total 11,703,257 Building materials & construction (0.7%) Weyerhaeuser 35,500 2,085,625 Chemicals (3.0%) Air Products & Chemicals 53,700 2,376,225 du Pont (EI) de Nemours 37,900 1,588,389 Ecolab 51,900 2,384,805 Praxair 38,300 2,003,090 Rohm & Haas 26,500 993,750 Total 9,346,259 Communications equipment & services (1.9%) Motorola 191,700 2,223,720 Verizon Communications 107,900 3,560,700 Total 5,784,420 Computer software & services (5.0%) Electronic Arts 13,100(b) 788,358 Intuit 61,500(b) 2,704,770 Microsoft 210,300(b) 10,083,885 Yahoo! 152,600(b) 2,009,742 Total 15,586,755 Computers & office equipment (5.5%) Cisco Systems 401,100(b) 5,290,509 Dell Computer 184,800(b) 4,607,064 Intl Business Machines 47,500 3,344,000 Pitney Bowes 40,100 1,563,900 State Street 49,200 2,091,000 Total 16,896,473 Electronics (4.0%) Analog Devices 39,600(b) 954,360 Applied Materials 124,400(b) 1,849,828 Intel 268,900 5,052,631 Maxim Integrated Products 40,800(b) 1,435,344 Texas Instruments 133,200 3,083,580 Total 12,375,743 Energy (5.7%) Apache 34,020 1,752,030 ChevronTexaco 44,900 3,367,500 Conoco 53,100 1,280,772 Exxon Mobil 248,600 9,138,536 Kerr-McGee 21,800 1,019,586 Phillips Petroleum 21,900 1,133,325 Total 17,691,749 Energy equipment & services (0.9%) Schlumberger 35,600 1,527,952 Transocean 45,800 1,167,900 Total 2,695,852 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Common stocks (continued) Issuer Shares Value(a) Financial services (5.9%) Capital One Financial 35,500 $1,125,350 Citigroup 229,500 7,697,430 Fannie Mae 40,000 2,995,600 Freddie Mac 33,800 2,093,910 MBNA 128,550 2,492,585 Morgan Stanley 41,400 1,670,490 Total 18,075,365 Food (0.7%) General Mills 49,600 2,055,920 Furniture & appliances (0.5%) Whirlpool 26,600 1,526,042 Health care (11.8%) Abbott Laboratories 101,000 4,182,410 Amgen 52,500(b) 2,396,100 Baxter Intl 58,400 2,330,744 Forest Laboratories 21,100(b) 1,634,617 Johnson & Johnson 131,600 6,974,800 Medtronic 84,300 3,405,720 Pfizer 285,900 9,248,864 Pharmacia 61,500 2,751,510 Wyeth 99,900 3,986,010 Total 36,910,775 Health care services (2.1%) HCA 53,300 2,505,100 McKesson 60,400 1,988,368 Tenet Healthcare 15,000(b) 714,750 UnitedHealth Group 14,000 1,227,240 Total 6,435,458 Household products (3.7%) Avon Products 55,900 2,585,934 Gillette 53,450 1,757,436 Procter & Gamble 80,700 7,181,493 Total 11,524,863 Industrial equipment & services (0.2%) Caterpillar 14,200 634,740 Insurance (6.2%) ACE 55,900(c) 1,770,353 American Intl Group 118,100 7,548,952 Hartford Financial Services Group 36,800 1,862,080 John Hancock Financial Services 50,700 1,678,170 Lincoln Natl 45,700 1,676,733 Marsh & McLennan 55,300 2,648,870 XL Capital Cl A 25,300(c) 1,874,730 Total 19,059,888 Leisure time & entertainment (1.4%) Viacom Cl B 107,400(b) 4,180,008 Media (0.8%) Gannett 35,400 2,545,614 Metals (0.7%) Alcoa 84,200 2,277,610 Multi-industry conglomerates (6.4%) 3M 30,600 3,850,398 Cendant 148,900(b) 2,057,798 Danaher 25,300 1,569,865 General Electric 379,700 12,226,340 Total 19,704,401 Paper & packaging (0.7%) Intl Paper 55,400 2,206,028 Real estate investment trust (0.3%) Starwood Hotels & Resorts Worldwide 32,300 830,110 Restaurants & lodging (0.9%) Hilton Hotels 138,800 1,696,136 Yum! Brands 35,300(b) 1,090,770 Total 2,786,906 Retail (8.8%) Best Buy 59,850(b) 1,969,065 Family Dollar Stores 66,700 2,020,343 Home Depot 140,000 4,323,200 Kroger 121,900(b) 2,374,612 Safeway 76,200(b) 2,119,884 Target 81,100 2,704,685 Wal-Mart Stores 199,900 9,831,082 Walgreen 50,000 1,766,500 Total 27,109,371 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 11 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Common stocks (continued) Issuer Shares Value(a) Transportation (1.2%) FedEx 35,900 $1,829,105 Norfolk Southern 91,700 1,856,925 Total 3,686,030 Utilities -- electric (3.4%) Dominion Resources 54,700 3,251,368 DTE Energy 36,100 1,478,656 Duke Energy 103,900 2,648,411 FPL Group 30,600 1,733,490 TXU 35,700 1,539,741 Total 10,651,666 Utilities -- telephone (0.5%) BellSouth 61,200 1,643,220 Total common stocks (Cost: $364,969,841) $299,171,172 Short-term securities (2.6%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (2.1%) Federal Home Loan Mtge Corp Disc Nt 09-17-02 1.71% $600,000 $598,632 Federal Natl Mtge Assn Disc Nts 08-08-02 1.84 1,500,000 1,499,452 08-21-02 1.71 2,000,000 1,998,006 10-16-02 1.74 700,000 697,502 10-23-02 1.70 900,000 896,494 10-23-02 1.71 800,000 796,883 Total 6,486,969 Commercial paper (0.5%) Gannett 08-19-02 1.75 1,000,000(d) 999,076 Southern Co Funding 08-16-02 1.75 500,000(d) 499,611 Total 1,498,687 Total short-term securities (Cost: $7,985,785) $7,985,656 Total investments in securities (Cost: $372,955,626)(e) $307,156,828 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, 2002, the value of foreign securities represented 1.2% 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) At July 31, 2002, the cost of securities for federal income tax purposes was $377,418,759 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 5,716,135 Unrealized depreciation (75,978,066) ----------- Net unrealized depreciation $(70,261,931) ------------ - -------------------------------------------------------------------------------- 12 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Financial Statements Statement of assets and liabilities Aggressive Growth Portfolio July 31, 2002 Assets Investments in securities, at value (Note 1) (identified cost $372,955,626) $307,156,828 Cash in bank on demand deposit 718,626 Dividends and accrued interest receivable 282,249 Receivable for investment securities sold 763,713 ------- Total assets 308,921,416 ----------- Liabilities Accrued investment management services fee 5,411 Other accrued expenses 31,595 ------ Total liabilities 37,006 ------ Net assets $308,884,410 ============ See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - --------------------------------------------------------------------------------
Statement of operations Aggressive Growth Portfolio Year ended July 31, 2002 Investment income Income: Dividends $ 5,724,527 Interest 507,678 Less foreign taxes withheld (5,904) ------ Total income 6,226,301 --------- Expenses (Note 2): Investment management services fee 2,638,359 Compensation of board members 11,856 Custodian fees 57,518 Audit fees 18,750 Other 3,469 ----- Total expenses 2,729,952 --------- Investment income (loss) -- net 3,496,349 --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (113,634,873) Futures contracts 138,579 ------- Net realized gain (loss) on investments (113,496,294) Net change in unrealized appreciation (depreciation) on investments (28,602,926) ----------- Net gain (loss) on investments (142,099,220) ------------ Net increase (decrease) in net assets resulting from operations $(138,602,871) =============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - --------------------------------------------------------------------------------
Statements of changes in net assets Aggressive Growth Portfolio Year ended July 31, 2002 2001 Operations Investment income (loss) -- net $ 3,496,349 $ 6,747,835 Net realized gain (loss) on investments (113,496,294) (103,099,047) Net change in unrealized appreciation (depreciation) on investments (28,602,926) (38,541,226) ----------- ----------- Net increase (decrease) in net assets resulting from operations (138,602,871) (134,892,438) ------------ ------------ Proceeds from contributions 4,397,176 5,054,931 Fair value of withdrawals (157,127,612) (146,750,384) ------------ ------------ Net contributions (withdrawals) from partners (152,730,436) (141,695,453) ------------ ------------ Total increase (decrease) in net assets (291,333,307) (276,587,891) Net assets at beginning of year 600,217,717 876,805,608 ----------- ----------- Net assets at end of year $ 308,884,410 $ 600,217,717 ============= =============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 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 Index. 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. - -------------------------------------------------------------------------------- 16 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Portfolio will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. 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. - -------------------------------------------------------------------------------- 17 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- 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 American Express Financial Corporation (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 Funds 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 $282,741 for the year ended July 31, 2002. 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. The Portfolio 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 $626,880,406 and $774,168,644, respectively, for the year ended July 31, 2002. For the same period, the portfolio turnover rate was 144%. Realized gains and losses are determined on an identified cost basis. Brokerage commissions paid to brokers affiliated with AEFC were $51,732 for the year ended July 31, 2002. Income from securities lending amounted to $1,745 for the year ended July 31, 2002. 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. - -------------------------------------------------------------------------------- 18 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 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, 2002, 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, 2002. 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, 2002, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aggressive Growth Portfolio as of July 31, 2002 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 6, 2002 - -------------------------------------------------------------------------------- 19 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Financial Statements
Statement of assets and liabilities AXP Research Opportunities Fund July 31, 2002 Assets Investment in Portfolio (Note 1) $ 308,827,245 Capital shares receivable 1,240 ----- Total assets 308,828,485 ----------- Liabilities Accrued distribution fee 4,517 Accrued service fee 1 Accrued transfer agency fee 2,294 Accrued administrative services fee 495 Other accrued expenses 75,735 ------ Total liabilities 83,042 ------ Net assets applicable to outstanding capital stock $ 308,745,443 ============= Represented by Capital stock -- $.01 par value (Note 1) $ 809,217 Additional paid-in capital 593,185,070 Accumulated net realized gain (loss) (Note 5) (219,461,075) Unrealized appreciation (depreciation) on investments (65,787,769) ----------- Total -- representing net assets applicable to outstanding capital stock $ 308,745,443 ============= Net assets applicable to outstanding shares: Class A $ 189,354,817 Class B $ 118,902,983 Class C $ 282,398 Class Y $ 205,245 Net asset value per share of outstanding capital stock: Class A shares 48,582,409 $ 3.90 Class B shares 32,210,670 $ 3.69 Class C shares 76,432 $ 3.69 Class Y shares 52,208 $ 3.93 ------ -------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 20 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - --------------------------------------------------------------------------------
Statement of operations AXP Research Opportunities Fund Year ended July 31, 2002 Investment income Income: Dividends $ 5,723,665 Interest 506,404 Less foreign taxes withheld (5,903) ------ Total income 6,224,166 --------- Expenses (Note 2): Expenses allocated from Portfolio 2,729,542 Distribution fee Class A 693,461 Class B 1,794,096 Class C 2,912 Transfer agency fee 1,069,234 Incremental transfer agency fee Class A 74,452 Class B 76,767 Class C 143 Service fee -- Class Y 255 Administrative services fees and expenses 263,650 Compensation of board members 11,481 Printing and postage 128,542 Registration fees 78,545 Audit fees 6,250 Other 3,576 ----- Total expenses 6,932,906 Earnings credits on cash balances (Note 2) (8,075) ------ Total net expenses 6,924,831 --------- Investment income (loss) -- net (700,665) -------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (113,619,552) Futures contracts 138,530 ------- Net realized gain (loss) on investments (113,481,022) Net change in unrealized appreciation (depreciation) on investments (28,596,657) ----------- Net gain (loss) on investments (142,077,679) ------------ Net increase (decrease) in net assets resulting from operations $(142,778,344) =============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 21 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - --------------------------------------------------------------------------------
Statements of changes in net assets AXP Research Opportunities Fund Year ended July 31, 2002 2001 Operations and distributions Investment income (loss) -- net $ (700,665) $ 548,546 Net realized gain (loss) on investments (113,481,022) (103,085,570) Net change in unrealized appreciation (depreciation) on investments (28,596,657) (38,537,820) ----------- ----------- Net increase (decrease) in net assets resulting from operations (142,778,344) (141,074,844) ------------ ------------ Distributions to shareholders from: Net investment income Class A (548,089) -- Class B -- -- Class C (96) -- Class Y (693) -- Net realized gain Class A -- (63,547,161) Class B -- (42,332,023) Class C -- (27,210) Class Y -- (37,723) -------- ------------ Total distributions (548,878) (105,944,117) -------- ------------ Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 43,870,066 60,791,841 Class B shares 10,812,283 24,966,464 Class C shares 159,554 265,362 Class Y shares 9,017 110,852 Reinvestment of distributions at net asset value Class A shares 543,290 62,625,709 Class B shares -- 41,987,018 Class C shares 95 27,210 Class Y shares 689 37,724 Payments for redemptions Class A shares (133,571,180) (150,872,613) Class B shares (Note 2) (69,710,542) (69,396,656) Class C shares (Note 2) (48,509) (14,432) Class Y shares (37,131) (26,197) ------- ------- Increase (decrease) in net assets from capital share transactions (147,972,368) (29,497,718) ------------ ----------- Total increase (decrease) in net assets (291,299,590) (276,516,679) Net assets at beginning of year 600,045,033 876,561,712 ----------- ----------- Net assets at end of year $ 308,745,443 $ 600,045,033 ============= ============= Undistributed net investment income $ -- $ 548,546 ------------- -------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 22 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 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. 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 Index. 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, 2002, was 99.98%. Valuation of securities held by the Portfolio is discussed in Note 1 of the Portfolios "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. - -------------------------------------------------------------------------------- 23 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $700,997 and accumulated net realized loss has been decreased by $52,329 resulting in a net reclassification adjustment to decrease paid-in capital by $753,326. The tax character of distributions paid for the years indicated is as follows: Year ended July 31, 2002 2001 - -------------------------------------------------------------------------------- Class A Distributions paid from: Ordinary income $548,089 $57,575,322 Long-term capital gain -- 5,971,839 Class B Distributions paid from: Ordinary income -- 38,353,877 Long-term capital gain -- 3,978,146 Class C Distributions paid from: Ordinary income 96 24,653 Long-term capital gain -- 2,557 Class Y Distributions paid from: Ordinary income 693 34,178 Long-term capital gain -- 3,545 As of July 31, 2002, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ -- Accumulated gain (loss) $(214,998,504) Unrealized appreciation (depreciation) $ (70,250,340) 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. - -------------------------------------------------------------------------------- 24 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with AEFC to provide administrative services. Under an Administrative Services Agreement, the Fund pays AEFC a fee for 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 incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. 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 $380,478 for Class A, $170,378 for Class B and $26 for Class C for the year ended July 31, 2002. During the year ended July 31, 2002, the Fund's transfer agency fees were reduced by $8,075 as a result of earnings credits from overnight cash balances. - -------------------------------------------------------------------------------- 25 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2002 Class A Class B Class C Class Y Sold 9,259,194 2,412,020 35,293 1,898 Issued for reinvested distributions 110,287 -- 20 139 Redeemed (28,644,747) (16,048,196) (10,730) (7,914) ----------- ----------- ------- ------ Net increase (decrease) (19,275,266) (13,636,176) 24,583 (5,877) ----------- ----------- ------ ------ 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 ---------- ------- ------ ------
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, 2002. 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $214,998,504 as of July 31, 2002, that will expire in 2009 through 2011 if not offset by capital gains. It is unlikely the board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. - -------------------------------------------------------------------------------- 26 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- 6. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
Class A Per share income and capital changes(a) Fiscal period ended July 31, 2002 2001 2000 1999 1998 Net asset value, beginning of period $ 5.37 $ 7.61 $7.94 $6.98 $6.86 Income from investment operations: Net investment income (loss) -- .02 -- (.01) .02 Net gains (losses) (both realized and unrealized) (1.46) (1.27) .66 1.32 .65 Total from investment operations (1.46) (1.25) .66 1.31 .67 Less distributions: Dividends from net investment income (.01) -- -- -- -- Distributions from realized gains -- (.99) (.99) (.35) (.55) Total distributions (.01) (.99) (.99) (.35) (.55) Net asset value, end of period $ 3.90 $ 5.37 $7.61 $7.94 $6.98 Ratios/supplemental data Net assets, end of period (in millions) $189 $365 $540 $481 $337 Ratio of expenses to average daily net assets(c) 1.22% 1.16% 1.14% 1.12% 1.12% Ratio of net investment income (loss) to average daily net assets .15% .37% .02% .04% .30% Portfolio turnover rate (excluding short-term securities) 144% 234% 160% 143% 148% Total return(e) (27.24%) (17.54%) 7.73% 19.21% 10.76% Class B Per share income and capital changes(a) Fiscal period ended July 31, 2002 2001 2000 1999 1998 Net asset value, beginning of period $ 5.12 $ 7.36 $7.76 $6.88 $6.82 Income from investment operations: Net investment income (loss) (.01) (.02) (.05) (.02) (.02) Net gains (losses) (both realized and unrealized) (1.42) (1.23) .64 1.25 .63 Total from investment operations (1.43) (1.25) .59 1.23 .61 Less distributions: Distributions from realized gains -- (.99) (.99) (.35) (.55) Net asset value, end of period $ 3.69 $ 5.12 $7.36 $7.76 $6.88 Ratios/supplemental data Net assets, end of period (in millions) $119 $235 $336 $276 $184 Ratio of expenses to average daily net assets(c) 1.98% 1.92% 1.91% 1.88% 1.88% Ratio of net investment income (loss) to average daily net assets (.62%) (.39%) (.73%) (.72%) (.46%) Portfolio turnover rate (excluding short-term securities) 144% 234% 160% 143% 148% Total return(e) (27.93%) (18.19%) 7.03% 18.31% 9.92%
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 27 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - --------------------------------------------------------------------------------
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2002 2001 2000(b) Net asset value, beginning of period $ 5.13 $ 7.36 $7.50 Income from investment operations: Net investment income (loss) (.02) (.02) .02 Net gains (losses) (both realized and unrealized) (1.42) (1.22) (.16) Total from investment operations (1.44) (1.24) (.14) Less distributions: Distributions from realized gains -- (.99) -- Net asset value, end of period $ 3.69 $ 5.13 $7.36 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- Ratio of expenses to average daily net assets(c) 1.99% 1.92% 1.91%(d) Ratio of net investment income (loss) to average daily net assets (.61%) (.36%) (.50%)(d) Portfolio turnover rate (excluding short-term securities) 144% 234% 160% Total return(e) (28.05%) (18.03%) (1.87%)
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2002 2001 2000 1999 1998 Net asset value, beginning of period $ 5.42 $ 7.65 $7.96 $7.01 $6.88 Income from investment operations: Net investment income (loss) -- .04 .01 -- .03 Net gains (losses) (both realized and unrealized) (1.48) (1.28) .67 1.32 .65 Total from investment operations (1.48) (1.24) .68 1.32 .68 Less distributions: Dividends from net investment income (.01) -- -- (.02) -- Distributions from realized gains -- (.99) (.99) (.35) (.55) Total distributions (.01) (.99) (.99) (.37) (.55) Net asset value, end of period $ 3.93 $ 5.42 $7.65 $7.96 $7.01 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- $-- $-- Ratio of expenses to average daily net assets(c) 1.04% 1.00% .97% 1.02% .87% Ratio of net investment income (loss) to average daily net assets .33% .54% .17% .12% .40% Portfolio turnover rate (excluding short-term securities) 144% 234% 160% 143% 148% Total return(e) (27.30%) (17.29%) 7.99% 19.34% 10.93%
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 28 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 29 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 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, 2002, 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, 2002, and the financial highlights for each of the years in the five-year period ended July 31, 2002. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with 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, 2002, 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 6, 2002 - -------------------------------------------------------------------------------- 30 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 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, 2002 Class A Income distribution taxable as dividend income, 100% qualifying for deduction by corporations. Payable date Per share Dec. 21, 2001 $0.00903 Class C Income distribution taxable as dividend income, 100% qualifying for deduction by corporations. Payable date Per share Dec. 21, 2001 $0.00137 Class Y Income distribution taxable as dividend income, 100% qualifying for deduction by corporations. Payable date Per share Dec. 21, 2001 $0.01323 - -------------------------------------------------------------------------------- 31 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 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 78 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, Position held with Principal occupations Other directorships address, Registrant and length of during past five years age service - -------------------------------------- ------------------------------ --------------------------- ---------------------------- H. Brewster Atwater, Jr. Board member since 1996 Retired chair and chief 4900 IDS Tower executive officer, Minneapolis, MN 55402 General Mills, Inc. Born in 1931 (consumer foods) - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Arne H. Carlson Chair of the Board since 1999 Chair, Board Services 901 S. Marquette Ave. Corporation (provides Minneapolis, MN 55402 administrative services Born in 1934 to boards), former Governor of Minnesota - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Lynne V. Cheney Board member since 1994 Distinguished Fellow, AEI The Reader's Digest American Enterprise Institute Association Inc. for Public Policy Research (AEI) 1150 17th St., N.W. Washington, D.C. 20036 Born in 1941 - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Livio D. DeSimone Board member since 2001 Retired chair of the Cargill, Incorporated 30 Seventh Street East board and chief executive (commodity merchants and Suite 3050 officer, Minnesota Mining processors), Target St. Paul, MN 55101-4901 and Manufacturing (3M) Corporation (department Born in 1936 stores), General Mills, Inc. (consumer foods), Vulcan Materials Company (construction materials/chemicals), Milliken & Company (textiles and chemicals) and Nexia Biotechnologies, Inc. - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Ira D. Hall Board member since 2001 Private investor; Imagistics International, Texaco, Inc. 2000 formerly with Texaco Inc. (office equipment), Westchester Avenue Inc., treasurer, Reynolds & Reynolds White Plains, NY 10650 1999-2001 and general Company (information Born in 1944 manager, alliance services), TECO Energy, management operations, Inc. (energy holding 1998-1999. Prior to that, company), The Williams director, International Companies, Inc. (energy Operations IBM Corp. distribution company) - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Heinz F. Hutter Board member since 1994 Retired president and P.O. Box 2187 chief operating officer, Minneapolis, MN 55402 Cargill, Incorporated Born in 1929 (commodity merchants and processors) - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Anne P. Jones Board member since 1985 Attorney and consultant Motorola, Inc. 5716 Bent Branch Rd. (electronics) Bethesda, MD 20816 Born in 1935 - -------------------------------------- ------------------------------ --------------------------- ----------------------------
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Independent Board Members (continued) Name, Position held with Principal occupations Other directorships address, Registrant and length of during past five years age service - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Stephen R. Lewis, Jr. Board member since 2002 Retired president and 901 S. Marquette Ave. professor of economics, Minneapolis, MN 55402 Carleton College Born in 1939 - -------------------------------------- ------------------------------ --------------------------- ---------------------------- William R. Pearce Board member since 1980 RII Weyerhaeuser World 2050 One Financial Plaza Timberfund, L.P. Minneapolis, MN 55402 (develops timber Born in 1927 resources) - management committee; former chair, American Express Funds - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Alan G. Quasha Board member since 2002 President, Quadrant Compagnie Financiere 720 Fifth Avenue Management, Inc. Richemont AG (luxury goods) New York, NY 10019 (management of private Born in 1949 equities) - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Alan K. Simpson Board member since 1997 Former three-term United Biogen, Inc. 1201 Sunshine Ave. States Senator for Wyoming (bio-pharmaceuticals) Cody, WY 82414 Born in 1931 - -------------------------------------- ------------------------------ --------------------------- ---------------------------- C. Angus Wurtele Board member since 1994 Retired chair of the Bemis Corporation 4900 IDS Tower board and chief executive (packaging) Minneapolis, MN 55402 officer, The Valspar Born in 1934 Corporation - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Board Members Affiliated with American Express Financial Corporation (AEFC) Name, Position held with Principal occupations Other directorships address, Registrant and length of during past five years age service - -------------------------------------- ------------------------------ --------------------------- ---------------------------- David R. Hubers Board member since 1993 Retired chief executive Chronimed Inc. (specialty 50643 AXP Financial Center officer and director of pharmaceutical Minneapolis, MN 55474 AEFC distribution), RTW Inc. Born in 1943 (manages workers compensation programs), Lawson Software, Inc. (technology based business applications) - -------------------------------------- ------------------------------ --------------------------- ---------------------------- John R. Thomas Board member since 1987, Senior vice president - 50652 AXP Financial Center president since 1997 information and Minneapolis, MN 55474 technology of AEFC Born in 1937 - -------------------------------------- ------------------------------ --------------------------- ---------------------------- William F. Truscott Board member since 2001, Senior vice president - 53600 AXP Financial Center vice president since 2002 chief investment officer Minneapolis, MN 55474 of AEFC; former chief Born in 1960 investment officer and managing director, Zurich Scudder Investments - -------------------------------------- ------------------------------ --------------------------- ----------------------------
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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, and Mr. Truscott, who is vice president, the Fund's other officers are: Other Officers Name, Position held with Principal occupations Other directorships address, Registrant and length of during past five years age service - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Jeffrey P. Fox Treasurer since 2002 Vice president - 50005 AXP Financial Center investment accounting, Minneapolis, MN 55474 AEFC, since 2002; vice Born in 1955 president - finance, American Express Company, 2000-2002; vice president - corporate controller, AEFC, 1996-2000 - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Leslie L. Ogg Vice president, general President of Board 901 S. Marquette Ave. counsel and secretary since Services Corporation Minneapolis, MN 55402 1978 Born in 1938 - -------------------------------------- ------------------------------ --------------------------- ---------------------------- Stephen W. Roszell Vice president since 2002 Senior vice president - 50239 AXP Financial Center institutional group of Minneapolis, MN 55474 AEFC Born in 1949 - -------------------------------------- ------------------------------ --------------------------- ----------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. - -------------------------------------------------------------------------------- 34 -- AXP RESEARCH OPPORTUNITIES FUND -- 2002 ANNUAL REPORT - -------------------------------------------------------------------------------- American Express(R) Funds Growth Funds AXP(R) Emerging Markets Fund AXP Equity Select Fund AXP Focused Growth Fund AXP Global Growth Fund AXP Growth Fund AXP Growth Dimensions Fund AXP New Dimensions Fund(R) AXP Partners International Aggressive Growth Fund AXP Partners Small Cap Growth Fund AXP Strategy Aggressive Fund Blend Funds AXP Blue Chip Advantage Fund AXP Discovery Fund* AXP European Equity Fund AXP Global Balanced Fund AXP International Fund AXP International Equity Index Fund AXP Large Cap Equity Fund AXP Managed Allocation Fund AXP Mid Cap Index Fund AXP Nasdaq 100 Index(R) Fund AXP Partners Small Cap Core Fund AXP Research Opportunities Fund AXP S&P 500 Index Fund AXP Small Cap Advantage Fund AXP Small Company Index Fund AXP Stock Fund AXP Total Stock Market Index Fund Value Funds AXP Diversified Equity Income Fund AXP Equity Value Fund AXP Large Cap Value Fund AXP Mid Cap Value Fund AXP Mutual AXP Partners Fundamental Value Fund AXP Partners International Select Value Fund AXP Partners Select Value Fund AXP Partners Small Cap Value Fund AXP Partners Value Fund AXP Progressive Fund* Income/Tax-Exempt Income Funds AXP Bond Fund AXP Cash Management Fund** AXP Extra Income Fund AXP Federal Income Fund AXP Global Bond Fund AXP High Yield Tax-Exempt Fund AXP Insured Tax-Exempt Fund AXP Intermediate Tax-Exempt Fund AXP Selective Fund AXP State Tax-Exempt Funds AXP Tax-Exempt Bond Fund AXP Tax-Free Money Fund** AXP U.S. Government Mortgage Fund Sector Funds AXP Global Technology Fund AXP Precious Metals Fund AXP Utilities Fund These funds are also listed in the categories above. AXP(R) Partners Funds AXP Partners Fundamental Value Fund AXP Partners International Aggressive Growth Fund AXP Partners International Select Value Fund AXP Partners Select Value Fund AXP Partners Small Cap Core Fund AXP Partners Small Cap Growth Fund AXP Partners Small Cap Value Fund AXP Partners Value Fund International Funds AXP Emerging Markets Fund AXP European Equity Fund AXP Global Balanced Fund AXP Global Bond Fund AXP Global Growth Fund AXP International Fund AXP Partners International Aggressive Growth Fund AXP Partners International Select Value Fund * Closed to new investors. ** An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. For more complete information about our funds, including fees and expenses, please call (800) 862-7919 for prospectuses. Read them carefully before you invest. (9/02) AXP Research Opportunities Fund 70100 AXP Financial Center Minneapolis, MN 55474 americanexpress.com - -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) - -------------------------------------------------------------------------------- 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-6356 K (9/02) -----END PRIVACY-ENHANCED MESSAGE-----