N-CSR 1 growth-ncsr.txt AXP GROWTH SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-2111 ------------ AXP GROWTH SERIES, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 200 AXP Financial Center, Minneapolis, Minnesota 55474 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 7/31 -------------- Date of reporting period: 7/31 -------------- AXP(R) Growth Fund Annual Report for the Period Ended July 31, 2003 AXP Growth Fund seeks to provide shareholders with long-term capital growth. -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) -------------------------------------------------------------------------------- Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 The Fund's Long-term Performance 8 Investments in Securities 9 Financial Statements (Portfolio) 13 Notes to Financial Statements (Portfolio) 16 Independent Auditors' Report (Portfolio) 20 Financial Statements (Fund) 21 Notes to Financial Statements (Fund) 24 Independent Auditors' Report (Fund) 32 Board Members and Officers 33 (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. -------------------------------------------------------------------------------- 2 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Fund Snapshot AS OF JULY 31, 2003 PORTFOLIO MANAGER Portfolio manager Nick Thakore Since 4/1/02 Years in industry 10 FUND OBJECTIVE For investors seeking long-term capital growth. Inception dates A: 3/1/72 B: 3/20/95 C: 6/26/00 Y: 3/20/95 Ticker symbols A: INIDX B: IGRBX C: AXGCX Y: IGRYX Total net assets $3.447 billion Number of holdings 150 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Health care 25.3% Consumer discretionary 17.2% Consumer staples 13.1% Short-term securities 12.1% Technology 7.9% Energy 6.0% Industrials 5.2% Telecommunications 4.6% Materials 4.2% Financials 3.8% Other 0.6% TOP TEN HOLDINGS Percentage of portfolio assets Pfizer (Health care products) 4.4% Microsoft (Computer software & services) 4.2 McDonalds (Restaurants) 2.5 Johnson & Johnson (Health care products) 2.2 Lockheed Martin (Aerospace & defense) 2.1 Wyeth (Health care products) 1.9 Amgen (Health care products) 1.8 Procter & Gamble (Household products) 1.8 NTL (Cable) 1.7 Merck & Co (Health care products) 1.6 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Stock prices of established companies that pay dividends may be less volatile than the stock market as a whole. There are special risk considerations associated with international investing related to market, currency, political, economic and other factors. Fund holdings are subject to change. -------------------------------------------------------------------------------- 3 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Nick Thakore of American Express Funds' Boston investment team discusses AXP Growth Fund's results and positioning for the 12-month period ended July 31, 2003. Q: How did AXP Growth Fund perform for fiscal year 2003? A: AXP Growth Fund's Class A shares rose 9.20%, excluding sales charge, for the 12-month period ended July 31, 2003, slightly more than the 8.97% return of the Lipper Large-Cap Growth Funds Index, the Fund's peer group. The Russell 1000(R) Growth Index climbed 11.64% for the same period. The Fund enjoyed a positive fiscal year return for the first time in three years. While the Fund beat its peer, the Lipper Large-Cap Growth Funds Index, for most of the fiscal year, weak results in the month of July lessened the extent of the Fund's total outperformance relative to its peers for the full fiscal year. Sector allocation in industrials, financials and technology substantially hurt results in July and this unfavorable positioning overshadowed the strong results generated earlier in the fiscal year. The Fund was also more conservatively positioned than the Russell 1000(R) Growth Index during the fiscal year. This helped results during the first half of the period, enabling the Fund to outperform. However, in the second half of the fiscal year, as the more volatile stocks in the index did well, the Fund underperformed its benchmark. Q: What factors influenced performance during the period? A: Market conditions and investor psychology affected Fund results this past year, depressing the portfolio's returns in the late summer of 2002 and boosting returns during the market rally beginning in March 2003. Aggressive growth stocks with historically high levels of volatility (bar chart) PERFORMANCE COMPARISON For the period ended July 31, 2003 12% (bar 2) +11.64% 10% (bar 1) (bar 3) +9.20% +8.97% 8% 6% 4% 2% 0% (bar 1) AXP Growth Fund Class A (excluding sales charge) (bar 2) Russell 1000(R)Growth Index (unmanaged) (bar 3) Lipper Large-Cap Growth Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. -------------------------------------------------------------------------------- 4 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Questions & Answers (begin callout quote)> We have recently seen better opportunities in stable growth sectors than in cyclical growth sectors.(end callout quote) (high beta) provided exceptionally strong returns in the second calendar quarter of 2003. During this time, effective stock selection helped the Fund keep pace with its benchmark and peers even as it avoided stocks that appeared overvalued and/or lacked sufficient growth potential. Earlier in the fiscal year the Fund reduced its emphasis on financial stocks and assumed an overweight position in the health care sector, both of which benefited relative performance. Yet by early in the summer of 2003 the market had reversed and the Fund's performance was negatively impacted as economically sensitive stocks such as financials and technology outperformed while the stocks in stable growth
AVERAGE ANNUAL TOTAL RETURNS as of July 31, 2003 Class A Class B Class C Class Y (Inception dates) (3/1/72) (3/20/95) (6/26/00) (3/20/95) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) 1 year +9.20% +2.93% +8.36% +4.36% +8.31% +8.31% +9.38% +9.38% 5 years -6.83% -7.93% -7.54% -7.71% N/A N/A -6.69% -6.69% 10 years +6.73% +6.10% N/A N/A N/A N/A N/A N/A Since inception N/A N/A +4.95% +4.95% -23.90% -23.90% +5.91% +5.91%
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. 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/funds for current information. -------------------------------------------------------------------------------- 5 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Questions & Answers areas such as health care and consumer staples performed poorly on a relative basis. In addition, there were some technology holdings within the portfolio which did not meet expectations, notably Nokia and Sun Microsystems. Throughout the year, there has been a consistent focus on identifying companies with good growth prospects which are trading at reasonable valuations. McDonald's and IACI (formerly USA Interactive) were two solid contributors to the Fund's results. We believe McDonald's benefited from a new CEO focusing on the firm's core fast-food business, cutting capital spending and improving cash flow. McDonald's was one the Fund's largest overweight positions during the second half of the fiscal year, and this benefited performance. IACI grew its earnings very rapidly over the past year while at the same time simplifying its corporate structure. The stock delivered positive results for the Fund this past year. Q: What were the portfolio's weakest areas? A: The Fund's sector weightings mildly detracted from its performance. The Fund was underweight in both technology and financials which performed well for much of the period. While we managed to find some individual opportunities within technology, we underestimated the extent to which stocks could advance given what we viewed as limited evidence of fundamental improvement in the sector and valuations which appeared extended. Two names in technology that the Fund did own were Motorola and Nokia. We bought Motorola because it was a stock with a cost cutting story that had not been appreciated by the market and we bought Nokia as a leadership technology company with good end market growth which was trading at a reasonable valuation. While we are always looking for fast growing companies in the technology sector, we do tend to shy away from those whose valuations do not appear justified. Within financials, the Fund's performance was negatively impacted in the latter half of the year by below average exposure to brokerage stocks which performed well in the period as well as by its positioning in Fannie Mae and Freddie Mac which were negatively impacted by management issues at Freddie Mac. -------------------------------------------------------------------------------- 6 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Questions & Answers Q: What changes did you make during the year? A: Generally, the Fund favored stable growth over cyclical growth throughout much of the period due to concerns over the extent of earnings recovery which appeared to be anticipated in cyclical stocks. However, the Fund did increase its cyclical exposure at points in which these stocks were more depressed and expectations had been tempered. An example of a cyclical sector which the Fund increased its exposure to over the course of the year was energy because we believed that expectations for energy stocks seemed more reasonable than those for the average cyclical sector. In healthcare, we substantially reduced the Fund's position in HCA, the nation's largest hospital operator, during the period as our concerns related to earnings growth increased, and we reduced our positions in HMO (health maintenance organization) stocks as well following a period of significant price appreciation in the stocks subsequent to fundamental improvements in the sector. While we remained constructive on the HMOs, we felt that the stocks had fully discounted the favorable near term growth outlook. A stock the Fund purchased during the period which fits our investment discipline is Disney. Disney is a cyclical growth company which, in our view, was being painted with a different brush than other cyclical stocks. If there is a cyclical recovery, Disney stands to benefit like many other companies, yet it was trading at a valuation which suggested it would not benefit. Q: How do you plan to manage the Fund in the coming months given current market conditions? A: Above all, we will adhere to our long term investment discipline and continue to strive to identify those companies with good growth rates for which we believe we do not need to overpay. Given this discipline, we have recently seen better opportunities in stable growth sectors than in cyclical growth sectors. Examples of stable growth sectors with substantial weightings in the Fund exiting the fiscal year include health care and consumer staples and examples of cyclical sectors with lower weights exiting the period include information technology and industrials. -------------------------------------------------------------------------------- 7 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT The Fund's Long-term Performance This chart illustrates the total value of an assumed $10,000 investment in AXP Growth Fund Class A shares (from 8/1/93 to 7/31/03) as compared to the performance of two widely cited performance indices, the Russell 1000(R) Growth Index and the Lipper Large-Cap Growth Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. 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 chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP GROWTH FUND $46,000 $34,500 (dotted line) Russell 1000(R) Growth Index(1) (dashed line) Lipper Large-Cap Growth Funds Index(2) $23,000 (solid line) AXP Growth Fund Class A $11,500 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 (solid line) AXP Growth Fund Class A $18,077 (dotted line) Russell 1000(R) Growth Index(1) $23,131 (dashed line) Lipper Large-Cap Growth Funds Index(2) $20,678 (1) Russell 1000(R) Growth Index, an unmanaged index, measures the performance of the growth subset of the Russell 1000(R) Index, which is composed of the largest 1,000 companies in the U.S. These companies have higher price-to-book ratios and higher forecasted growth values. (2) The Lipper Large-Cap Growth Funds Index, published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. Average Annual Total Returns Class A with Sales Charge as of July 31, 2003 1 year +2.93% 5 years -7.93% 10 years +6.10% Results for other share classes can be found on page 5. -------------------------------------------------------------------------------- 8 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Investments in Securities Growth Portfolio July 31, 2003 (Percentages represent value of investments compared to net assets) Common stocks (87.3%) Issuer Shares Value(a) Aerospace & defense (2.7%) Boeing 285,000 $9,439,200 Lockheed Martin 1,380,000 72,229,200 United Technologies 135,000 10,156,050 Total 91,824,450 Airlines (0.3%) JetBlue Airways 235,000(b) 10,706,600 Banks and savings & loans (0.3%) U.S. Bancorp 430,000 10,543,600 Beverages & tobacco (4.6%) Altria Group 1,052,300 42,102,523 Anheuser-Busch 320,000 16,582,400 Coca-Cola 900,000 40,473,000 Pepsi Bottling Group 775,000 17,034,500 PepsiCo 910,000 41,923,700 Total 158,116,123 Building materials & construction (0.3%) American Standard 115,000(b) 8,786,000 Cable (3.3%) Comcast Cl A 630,000(b) 19,101,600 EchoStar Communications Cl A 960,000(b) 34,819,200 NTL 1,435,500(b) 60,018,255 Total 113,939,055 Cellular telecommunications (1.0%) Vodafone Group 10,165,000(c) 19,280,891 Vodafone Group ADR 830,000(c) 15,753,400 Total 35,034,291 Chemicals (0.2%) Dow Chemical 207,300 7,317,690 Computer hardware (1.3%) Dell 110,000(b) 3,704,800 Hewlett-Packard 310,000 6,562,700 Sun Microsystems 9,180,000(b) 34,333,200 Total 44,600,700 Computer software & services (6.0%) Affiliated Computer Services Cl A 250,000(b) 12,387,500 Autodesk 450,000 6,732,000 First Data 795,000 30,019,200 Microsoft 5,515,000 145,596,000 Oracle 1,000,000(b) 12,000,000 Total 206,734,700 Electronics (0.6%) Microchip Technology 345,000 9,094,200 Taiwan Semiconductor Mfg ADR 1,234,000(b,c) 12,340,000 Total 21,434,200 Energy (3.2%) Anadarko Petroleum 690,000 30,222,000 Apache 480,000 29,740,800 Burlington Resources 600,000 27,702,000 Devon Energy 198,720 9,413,366 Newfield Exploration 180,000(b) 6,503,400 XTO Energy 346,666 6,690,654 Total 110,272,220 Energy equipment & services (2.8%) ENSCO Intl 352,745 8,843,317 Halliburton 490,000 10,863,300 Rowan Companies 414,860(b) 9,106,177 Schlumberger 1,055,000 47,548,850 Transocean 1,037,000(b) 20,294,090 Total 96,655,734 Financial services (2.1%) Capital One Financial 74,000 3,545,340 Fannie Mae 350,000 22,414,000 Freddie Mac 275,000 13,433,750 MBNA 320,000 7,132,800 Nomura Holdings 1,340,000(c) 17,785,889 Nomura Holdings ADR 485,000(c) 6,610,550 Total 70,922,329 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 9 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Food (1.9%) General Mills 270,000 $12,384,900 Kellogg 660,000 22,657,800 Kraft Foods Cl A 1,075,000 29,895,750 Total 64,938,450 Health care products (18.5%) Abbott Laboratories 15,000 588,750 Allergan 100,000 8,048,000 Amgen 913,000(b) 63,526,540 Bard (CR) 98,000 6,718,880 Becton, Dickinson & Co 235,000 8,608,050 Boston Scientific 85,000(b) 5,374,550 Bristol-Myers Squibb 490,000 12,838,000 Gilead Sciences 180,000(b) 12,339,000 GlaxoSmithKline ADR 530,000(c) 20,304,300 Guidant 682,500 32,227,650 Johnson & Johnson 1,435,000 74,318,650 Lilly (Eli) 210,000 13,826,400 Medtronic 700,000 36,050,000 Merck & Co 1,000,000 55,280,000 Millennium Pharmaceuticals 895,000(b) 11,241,200 Pfizer 4,575,000 152,622,000 Schering-Plough 2,785,000 47,289,300 Teva Pharmaceutical Inds ADR 225,000(c) 12,901,500 Wyeth 1,435,000 65,407,300 Total 639,510,070 Health care services (6.7%) Anthem 100,000(b) 7,551,000 Cardinal Health 555,000 30,386,250 Caremark Rx 1,395,000(b) 34,902,900 IMS Health 1,270,000 24,561,800 Lincare Holdings 335,000(b) 12,194,000 McKesson 1,060,000 34,195,600 Select Medical 633,650(b) 17,805,565 Tenet Healthcare 1,790,000(b) 24,666,200 WebMD 3,785,000(b) 45,722,800 Total 231,986,115 Household products (5.6%) Avon Products 155,000 9,670,450 Colgate-Palmolive 650,000 35,490,000 Gillette 1,290,000 39,680,400 Kimberly-Clark 745,000 36,058,000 Newell Rubbermaid 450,000 10,633,500 Procter & Gamble 710,000 62,387,700 Total 193,920,050 Insurance (0.9%) ACE 320,000(c) 10,556,800 Chubb 340,000 22,032,000 Total 32,588,800 Investment companies (0.5%) iShares MSCI Japan Index Fund 2,277,000 17,305,200 Leisure time & entertainment (0.9%) Viacom Cl B 735,000(b) 31,987,200 Media (4.4%) Cendant 1,980,000(b) 35,541,000 Disney (Walt) 1,560,000 34,195,200 InterActiveCorp 1,125,000(b) 45,528,750 Liberty Media Cl A 795,000(b) 8,816,550 Omnicom Group 282,950 20,904,346 Tribune 135,000 6,374,700 Total 151,360,546 Metals (1.1%) Freeport McMoRan Cooper & Gold Cl B 1,379,000 36,943,410 Multi-industry (2.2%) General Electric 1,160,000 32,990,400 Harman Intl Inds 212,700 17,781,720 Sony 320,000(c) 9,901,696 Tyco Intl 825,000(c) 15,345,000 Total 76,018,816 Precious metals (2.7%) Barrick Gold 2,670,000(c) 45,710,400 Newmont Mining 1,310,000 47,291,000 Total 93,001,400 Restaurants (2.5%) McDonald's 3,735,000 85,942,350 Retail -- general (5.4%) Circuit City Stores 5,620,750 51,598,485 Expedia Cl A 335,000(b) 26,200,350 Home Depot 1,395,000 43,524,000 Kohl's 205,000(b) 12,166,750 Staples 1,127,000(b) 22,697,780 Target 278,000 10,652,960 Wal-Mart Stores 315,000 17,611,650 Total 184,451,975 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 10 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Retail -- grocery (1.0%) Kroger 1,100,000(b) $18,645,000 Safeway 700,000(b) 14,945,000 Total 33,590,000 Telecom equipment & services (3.4%) China Mobile 14,000(c) 378,840 Motorola 6,085,000 55,008,400 Nokia ADR 2,982,000(c) 45,624,600 QUALCOMM 450,000 16,857,000 Total 117,868,840 Textiles & apparel (0.7%) Polo Ralph Lauren 970,000(b) 25,617,700 Utilities -- natural gas (--%) Kinder Morgan Management LLC -- 11 Utilities -- telephone (0.2%) Amdocs 320,000(b,c) 6,521,600 Total common stocks (Cost: $2,696,482,497) $3,010,440,225 Options purchased (0.5%) Issuer Contracts Exercise Expiration Value(a) price date Puts Nasdaq 100 113,500 $28 Aug. 2003 $283,750 Nasdaq 100 119,605 28 Sept. 2003 2,990,125 S&P 500 Index 2,603 975 Aug. 2003 2,316,670 S&P 500 Index 1,827 975 Sept. 2003 3,717,945 S&P 500 Index 3,747 980 Sept. 2003 8,374,545 Total options purchased (Cost: $38,870,129) $17,683,035 Short-term securities (12.1%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agency (1.1%) Federal Natl Mtge Assn Disc Nts 10-08-03 0.99% $21,200,000 $21,158,745 11-17-03 1.00 17,700,000 17,644,245 Total $38,802,990 Commercial paper (11.0%) AEGON Funding 10-06-03 1.03 4,500,000(d) 4,491,290 10-15-03 1.03 12,300,000(d) 12,272,995 ANZ (Delaware) 08-18-03 1.03 10,200,000 10,194,747 Barton Capital 08-13-03 1.03 9,100,000(d) 9,096,615 CHARTA LLC 08-22-03 1.03 20,000,000(d) 19,987,411 09-18-03 1.07 3,600,000(d) 3,594,757 CRC Funding LLC 09-15-03 1.05 2,400,000(d) 2,396,780 Danske 08-13-03 1.05 2,000,000 1,999,242 Deutsche Bank Financial LLC 08-06-03 1.02 23,900,000 23,895,937 08-06-03 1.03 6,200,000 6,198,936 Dexia Bank (Delaware) LLC 08-04-03 1.05 30,000,000 29,996,517 Fleet Funding 08-19-03 0.94 1,500,000(d) 1,499,256 Galaxy Funding 08-05-03 1.06 2,500,000(d) 2,499,632 Greyhawk Funding 09-04-03 1.03 12,500,000(d) 12,487,482 09-22-03 1.04 12,900,000(d) 12,880,438 HBOS Treasury Services 08-01-03 0.98 7,600,000 7,599,793 ING US Funding 10-07-03 1.03 25,000,000(d) 24,950,888 Kitty Hawk Funding 08-20-03 1.04 24,000,000(d) 23,986,134 08-27-03 1.07 7,400,000(d) 7,394,062 Park Avenue Receivables 08-15-03 1.03 16,800,000(d) 16,792,790 SBC Intl 08-13-03 1.03 40,000,000(d) 39,985,121 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 11 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Short-term securities (continued) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity Commercial paper (cont.) Sheffield Receivables 08-01-03 1.06% $20,000,000(d) $19,999,411 08-21-03 1.04 10,000,000(d) 9,993,933 Southern Company Funding 08-08-03 1.03 6,000,000(d) 5,998,627 Swedbank 08-08-03 0.98 8,300,000 8,298,192 Variable Funding Capital 08-05-03 1.03 13,300,000(d) 13,298,097 Windmill Funding 08-07-03 1.04 40,000,000(d) 39,991,911 08-13-03 1.05 6,600,000(d) 6,597,498 Total 378,378,492 Total short-term securities (Cost: $417,197,249) $417,181,482 Total investments in securities (Cost: $3,152,549,875)(e) $3,445,304,742 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, 2003, the value of foreign securities represented 6.9% 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, 2003, the cost of securities for federal income tax purposes was $3,238,806,086 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $276,353,973 Unrealized depreciation (69,855,317) ------------ Net unrealized appreciation $206,498,656 ------------ -------------------------------------------------------------------------------- 12 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Financial Statements
Statement of assets and liabilities Growth Portfolio July 31, 2003 Assets Investments in securities, at value (Note 1)* (identified cost $3,152,549,875) $3,445,304,742 Cash in bank on demand deposit 487,215 Dividends and accrued interest receivable 2,012,182 Receivable for investment securities sold 12,104,324 U.S. government securities held as collateral (Note 4) 13,253,781 ---------- Total assets 3,473,162,244 ------------- Liabilities Payable for investment securities purchased 12,512,558 Payable upon return of securities loaned (Note 4) 13,253,781 Accrued investment management services fee 53,742 Other accrued expenses 93,045 ------ Total liabilities 25,913,126 ---------- Net assets $3,447,249,118 ============== * Including securities on loan, at value (Note 4) $ 13,850,430 --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Statement of operations Growth Portfolio Year ended July 31, 2003 Investment income Income: Dividends $ 36,230,442 Interest 3,448,295 Fee income from securities lending (Note 4) 316,524 Less foreign taxes withheld (308,101) -------- Total income 39,687,160 ---------- Expenses (Note 2): Investment management services fee 20,057,173 Compensation of board members 20,958 Custodian fees 256,673 Audit fees 30,000 Other 78,931 ------ Total expenses 20,443,735 Earnings credits on cash balances (Note 2) (443) ---- Total net expenses 20,443,292 ---------- Investment income (loss) -- net 19,243,868 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (462,560,347) Foreign currency transactions 126,315 ------- Net realized gain (loss) on investments (462,434,032) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 741,212,811 ----------- Net gain (loss) on investments and foreign currencies 278,778,779 ----------- Net increase (decrease) in net assets resulting from operations $ 298,022,647 =============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets Growth Portfolio Year ended July 31, 2003 2002 Operations Investment income (loss) -- net $ 19,243,868 $ 18,049,333 Net realized gain (loss) on investments (462,434,032) (135,571,463) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 741,212,811 (1,595,978,419) ----------- -------------- Net increase (decrease) in net assets resulting from operations 298,022,647 (1,713,500,549) ----------- -------------- Proceeds from contributions 46,555,814 1,077,212,062 Fair value of withdrawals (443,556,729) (2,162,141,355) ------------ -------------- Net contributions (withdrawals) from partners (397,000,915) (1,084,929,293) ------------ -------------- Total increase (decrease) in net assets (98,978,268) (2,798,429,842) Net assets at beginning of year 3,546,227,386 6,344,657,228 ------------- ------------- Net assets at end of year $3,447,249,118 $ 3,546,227,386 ============== ===============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 15 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Notes to Financial Statements Growth Portfolio 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Growth Portfolio (the Portfolio) is a series of Growth Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Growth Portfolio invests primarily in common stocks and securities convertible into common stocks of U.S. and foreign companies that appear to offer growth opportunities. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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 GROWTH FUND -- 2003 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. -------------------------------------------------------------------------------- 17 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium and discount using the effective interest method, is accrued daily. 2. FEES AND EXPENSES The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with American Express Financial Corporation (AEFC) to manage its portfolio. Under an Investment Management Service Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Portfolio's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of AXP Growth Fund to the Lipper Large-Cap Growth Funds Index. Prior to Dec. 1, 2002, the maximum adjustment was 0.12% of the Portfolio's average daily net assets after deducting 1% from the performance difference. If the performance difference was less than 1%, the adjustment will be zero. On Nov.13, 2002, shareholders approved modification of the performance incentive adjustment calculation by adjusting the performance difference intervals, while retaining the previous maximum adjustment and reducing the amount of the performance difference for which no adjustment is made to 0.50%. The effect of the modifications began Dec. 1, 2002. The adjustment increased the fee by $1,325,406 for the year ended July 31, 2003. 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, 2003, the Portfolio's custodian fees were reduced by $443 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. -------------------------------------------------------------------------------- 18 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $6,145,769,189 and $7,040,101,896, respectively, for the year ended July 31, 2003. For the same period, the portfolio turnover rate was 205%. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $745,620 for the year ended July 31, 2003. 4. LENDING OF PORTFOLIO SECURITIES As of July 31, 2003, securities valued at $13,850,430 were on loan to brokers. For collateral, the Portfolio received U.S. government securities valued at $13,253,781. As of July 31, 2003, due to fluctuating market conditions, the Fund was undercollateralized. However, on Aug. 1, 2003, the Fund returned to an adequately collateralized position. Income from securities lending amounted to $316,524 for the year ended July 31, 2003. 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. -------------------------------------------------------------------------------- 19 -- AXP GROWTH FUND -- 2003 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, 2003, 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, 2003. 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, 2003, 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 Growth Portfolio as of July 31, 2003, 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 12, 2003 -------------------------------------------------------------------------------- 20 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Growth Fund July 31, 2003 Assets Investment in Portfolio (Note 1) $ 3,447,206,459 Capital shares receivable 801,696 ------- Total assets 3,448,008,155 ------------- Liabilities Capital shares payable 231,809 Accrued distribution fee 37,104 Accrued service fee 1,084 Accrued transfer agency fee 18,435 Accrued administrative services fee 4,129 Other accrued expenses 223,155 ------- Total liabilities 515,716 ------- Net assets applicable to outstanding capital stock $ 3,447,492,439 =============== Represented by Capital stock -- $.01 par value (Note 1) $ 1,535,231 Additional paid-in capital 4,743,458,181 Accumulated net realized gain (loss) (Note 5) (1,590,268,908) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 292,767,935 ----------- Total -- representing net assets applicable to outstanding capital stock $ 3,447,492,439 =============== Net assets applicable to outstanding shares: Class A $ 2,262,929,371 Class B $ 775,125,347 Class C $ 11,919,286 Class Y $ 397,518,435 Net asset value per share of outstanding capital stock: Class A shares 99,269,706 $ 22.80 Class B shares 36,476,576 $ 21.25 Class C shares 560,916 $ 21.25 Class Y shares 17,215,855 $ 23.09 ---------- ---------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 21 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Statement of operations AXP Growth Fund Year ended July 31, 2003 Investment income Income: Dividends $ 36,230,010 Interest 3,447,822 Fee income from securities lending 316,520 Less foreign taxes withheld (308,097) -------- Total income 39,686,255 ---------- Expenses (Note 2): Expenses allocated from Portfolio 20,443,050 Distribution fee Class A 5,213,982 Class B 7,888,958 Class C 85,000 Transfer agency fee 7,798,358 Incremental transfer agency fee Class A 520,247 Class B 437,952 Class C 6,402 Service fee -- Class Y 398,235 Administrative services fees and expenses 1,469,076 Compensation of board members 14,341 Printing and postage 807,227 Registration fees 97,323 Audit fees 10,000 ------ Total expenses 45,190,151 Earnings credits on cash balances (Note 2) (52,918) ------- Total net expenses 45,137,233 ---------- Investment income (loss) -- net (5,450,978) ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (462,555,814) Foreign currency transactions 126,314 ------- Net realized gain (loss) on investments (462,429,500) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 741,204,696 ----------- Net gain (loss) on investments and foreign currencies 278,775,196 ----------- Net increase (decrease) in net assets resulting from operations $ 273,324,218 =============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 22 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets AXP Growth Fund Year ended July 31, 2003 2002 Operations and distributions Investment income (loss) -- net $ (5,450,978) $ (15,399,917) Net realized gain (loss) on investments (462,429,500) (135,569,398) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 741,204,696 (1,595,964,275) ----------- -------------- Net increase (decrease) in net assets resulting from operations 273,324,218 (1,746,933,590) ----------- -------------- Distributions to shareholders from: Net realized gain Class A -- (2,135,273) Class B -- (888,287) Class C -- (5,132) Class Y -- (580,590) Tax return of capital Class A -- (529,673) Class B -- (220,504) Class C -- (1,506) Class Y -- (143,905) ----------- -------------- Total distributions -- (4,504,870) ----------- -------------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 299,443,361 1,467,991,732 Class B shares 108,759,258 130,290,043 Class C shares 5,623,858 4,063,109 Class Y shares 141,293,380 423,221,812 Reinvestment of distributions at net asset value Class A shares -- 2,597,294 Class B shares -- 1,098,608 Class C shares -- 6,584 Class Y shares -- 724,495 Payments for redemptions Class A shares (425,072,323) (2,050,219,864) Class B shares (Note 2) (240,971,184) (369,829,910) Class C shares (Note 2) (1,739,474) (2,689,402) Class Y shares (258,890,708) (653,772,011) ------------ ------------ Increase (decrease) in net assets from capital share transactions (371,553,832) (1,046,517,510) ------------ -------------- Total increase (decrease) in net assets (98,229,614) (2,797,955,970) Net assets at beginning of year 3,545,722,053 6,343,678,023 ------------- ------------- Net assets at end of year $3,447,492,439 $ 3,545,722,053 ============== ===============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 23 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT Notes to Financial Statements AXP Growth Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth calendar year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Investment in Growth Portfolio The Fund invests all of its assets in Growth Portfolio (the Portfolio), a series of Growth Trust (the Trust), an open-end investment company that has the same objectives as the Fund. The Portfolio invests primarily in common stocks and securities convertible into common stocks of U.S. and foreign companies that appear to offer growth opportunities. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund as of July 31, 2003 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. -------------------------------------------------------------------------------- 24 -- AXP GROWTH FUND -- 2003 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 $5,450,978 and accumulated net realized loss has been increased by $110,831 resulting in a net reclassification adjustment to decrease paid-in capital by $5,340,147. The tax character of distributions paid for the years indicated is as follows: Year ended July 31, 2003 2002 Class A Distributions paid from: Ordinary income $-- $ -- Long-term capital gain -- 2,135,273 Tax return of capital -- 529,673 Class B Distributions paid from: Ordinary income -- -- Long-term capital gain -- 888,287 Tax return of capital -- 220,504 Class C Distributions paid from: Ordinary income -- -- Long-term capital gain -- 5,132 Tax return of capital -- 1,506 Class Y Distributions paid from: Ordinary income -- -- Long-term capital gain -- 580,590 Tax return of capital -- 143,905 As of July 31, 2003, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ -- Accumulated long-term gain (loss) $(1,525,200,562) Unrealized appreciation (depreciation) $ 227,699,589 -------------------------------------------------------------------------------- 25 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT 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 administrative and accounting services at a percentage of the Fund's average daily net assets in reducing percentages 0.05% to 0.02% annually. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees, and any other expenses properly payable by the Fund and approved by the board. Under a 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 $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 In addition, there is an annual closed-account fee of $5 per inactive account, charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system generally within one year. Under terms of a prior agreement that ended April 30, 2003, the Fund paid a transfer agency fee at an annual rate per shareholder account of $19 for Class A, $20 for Class B, $19.50 for Class C and $17 for Class Y. The Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $4,408,048 for Class A, $909,281 for Class B and $2,501 for Class C for the year ended July 31, 2003. During the year ended July 31, 2003, the Fund's transfer agency fees were reduced by $52,918 as a result of earnings credits from overnight cash balances. -------------------------------------------------------------------------------- 26 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2003 Class A Class B Class C Class Y Sold 13,842,204 5,510,181 283,408 6,670,940 Issued for reinvested distributions -- -- -- -- Redeemed (20,576,625) (12,101,320) (89,705) (12,224,761) ----------- ----------- ------- ----------- Net increase (decrease) (6,734,421) (6,591,139) 193,703 (5,553,821) ---------- ---------- ------- ---------- Year ended July 31, 2002 Class A Class B Class C Class Y Sold 58,268,502 5,484,859 172,227 16,631,804 Issued for reinvested distributions 97,106 43,514 271 26,813 Redeemed (82,106,853) (16,191,810) (118,208) (26,379,833) ----------- ----------- -------- ----------- Net increase (decrease) (23,741,245) (10,663,437) 54,290 (9,721,216) ----------- ----------- ------ ----------
4. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The agreement went into effect Sept. 24, 2002. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $200 million with U.S. Bank, N.A. The Fund had no borrowings outstanding during the year ended July 31, 2003. 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $1,525,200,562 as of July 31, 2003, that will expire in 2010 through 2012 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. -------------------------------------------------------------------------------- 27 -- AXP GROWTH FUND -- 2003 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, 2003 2002 2001 2000 1999 Net asset value, beginning of period $20.88 $29.68 $ 54.36 $42.14 $36.58 Income from investment operations: Net investment income (loss) -- (.04) (.14) (.14) (.03) Net gains (losses) (both realized and unrealized) 1.92 (8.74) (22.34) 13.14 7.29 Total from investment operations 1.92 (8.78) (22.48) 13.00 7.26 Less distributions: Distributions from realized gains -- (.02) (2.20) (.78) (1.70) Net asset value, end of period $22.80 $20.88 $ 29.68 $54.36 $42.14 Ratios/supplemental data Net assets, end of period (in millions) $2,263 $2,213 $3,851 $6,637 $4,576 Ratio of expenses to average daily net assets(c) 1.21% .99% .99% .99% .89% Ratio of net investment income (loss) to average daily net assets --% (.15%) (.34%) (.30%) (.08%) Portfolio turnover rate (excluding short-term securities) 205% 225% 41% 23% 17% Total return(e) 9.20% (29.59%) (42.14%) 31.01% 20.49%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 28 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002 2001 2000 1999 Net asset value, beginning of period $19.61 $28.11 $ 52.02 $40.65 $35.61 Income from investment operations: Net investment income (loss) (.17) (.25) (.42) (.46) (.28) Net gains (losses) (both realized and unrealized) 1.81 (8.23) (21.29) 12.61 7.02 Total from investment operations 1.64 (8.48) (21.71) 12.15 6.74 Less distributions: Distributions from realized gains -- (.02) (2.20) (.78) (1.70) Net asset value, end of period $21.25 $19.61 $ 28.11 $52.02 $40.65 Ratios/supplemental data Net assets, end of period (in millions) $775 $845 $1,510 $2,468 $1,458 Ratio of expenses to average daily net assets(c) 1.99% 1.77% 1.75% 1.75% 1.65% Ratio of net investment income (loss) to average daily net assets (.77%) (.93%) (1.11%) (1.06%) (.85%) Portfolio turnover rate (excluding short-term securities) 205% 225% 41% 23% 17% Total return(e) 8.36% (30.18%) (42.57%) 30.02% 19.58%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 29 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002 2001 2000(b) Net asset value, beginning of period $19.62 $28.12 $ 52.03 $52.65 Income from investment operations: Net investment income (loss) (.17) (.21) (.42) (.04) Net gains (losses) (both realized and unrealized) 1.80 (8.27) (21.29) (.58) Total from investment operations 1.63 (8.48) (21.71) (.62) Less distributions: Distributions from realized gains -- (.02) (2.20) -- Net asset value, end of period $21.25 $19.62 $ 28.12 $52.03 Ratios/supplemental data Net assets, end of period (in millions) $12 $7 $9 $1 Ratio of expenses to average daily net assets(c) 2.01% 1.80% 1.75% 1.75%(d) Ratio of net investment income (loss) to average daily net assets (.81%) (.96%) (1.10%) (1.30%)(d) Portfolio turnover rate (excluding short-term securities) 205% 225% 41% 23% Total return(e) 8.31% (30.17%) (42.56%) (1.18%)(f)
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 30 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002 2001 2000 1999 Net asset value, beginning of period $21.11 $29.96 $ 54.75 $42.37 $36.74 Income from investment operations: Net investment income (loss) .04 -- (.07) (.06) -- Net gains (losses) (both realized and unrealized) 1.94 (8.83) (22.52) 13.22 7.33 Total from investment operations 1.98 (8.83) (22.59) 13.16 7.33 Less distributions: Distributions from realized gains -- (.02) (2.20) (.78) (1.70) Net asset value, end of period $23.09 $21.11 $ 29.96 $54.75 $42.37 Ratios/supplemental data Net assets, end of period (in millions) $398 $481 $974 $1,551 $914 Ratio of expenses to average daily net assets(c) 1.03% .82% .83% .83% .80% Ratio of net investment income (loss) to average daily net assets .18% .02% (.18%) (.14%) --% Portfolio turnover rate (excluding short-term securities) 205% 225% 41% 23% 17% Total return(e) 9.38% (29.48%) (42.04%) 31.20% 20.59%
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. (f) Not annualized. -------------------------------------------------------------------------------- 31 -- AXP GROWTH FUND -- 2003 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, 2003, 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, 2003, and the financial highlights for each of the years in the five-year period ended July 31, 2003. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with 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 and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Growth Fund as of July 31, 2003, 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 12, 2003 -------------------------------------------------------------------------------- 32 -- AXP GROWTH FUND -- 2003 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 83 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service ---------------------------------- ------------------ ------------------------------------- --------------------------------- Arne H. Carlson Board member Chair, Board Services Corporation 901 S. Marquette Ave. since 1999 (provides administrative services Minneapolis, MN 55402 to boards). Former Governor of Age 68 Minnesota ---------------------------------- ------------------ ------------------------------------- --------------------------------- Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan 901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc. Minneapolis, MN 55402 construction) since 1998 (construction Age 65 materials/chemicals) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated 30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and Suite 3050 Mining and Manufacturing (3M) processors), General Mills, St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan Age 69 Materials Company (construction materials/ chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. ---------------------------------- ------------------ ------------------------------------- --------------------------------- Heinz F. Hutter* Board member Retired President and Chief 901 S. Marquette Ave. since 1994 Operating Officer, Cargill, Minneapolis, MN 55402 Incorporated (commodity merchants Age 74 and processors) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 68 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 64 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont 901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken Minneapolis, MN 55402 equities) Energy Corporation (oil and gas Age 53 exploration) and SIRIT Inc. (radio frequency identification technology) ---------------------------------- ------------------ ------------------------------------- ---------------------------------
* Interested person of AXP Partners International Aggressive Growth Fund and AXP Partners Aggressive Growth Fund by reason of being a security holder of J P Morgan Chase & Co., which has a 45% interest in American Century Companies, Inc., the parent company of the subadviser of two of the AXP Partners Funds, American Century Investment Management, Inc. ** Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Liberty Wanger Asset Management, L.P., one of the fund's subadvisers. -------------------------------------------------------------------------------- 33 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Alan K. Simpson Board member Former three-term United States Biogen, Inc. 1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals) Cody, WY 82414 Age 71 --------------------------------- ------------------- ------------------------------------- --------------------------------- Alison Taunton-Rigby Board member President, Forester Biotech since 901 S. Marquette Ave. since 2002 2000. Former President and CEO, Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc. Age 59 --------------------------------- ------------------- ------------------------------------- --------------------------------- Board Members Affiliated with AEFC*** Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Barbara H. Fraser Board member Executive Vice President - AEFA 1546 AXP Financial Center since 2002 Products and Corporate Marketing of Minneapolis, MN 55474 AEFC since 2002. President - Age 53 Travelers Check Group, American Express Company, 2001-2002. Management Consultant, Reuters, 2000-2001. Managing Director - International Investments, Citibank Global, 1999-2000. Chairman and CEO, Citicorp Investment Services and Citigroup Insurance Group, U.S., 1998-1999 --------------------------------- ------------------- ------------------------------------- --------------------------------- Stephen W. Roszell Board member Senior Vice President - 50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC Minneapolis, MN 55474 President since Age 54 2002 --------------------------------- ------------------- ------------------------------------- --------------------------------- William F. Truscott Board member Senior Vice President - Chief 53600 AXP Financial Center since 2001, Vice Investment Officer of AEFC since Minneapolis, MN 55474 President since 2001. Former Chief Investment Age 42 2002 Officer and Managing Director, Zurich Scudder Investments --------------------------------- ------------------- ------------------------------------- ---------------------------------
*** Interested person by reason of being an officer, director and/or employee of AEFC. -------------------------------------------------------------------------------- 34 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Roszell, who is vice president, and Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Jeffrey P. Fox Treasurer since Vice President - Investment 50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice Minneapolis, MN 55474 President - Finance, American Age 48 Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Paula R. Meyer President since Senior Vice President and General 596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since Minneapolis, MN 55474 2002; Vice President and Managing Age 49 Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Leslie L. Ogg Vice President, President of Board Services 901 S. Marquette Ave. General Counsel, Corporation Minneapolis, MN 55402 and Secretary Age 64 since 1978 --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. -------------------------------------------------------------------------------- 35 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT The policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities can be found in the Fund's Statement of Additional Information (SAI) which is available (i) without charge, upon request, by calling toll-free (800) 862-7919; (ii) on the American Express Company Web site at americanexpress.com/funds; and (iii) on the Securities and Exchange Commission Web site at http://www.sec.gov. -------------------------------------------------------------------------------- (logo) AMERICAN EXPRESS (R) -------------------------------------------------------------------------------- American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Large Cap Equity Fund Annual Report for the Period Ended July 31, 2003 AXP Large Cap Equity Fund seeks to provide shareholders with long-term growth of capital. -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) -------------------------------------------------------------------------------- Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 The Fund's Long-term Performance 7 Investments in Securities 8 Financial Statements 11 Notes to Financial Statements 14 Independent Auditors' Report 24 Federal Income Tax Information 25 Board Members and Officers 26 (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. -------------------------------------------------------------------------------- 2 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Fund Snapshot AS OF JULY 31, 2003 PORTFOLIO MANAGER Portfolio manager Doug Chase Since 3/02 Years in industry 11 FUND OBJECTIVE This Fund seeks to provide shareholders with long-term growth of capital. Inception dates A: 3/28/02 B: 3/28/02 C: 3/28/02 Y: 3/28/02 Ticker symbols A: ALEAX B: ALEBX C: -- Y: -- Total net assets $120.9 million Number of holdings 78 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Health care 20.2% Consumer discretionary 15.3% Financials 12.8% Technology 11.1% Consumer staples 10.2% Short-term securities 9.5% Industrials 9.3% Energy 6.8% Materials 4.5% Utilities 0.3% TOP TEN HOLDINGS Percentage of portfolio assets Pfizer (Health care products) 6.7% Citigroup (Finance companies) 3.9 Microsoft (Computer software & services) 3.5 Wyeth (Health care products) 3.5 AmerisourceBergen (Health care services) 3.4 General Electric (Multi-industry) 3.2 ConocoPhillips (Energy) 2.8 Cendant (Media) 2.8 Altria Group (Beverages & tobacco) 2.6 Procter & Gamble (Household products) 2.6 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Stock prices of established companies that pay dividends may be less volatile than the stock market as a whole. Fund holdings are subject to change. -------------------------------------------------------------------------------- 3 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT AXP Large Cap Equity Fund has grown to more than $120 million in assets during its first 15 months in operation. Below, Portfolio Manager Doug Chase discusses the Fund's performance and positioning as of July 31, 2003. Q: How did the AXP Large Cap Equity Fund perform in fiscal year 2003? A: AXP Large Cap Equity Fund's Class A shares advanced 10.22%, excluding sales charge, for the 12 months ended July 31, 2003. The Fund outperformed its peers as represented by the Lipper Large-Cap Core Funds Index, which gained 8.63%. The Fund underperformed its benchmark, the Russell 1000(R) Index, which advanced 11.19% for the period. Q: What factors significantly affected performance? A: Individual stock selection added to the Fund's relative performance while sector positioning hampered results. Underweights in technology and telecommunications, which had benefited the Fund during the volatile period from July to September 2002, prevented the Fund from fully participating in the subsequent market rallies. Similarly, an overweight in health care that was advantageous early in the period had a negative impact late in 2002. In addition, the Fund had no exposure to utilities, a sector that did well in the first seven months of 2003. Strong results from select portfolio holdings helped offset the impact of sector allocations. Cendant, a leisure and travel company that was purchased in the first half of the fiscal year, was one of the Fund's strongest performers. Among other stocks that contributed to the Fund's results were pharmaceutical companies Wyeth and Pfizer, media giant AOL Time Warner, technology company Sun Microsystems and a number of financial services companies, including Citigroup. PERFORMANCE COMPARISON For the period ended July 31, 2003 12% (bar 2) (bar 1) +11.19% 10% +10.22% (bar 3) +8.63% 8% 6% 4% 2% 0% (bar 1) AXP Large Cap Equity Fund Class A (excluding sales charge) (bar 2) Russell 1000(R)Index (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. -------------------------------------------------------------------------------- 4 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Questions & Answers (begin callout quote)> The Fund emphasized media companies with strong brands and spread our investments among content providers, infrastructure companies, advertising firms and other communications companies.(end callout quote) On the negative side, Transocean, an oil service company, did not perform well for the Fund. Fannie Mae and Freddie Mac, which were added to the portfolio in the first half of the fiscal period, also proved to be a disappointment later in the year. Despite benefiting from record home refinancing volume, both stocks declined due to unfavorable sentiment stemming from Freddie Mac's accounting and regulatory problems. Q: What changes were made to the portfolio during the period? A: At the start of the fiscal year, the Fund was positioned for a continuation of the weak economic and market environments. In particular, exposure to stocks believed to be most sensitive to cyclical economic trends was reduced. Later in 2002, the Fund's overweight in health care stocks was reduced and its energy positioning increased.
AVERAGE ANNUAL TOTAL RETURNS as of July 31, 2003 Class A Class B Class C Class Y (Inception dates) (3/28/02) (3/28/02) (3/28/02) (3/28/02) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) 1 year +10.22% +3.90% +9.27% +5.27% +9.51% +9.51% +10.46% +10.46% Since inception -7.03% -11.04% -7.85% -10.61% -7.70% -7.70% -6.87% -6.87%
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. 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/funds for current information. -------------------------------------------------------------------------------- 5 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Questions & Answers At the beginning of 2003, the expectation was that the economy would surprise on the upside. The Fund was overweighted energy, materials and industrial stocks in order to gain some cyclical exposure. Underweights were maintained in financial and technology stocks because the fundamentals were not as favorable as in other areas. The Fund's position in consumer discretionary stocks was increased in February and March 2003, as these stocks became more attractively priced in the midst of war-related pessimism. In particular, holdings of media companies were increased. Media stocks appeared cheap compared to where they would typically trade in a more normal environment. The Fund emphasized media companies with strong brands and spread its investments among content providers, infrastructure companies, advertising firms and other communications companies. During the latter part of the fiscal period, the Fund began to trim positions in individual stocks that had outperformed. These included AOL Time Warner, Cendant, McDonald's and McKesson, as well as both Pfizer and Wyeth. Q: How will the Fund be managed in the coming months? A: It appears as though the marketplace is experiencing somewhat of a euphoric period right now. Stock prices have been rising without a clear reason for them to do so. It seems as though a large amount of earnings growth has already been priced into many stocks, particularly in the technology and small-cap areas. Despite the potentially favorable impact of the recent tax cut, expectations for economic growth in the fourth quarter may be too high. The economy is already recovering and given that it declined just 0.2% in the recent recession, there is little case for a strong rebound. Estimates for growth in the fourth quarter are coming in at about 4%. Given the broad economic and market backdrop, as the stock market rises we may sell stocks that have shifted from inexpensive to expensive. However, we anticipate no major shifts in sector positioning. While sectors we emphasized underperformed in the past year, this potentially positions these areas of the market for a period of stronger performance in the future. -------------------------------------------------------------------------------- 6 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT The Fund's Long-term Performance This chart illustrates the total value of an assumed $10,000 investment in AXP Large Cap Equity Fund Class A shares (from 4/1/02 to 7/31/03) as compared to the performance of two widely cited performance indices, the Russell 1000(R) Index and the Lipper Large-Cap Core Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. 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 chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP LARGE CAP EQUITY FUND $12,000 $9,000 (dotted line) Russell 1000(R) Index(1) $6,000 (dashed line) Lipper Large-Cap Core Funds Index(2) (solid line) AXP Large Cap Equity Fund Class A $3,000 4/01/02 7/02 10/02 1/03 4/03 7/03 (solid line) AXP Large Cap Equity Fund Class A $8,548 (dotted line) Russell 1000(R)Index(1) $8,911 (dashed line) Lipper Large-Cap Core Funds Index(2) $8,807 (1) The Russell 1000(R) Index, an unmanaged index, measures the performance of the 1,000 largest companies in the Russell 3000(R) Index and represents approximately 92% of the total market capitalization of the Russell 3000 Index. (2) 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, 2003 1 year +3.90% Since inception (3/28/02) -11.04% Results for other share classes can be found on page 5. -------------------------------------------------------------------------------- 7 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Investments in Securities AXP Large Cap Equity Fund July 31, 2003 (Percentages represent value of investments compared to net assets) Common stocks (91.1%) Issuer Shares Value(a) Aerospace & defense (2.9%) Boeing 14,400 $476,928 Lockheed Martin 12,625 660,793 Northrop Grumman 6,900 636,456 Rockwell Automation 18,282 472,407 United Technologies 17,468 1,314,117 Total 3,560,701 Banks and savings & loans (0.5%) U.S. Bancorp 25,800 632,616 Beverages & tobacco (5.8%) Altria Group 80,300 3,212,803 Anheuser-Busch 11,700 606,294 PepsiCo 65,824 3,032,512 Total 6,851,609 Broker dealers (1.8%) J.P. Morgan Chase 16,700 585,335 Merrill Lynch 16,201 880,848 Morgan Stanley 15,500 735,320 Total 2,201,503 Building materials & construction (0.8%) American Standard 12,100(b) 924,440 Cable (2.5%) Comcast Cl A 33,484(b) 1,015,234 Comcast Special Cl A 33,925(b) 994,003 EchoStar Communications Cl A 26,900(b) 975,663 Total 2,984,900 Chemicals (1.8%) Dow Chemical 42,545 1,501,839 Lyondell Chemical 48,392 724,428 Total 2,226,267 Computer hardware (4.0%) Cisco Systems 82,500(b) 1,610,400 Dell 56,700(b) 1,909,656 Sun Microsystems 362,333(b) 1,355,125 Total 4,875,181 Computer software & services (5.4%) Affiliated Computer Services Cl A 12,700(b) 629,285 First Data 42,965 1,622,358 Microsoft 163,500 4,316,400 Total 6,568,043 Electronics (1.8%) Analog Devices 10,221(b) 387,887 Intel 51,200 1,277,440 Taiwan Semiconductor Mfg ADR 45,368(b,c) 453,680 Total 2,119,007 Energy (5.6%) ChevronTexaco 8,400 605,724 ConocoPhillips 64,873 3,395,453 Exxon Mobil 78,946 2,808,899 Total 6,810,076 Energy equipment & services (1.2%) Transocean 76,696(b) 1,500,941 Finance companies (3.9%) Citigroup 106,408 4,767,078 Financial services (3.8%) Capital One Financial 25,800 1,236,078 Fannie Mae 41,197 2,638,256 MBNA 33,827 754,004 Total 4,628,338 Health care products (13.7%) Amgen 18,000(b) 1,252,440 Medtronic 44,400 2,286,600 Pfizer 242,900 8,103,145 Schering-Plough 34,900 592,602 Wyeth 93,050 4,241,219 Total 16,476,006 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 8 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Health care services (6.8%) AmerisourceBergen 66,155 $4,173,720 Cardinal Health 56,500 3,093,375 McKesson 23,766 766,691 Select Medical 2,800(b) 78,680 Total 8,112,466 Household products (4.1%) Avon Products 8,814 549,905 Kimberly-Clark 23,800 1,151,920 Procter & Gamble 36,458 3,203,565 Total 4,905,390 Industrial transportation (0.8%) Expeditors Intl of Washington 12,100 410,311 United Parcel Service Cl B 9,400 592,952 Total 1,003,263 Insurance (2.8%) ACE 7,447(c) 245,677 American Intl Group 29,294 1,880,674 Chubb 19,100 1,237,680 Total 3,364,031 Leisure time & entertainment (3.2%) Mattel 57,900 1,124,997 Viacom Cl B 63,100(b) 2,746,112 Total 3,871,109 Machinery (1.7%) Caterpillar 18,656 1,258,720 Illinois Tool Works 9,600 668,640 SPX 2,500(b) 117,725 Total 2,045,085 Media (5.0%) Cendant 189,135(b) 3,394,973 Disney (Walt) 78,300 1,716,336 Scripps (EW) Cl A 4,700 389,912 Tribune 12,500 590,250 Total 6,091,471 Metals (0.8%) Freeport McMoRan Cooper & Gold Cl B 37,341 1,000,365 Multi-industry (3.9%) General Electric 137,950 3,923,298 Grainger (WW) 6,289 309,419 ITT Inds 2,400 160,080 Tyco Intl 17,400(c) 323,640 Total 4,716,437 Paper & packaging (1.1%) Avery Dennison 24,100 1,300,436 Restaurants (0.5%) McDonald's 28,100 646,581 Retail -- general (4.1%) Best Buy 17,700(b) 772,605 Dollar General 32,450 597,080 Home Depot 56,116 1,750,819 Wal-Mart Stores 33,400 1,867,394 Total 4,987,898 Retail -- grocery (0.5%) Kroger 37,700(b) 639,015 Utilities -- electric (0.2%) FirstEnergy 8,700 300,063 Total common stocks (Cost: $104,312,349) $110,110,316 Short-term securities (9.6%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agency (6.0%) Federal Natl Mtge Assn Disc Nts 09-17-03 0.98% $2,900,000 $2,896,506 09-17-03 1.02 2,900,000 2,896,056 10-22-03 1.00 1,500,000 1,496,481 Total 7,289,043 Commercial paper (3.6%) Abbey Natl North America LLC 08-01-03 1.11 4,300,000 4,299,867 Total short-term securities (Cost: $11,589,010) $11,588,910 Total investments in securities (Cost: $115,901,359)(d) $121,699,226 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 9 -- AXP LARGE CAP EQUITY FUND -- 2003 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, 2003, the value of foreign securities represented 0.8% of net assets. (d) At July 31, 2003, the cost of securities for federal income tax purposes was $116,840,781 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 6,230,284 Unrealized depreciation (1,371,839) ---------- Net unrealized appreciation $ 4,858,445 ----------- -------------------------------------------------------------------------------- 10 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Large Cap Equity Fund July 31, 2003 Assets Investments in securities, at value (Note 1) (identified cost $115,901,359) $121,699,226 Cash in bank on demand deposit 186,921 Capital shares receivable 766,524 Dividends and accrued interest receivable 120,039 Receivable for investment securities sold 1,026,697 --------- Total assets 123,799,407 ----------- Liabilities Capital shares payable 12,526 Payable for investment securities purchased 2,758,797 Accrued investment management services fee 1,976 Accrued distribution fee 1,590 Accrued transfer agency fee 772 Accrued administrative services fee 165 Other accrued expenses 101,537 ------- Total liabilities 2,877,363 --------- Net assets applicable to outstanding capital stock $120,922,044 ============ Represented by Capital stock -- $.01 par value (Note 1) $ 267,737 Additional paid-in capital 113,970,315 Accumulated net realized gain (loss) (Note 6) 886,125 Unrealized appreciation (depreciation) on investments 5,797,867 --------- Total -- representing net assets applicable to outstanding capital stock $120,922,044 ============ Net assets applicable to outstanding shares: Class A $ 83,257,409 Class B $ 35,551,265 Class C $ 2,052,118 Class Y $ 61,252 Net asset value per share of outstanding capital stock: Class A shares 18,374,049 $ 4.53 Class B shares 7,929,314 $ 4.48 Class C shares 456,827 $ 4.49 Class Y shares 13,477 $ 4.54 ------ ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 11 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Statement of operations AXP Large Cap Equity Fund Year ended July 31, 2003 Investment income Income: Dividends $ 764,115 Interest 68,385 ------ Total income 832,500 ------- Expenses (Note 2): Investment management services fee 342,000 Distribution fee Class A 94,937 Class B 171,345 Class C 9,241 Transfer agency fee 129,382 Incremental transfer agency fee Class A 8,905 Class B 8,414 Class C 617 Service fee -- Class Y 29 Administrative services fees and expenses 27,560 Compensation of board members 4,966 Custodian fees 274,440 Printing and postage 1,370 Registration fees 81,089 Audit fees 17,000 ------ Total expenses 1,171,295 Expenses waived/reimbursed by AEFC (Note 2) (333,483) -------- 837,812 Earnings credits on cash balances (Note 2) (4,492) ------ Total net expenses 833,320 ------- Investment income (loss) -- net (820) ---- Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 1,719,341 Net change in unrealized appreciation (depreciation) on investments 7,080,694 --------- Net gain (loss) on investments 8,800,035 --------- Net increase (decrease) in net assets resulting from operations $8,799,215 ==========
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 12 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets AXP Large Cap Equity Fund For the period from July 31, 2003 March 28, 2002* to Year ended July 31, 2002 Operations and distributions Investment income (loss) -- net $ (820) $ (10,970) Net realized gain (loss) on investments 1,719,341 (805,384) Net change in unrealized appreciation (depreciation) on investments 7,080,694 (1,281,341) --------- ---------- Net increase (decrease) in net assets resulting from operations 8,799,215 (2,097,695) --------- ---------- Distributions to shareholders from: Net investment income Class A (27,013) -- Class Y (21) -- --------- ---------- Total distributions (27,034) -- --------- ---------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 72,641,134 11,367,703 Class B shares 31,826,112 5,967,979 Class C shares 1,776,439 241,975 Class Y shares 35,963 23,000 Reinvestment of distributions at net asset value Class A shares 25,435 -- Class Y shares 13 -- Payments for redemptions Class A shares (6,855,152) (434,672) Class B shares (Note 2) (4,072,868) (181,280) Class C shares (Note 2) (107,435) -- Class Y shares (1,872) (4,191) ------ ------ Increase (decrease) in net assets from capital share transactions 95,267,769 16,980,514 ---------- ---------- Total increase (decrease) in net assets 104,039,950 14,882,819 Net assets at beginning of period (Note 1) 16,882,094 1,999,275** ---------- --------- Net assets at end of period $120,922,044 $16,882,094 ============ =========== Undistributed net investment income $ -- $ 7 ------------ -----------
* When shares became publicly available. ** Initial capital of $2,000,000 was contributed on March 21, 2002. The Fund had a decrease in net assets resulting from operations of $725 during the period from March 21, 2002 to March 28, 2002 (when shares became publicly available). See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Notes to Financial Statements AXP Large Cap Equity Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund invests primarily in equity securities of companies with a market capitalization greater than $5 billion at the time of purchase. On March 21, 2002, American Express Financial Corporation (AEFC) invested $2,000,000 in the Fund which represented 394,000 shares for Class A, 2,000 shares for Class B, Class C and Class Y, respectively, which represented the initial capital for each class at $5 per share. Shares of the Fund were first offered to the public on March 28, 2002. 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. The Fund's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. -------------------------------------------------------------------------------- 14 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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 Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. -------------------------------------------------------------------------------- 15 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Futures transactions To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. -------------------------------------------------------------------------------- 16 -- AXP LARGE CAP EQUITY FUND -- 2003 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 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 $27,847 and accumulated net realized gain has been decreased by $27,847. The tax character of distributions paid for the periods indicated is as follows: For the period from July 31, 2003 March 28, 2002* to Year ended July 31, 2002 Class A Distributions paid from: Ordinary income $27,013 $-- Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class Y Distributions paid from: Ordinary income 21 -- Long-term capital gain -- -- * When shares became publicly available. As of July 31, 2003, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $1,827,826 Accumulated long-term gain (loss) $ (2,279) Unrealized appreciation (depreciation) $4,858,445 -------------------------------------------------------------------------------- 17 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium and discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. Prior to Dec. 1, 2002, the maximum adjustment was 0.12% of the Fund's average daily net assets after deducting 1% from the performance difference. If the performance difference was less than 1%, the adjustment was zero. On Nov. 13, 2002, shareholders approved modification of the performance incentive adjustment calculation by adjusting the performance difference intervals, while retaining the previous maximum adjustment and reducing the amount of the performance difference for which no adjustment is made to 0.50%. The effect of the modifications began Dec. 1, 2002. The adjustment increased the fee by $5,623 for the year ended July 31, 2003. 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. -------------------------------------------------------------------------------- 18 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT 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 $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 In addition, there is an annual closed-account fee of $5 per inactive account, charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system generally within one year. Under terms of a prior agreement that ended April 30, 2003, the Fund paid a transfer agency fee at an annual rate per shareholder account of $19 for Class A, $20 for Class B, $19.50 for Class C and $17 for Class Y. The Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $577,722 for Class A, $14,453 for Class B and $151 for Class C for the year ended July 31, 2003. For the year ended July 31, 2003, AEFC and American Express Financial Advisors Inc. waived certain fees and expenses to 1.25% for Class A, 2.01% for Class B, 2.01% for Class C and 1.07% for Class Y. In addition, AEFC and American Express Financial Advisors Inc. have agreed to waive certain fees and expenses until July 31, 2004. Under this agreement, total expenses will not exceed 1.25% for Class A, 2.01% for Class B, 2.01% for Class C and 1.07% for Class Y of the Fund's average daily net assets. During the year ended July 31, 2003, the Fund's custodian and transfer agency fees were reduced by $4,492 as a result of earnings credits from overnight cash balances. The Fund also pays custodian fees to American Express Trust Company, an affiliate of AEFC. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $155,444,808 and $69,733,311, respectively, for the year ended July 31, 2003. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $353 for the year ended July 31, 2003. -------------------------------------------------------------------------------- 19 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Year ended July 31, 2003 Class A Class B Class C Class Y Sold 17,273,053 7,641,133 426,869 8,203 Issued for reinvested distributions 6,391 -- -- 3 Redeemed (1,688,951) (977,921) (25,450) (400) ---------- -------- ------- ---- Net increase (decrease) 15,590,493 6,663,212 401,419 7,806 ---------- --------- ------- ----- March 28, 2002* to July 31, 2002 Class A Class B Class C Class Y Sold 2,497,491 1,308,348 53,408 4,674 Issued for reinvested distributions -- -- -- -- Redeemed (107,935) (44,246) -- (1,003) --------- --------- ------ ----- Net increase (decrease) 2,389,556 1,264,102 53,408 3,671 --------- --------- ------ -----
* When shares became publicly available. 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The agreement went into effect Sept. 24, 2002. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $200 million with U.S. Bank, N.A. The Fund had no borrowings outstanding during the year ended July 31, 2003. 6. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $2,279 as of July 31, 2003, that will expire in 2012 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. -------------------------------------------------------------------------------- 20 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT 7. 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, 2003 2002(b) Net asset value, beginning of period $4.11 $5.00 Income from investment operations: Net investment income (loss) .01 -- Net gains (losses) (both realized and unrealized) .41 (.89) Total from investment operations .42 (.89) Net asset value, end of period $4.53 $4.11 Ratios/supplemental data Net assets, end of period (in millions) $83 $11 Ratio of expenses to average daily net assets(c),(e) 1.25% 1.25%(d) Ratio of net investment income (loss) to average daily net assets .24% (.11%)(d) Portfolio turnover rate (excluding short-term securities) 135% 88% Total return(i) 10.22% (17.80%)(j) Class B Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002(b) Net asset value, beginning of period $4.10 $5.00 Income from investment operations: Net investment income (loss) (.01) (.01) Net gains (losses) (both realized and unrealized) .39 (.89) Total from investment operations .38 (.90) Net asset value, end of period $4.48 $4.10 Ratios/supplemental data Net assets, end of period (in millions) $36 $5 Ratio of expenses to average daily net assets(c),(f) 2.01% 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.52%) (.86%)(d) Portfolio turnover rate (excluding short-term securities) 135% 88% Total return(i) 9.27% (18.00%)(j)
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 21 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002(b) Net asset value, beginning of period $4.10 $5.00 Income from investment operations: Net investment income (loss) (.01) (.01) Net gains (losses) (both realized and unrealized) .40 (.89) Total from investment operations .39 (.90) Net asset value, end of period $4.49 $4.10 Ratios/supplemental data Net assets, end of period (in millions) $2 $-- Ratio of expenses to average daily net assets(c),(g) 2.01% 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.53%) (.92%)(d) Portfolio turnover rate (excluding short-term securities) 135% 88% Total return(i) 9.51% (18.00%)(j) Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002(b) Net asset value, beginning of period $4.11 $5.00 Income from investment operations: Net investment income (loss) .01 -- Net gains (losses) (both realized and unrealized) .42 (.89) Total from investment operations .43 (.89) Net asset value, end of period $4.54 $4.11 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- Ratio of expenses to average daily net assets(c),(h) 1.07% 1.07%(d) Ratio of net investment income (loss) to average daily net assets .45% .09%(d) Portfolio turnover rate (excluding short-term securities) 135% 88% Total return(i) 10.46% (17.80%)(j) Notes to financial highlights
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 22 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Notes to financial highlights (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 28, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 1.84% and 5.12% for the periods ended July 31, 2003 and 2002, respectively. (f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 2.60% and 5.88% for the periods ended July 31, 2003 and 2002, respectively. (g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 2.60% and 5.88% for the periods ended July 31, 2003 and 2002, respectively. (h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class Y would have been 1.66% and 4.94% for the periods ended July 31, 2003 and 2002, respectively. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. -------------------------------------------------------------------------------- 23 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Independent Auditors' Report THE BOARD AND SHAREHOLDERS AXP GROWTH SERIES, INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of AXP Large Cap Equity Fund (a series of AXP Growth Series, Inc.) as of July 31, 2003, the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for the year ended July 31, 2003, and for the period from March 28, 2002 (when shares became publicly available) to July 31, 2002. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with 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. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Large Cap Equity Fund as of July 31, 2003, 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 12, 2003 -------------------------------------------------------------------------------- 24 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Federal Income Tax Information (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. AXP Large Cap Equity Fund Fiscal year ended July 31, 2003 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals (effective for distributions made after Jan. 1, 2003) 0.00% Dividends Received Deduction for corporations 38.07% Payable date Per share Dec. 19, 2002 $0.00351 Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals (effective for distributions made after Jan. 1, 2003) 0.00% Dividends Received Deduction for corporations 38.07% Payable date Per share Dec. 19, 2002 $0.00365 -------------------------------------------------------------------------------- 25 -- AXP LARGE CAP EQUITY FUND -- 2003 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 83 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service ---------------------------------- ------------------ ------------------------------------- --------------------------------- Arne H. Carlson Board member Chair, Board Services Corporation 901 S. Marquette Ave. since 1999 (provides administrative services Minneapolis, MN 55402 to boards). Former Governor of Age 68 Minnesota ---------------------------------- ------------------ ------------------------------------- --------------------------------- Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan 901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc. Minneapolis, MN 55402 construction) since 1998 (construction Age 65 materials/chemicals) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated 30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and Suite 3050 Mining and Manufacturing (3M) processors), General Mills, St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan Age 69 Materials Company (construction materials/ chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. ---------------------------------- ------------------ ------------------------------------- --------------------------------- Heinz F. Hutter* Board member Retired President and Chief 901 S. Marquette Ave. since 1994 Operating Officer, Cargill, Minneapolis, MN 55402 Incorporated (commodity merchants Age 74 and processors) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 68 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 64 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont 901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken Minneapolis, MN 55402 equities) Energy Corporation (oil and gas Age 53 exploration) and SIRIT Inc. (radio frequency identification technology) ---------------------------------- ------------------ ------------------------------------- ---------------------------------
* Interested person of AXP Partners International Aggressive Growth Fund and AXP Partners Aggressive Growth Fund by reason of being a security holder of J P Morgan Chase & Co., which has a 45% interest in American Century Companies, Inc., the parent company of the subadviser of two of the AXP Partners Funds, American Century Investment Management, Inc. ** Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Liberty Wanger Asset Management, L.P., one of the fund's subadvisers. -------------------------------------------------------------------------------- 26 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Alan K. Simpson Board member Former three-term United States Biogen, Inc. 1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals) Cody, WY 82414 Age 71 --------------------------------- ------------------- ------------------------------------- --------------------------------- Alison Taunton-Rigby Board member President, Forester Biotech since 901 S. Marquette Ave. since 2002 2000. Former President and CEO, Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc. Age 59 --------------------------------- ------------------- ------------------------------------- --------------------------------- Board Members Affiliated with AEFC*** Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Barbara H. Fraser Board member Executive Vice President - AEFA 1546 AXP Financial Center since 2002 Products and Corporate Marketing of Minneapolis, MN 55474 AEFC since 2002. President - Age 53 Travelers Check Group, American Express Company, 2001-2002. Management Consultant, Reuters, 2000-2001. Managing Director - International Investments, Citibank Global, 1999-2000. Chairman and CEO, Citicorp Investment Services and Citigroup Insurance Group, U.S., 1998-1999 --------------------------------- ------------------- ------------------------------------- --------------------------------- Stephen W. Roszell Board member Senior Vice President - 50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC Minneapolis, MN 55474 President since Age 54 2002 --------------------------------- ------------------- ------------------------------------- --------------------------------- William F. Truscott Board member Senior Vice President - Chief 53600 AXP Financial Center since 2001, Vice Investment Officer of AEFC since Minneapolis, MN 55474 President since 2001. Former Chief Investment Age 42 2002 Officer and Managing Director, Zurich Scudder Investments --------------------------------- ------------------- ------------------------------------- ---------------------------------
*** Interested person by reason of being an officer, director and/or employee of AEFC. -------------------------------------------------------------------------------- 27 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Roszell, who is vice president, and Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Jeffrey P. Fox Treasurer since Vice President - Investment 50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice Minneapolis, MN 55474 President - Finance, American Age 48 Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Paula R. Meyer President since Senior Vice President and General 596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since Minneapolis, MN 55474 2002; Vice President and Managing Age 49 Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Leslie L. Ogg Vice President, President of Board Services 901 S. Marquette Ave. General Counsel, Corporation Minneapolis, MN 55402 and Secretary Age 64 since 1978 --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. -------------------------------------------------------------------------------- 28 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT The policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities can be found in the Fund's Statement of Additional Information (SAI) which is available (i) without charge, upon request, by calling toll-free (800) 862-7919; (ii) on the American Express Company Web site at americanexpress.com/funds; and (iii) on the Securities and Exchange Commission Web site at http://www.sec.gov. -------------------------------------------------------------------------------- (logo) AMERICAN EXPRESS(R) -------------------------------------------------------------------------------- American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Large Cap Value Fund Annual Report for the Period Ended July 31, 2003 AXP Large Cap Value Fund seeks to provide shareholders with long-term growth of capital. -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) -------------------------------------------------------------------------------- Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 The Fund's Long-term Performance 7 Investments in Securities 8 Financial Statements 12 Notes to Financial Statements 15 Independent Auditors' Report 25 Federal Income Tax Information 26 Board Members and Officers 27 -------------------------------------------------------------------------------- 2 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Fund Snapshot AS OF JULY 31, 2003 PORTFOLIO MANAGER Portfolio manager Bob Ewing, CFA Since 6/02 Years in industry 15 FUND OBJECTIVE This Fund seeks to provide shareholders with long-term growth of capital. Inception dates A: 6/27/02 B: 6/27/02 C: 6/27/02 Y: 6/27/02 Ticker symbols A: ALVAX B: ALVBX C: -- Y: -- Total net assets $45.1 million Number of holdings 153 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Financials 30.6% Consumer discretionary 12.2% Energy 9.5% Consumer staples 8.8% Health care 7.1% Industrials 6.6% Short-term securities 6.4% Materials 5.6% Technology 5.6% Telecommunications 4.9% Utilities 2.7% TOP TEN HOLDINGS Percentage of portfolio assets Citigroup (Financial companies) 4.7% ConocoPhillips (Energy) 2.8 ChevronTexaco (Energy) 2.7 Bank of America (Banks and savings & loans) 2.5 Exxon Mobil (Energy) 2.2 Altria Group (Beverage & tobacco) 1.8 U.S. Bancorp (Banks and savings & loans) 1.8 J.P. Morgan Chase (Broker dealers) 1.7 American Intl Group (Insurance) 1.6 Wells Fargo (Banks and savings & loans) 1.6 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Stock prices of established companies that pay dividends may be less volatile than the stock market as a whole. Fund holdings are subject to change. -------------------------------------------------------------------------------- 3 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT AXP Large Cap Value Fund grew to more than $45 million in assets in its initial 12 months of operation. Below, Portfolio Manager Bob Ewing, CFA, discusses the Fund's positioning and performance for the 12 months ended July 31, 2003. Q: How did AXP Large Cap Value Fund perform for fiscal year 2003? A: AXP Large Cap Value Fund's Class A shares advanced 10.52%, excluding sales charge, for the 12 months ended July 31, 2003. The Fund outpaced its peers, as represented by the Lipper Large-Cap Value Funds Index, which advanced 8.61% for the period. The Fund underperformed its benchmark, the Russell 1000(R) Value Index, which advanced 10.75%, for the same period. Q: What factors had a significant effect on performance? A: In the early months of this past fiscal year, stocks in all styles, including value, declined sharply as the stock market fell to four-year lows. During that time, the Fund benefited from its exposure to healthcare stocks as well as an overweight in consumer staples, an underweight in telecommunications and good stock selection. In October and November of 2002, the market rallied, led primarily by stocks that had been previously beaten down. An underweight in telecommunications hurt performance during this time. The market was unable to sustain its late fall rally, as mixed economic signals and escalation of the conflict in Iraq negatively impacted investor sentiment. Entering 2003, we emphasized selection of individual stocks, rather than placing significant bets on any particular stock sectors. This approach was effective in an environment where the market as a whole stayed in a trading range, while some individual stocks and industry sectors experienced much wider price swings. (bar chart) PERFORMANCE COMPARISON For the period ended July 31, 2003 12% (bar 1) (bar 2) 10% +10.52% +10.75 (bar 3) +8.61% 8% 6% 4% 2% 0% (bar 1) AXP Large Cap Value Fund Class A (excluding sales charge) (bar 2) Russell 1000(R) Value Index (unmanaged) (bar 3) Lipper Large-Cap Value Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. -------------------------------------------------------------------------------- 4 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Questions & Answers (begin callout quote)> We further increased our existing exposure to energy companies, which we found to be a uniquely attractive cyclical opportunity.(end callout quote) In March 2003, stocks once again rallied as it became clear that military action in Iraq was imminent. Following the end of major combat, the market continued to advance as investors became more optimistic about economic growth. This period was challenging for the Fund because we had positioned it for a disappointingly slow recovery, rather than the stronger economic scenario favored by the market, reflected in index returns. Nevertheless, the Fund more than kept pace with its peers due to strong individual stock selection. Stocks that were overweighted in the portfolio that helped performance included MBNA Corp, a credit card company; Circuit City, a consumer electronics company; and Cendant, a leisure and travel company. The Fund was able to exploit these valuation inconsistencies, as the stocks did well during the second half of the fiscal year.
AVERAGE ANNUAL TOTAL RETURNS as of July 31, 2003 Class A Class B Class C Class Y (Inception dates) (6/27/02) (6/27/02) (6/27/02) (6/27/02) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) 1 year +10.52% +4.16% +9.66% +5.66% +9.50% +9.50% +10.76% +10.76% Since inception +1.78% -3.59% +1.06% -2.61% +0.92% +0.92% +1.99% +1.99%
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. 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/funds for current information. -------------------------------------------------------------------------------- 5 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Questions & Answers Q: What changes did you make to the portfolio during the period? A: Since the Fund was launched in June 2002, our strategy has been focused on relative value. We seek stocks of companies with potential for earnings growth that offer good value relative to the overall market, their peers and even to their own histories. Following the brief autumn rally when prices of technology and telecommunications stocks experienced the most meaningful gains, we reduced our positions in these sectors, maintaining our focus on undervalued stocks with solid fundamentals. We also added slightly to the Fund's positions in the energy, industrials and financial sectors, areas we would expect to do well in a recovering economy. During the second half of the fiscal period, we made few changes to sector allocations, but we adjusted individual holdings to enhance the make-up of the Fund. We further increased our existing exposure to energy companies, which we found to be a uniquely attractive cyclical opportunity. The Fund remained overweight in areas that would be considered more classically defensive -- consumer staples and healthcare. The Fund remained underweight in the traditional cyclical sectors, including consumer discretionary, financials, industrials, and materials. However, within these sectors we made changes to Fund holdings of individual stocks as we sought to keep the portfolio well positioned in a fast moving equity market. Q: How do you plan to manage the Fund in the coming months? A: We currently have two main themes in managing the Fund -- having a lower valuation than the Fund's peers and maintaining a larger cap orientation than some peers. From a valuation perspective, we are striving to achieve a portfolio with a higher yield than the overall market, as well as lower price to earnings, price to sales and price to book ratios than the market. Larger companies have lagged mid-size and small companies pretty significantly so far in 2003. We believe that in any scenario that unfolds from here, the larger companies could have the advantage. Either the economy improves and the large companies that have lagged begin to catch up, or the economy slows, making it more likely that investors will gravitate toward large cap stocks due to their industry leadership, proven business models and superior positioning. -------------------------------------------------------------------------------- 6 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT The Fund's Long-term Performance This chart illustrates the total value of an assumed $10,000 investment in AXP Large Cap Value Fund Class A shares (from 7/1/02 to 7/31/03) as compared to the performance of two widely cited performance indices, the Russell 1000(R) Value Index and the Lipper Large-Cap Value Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. 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 chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP LARGE CAP VALUE FUND $12,000 $9,000 (dotted line) Russell 1000(R) Value Index(1) $6,000 (dashed line) Lipper Large-Cap Value Funds Index(2) (solid line) AXP Large Cap Value Fund Class A $3,000 7/01/02 7/02 10/02 1/03 4/03 7/03 (solid line) AXP Large Cap Value Fund Class A $9,611 (dotted line) Russell 1000(R) Value Index(1) $10,044 (dashed line) Lipper Large-Cap Value Funds Index(2) $9,922 (1) The Russell 1000(R) Value Index, an unmanaged index, measures the performance of the large capitalization value portion of the Russell 1000(R) Index. The Russell 1000(R) Value Index consists of companies with lower price-to-book ratios and lower forecasted growth values. (2) The Lipper Large-Cap Value 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, 2003 1 year +4.16% Since inception (6/27/02) -3.59% Results for other share classes can be found on page 5. -------------------------------------------------------------------------------- 7 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Investments in Securities AXP Large Cap Value Fund July 31, 2003 (Percentages represent value of investments compared to net assets) Common stocks (94.4%) Issuer Shares Value(a) Aerospace & defense (3.1%) Boeing 3,511 $116,284 General Dynamics 1,550 122,977 Lockheed Martin 8,665 453,526 Northrop Grumman 3,666 338,152 United Technologies 4,791 360,427 Total 1,391,366 Airlines (0.1%) Northwest Airlines Cl A 3,343(b) 30,421 Automotive & related (0.3%) General Motors 4,077 152,602 Banks and savings & loans (11.2%) Bank of America 13,890 1,146,898 Bank of New York 12,729 383,397 Bank One 7,309 289,144 FleetBoston Financial 10,703 332,756 Mellon Financial 11,743 355,226 PNC Financial Services Group 6,540 320,133 U.S. Bancorp 32,450 795,674 Wachovia 11,098 484,872 Washington Mutual 5,654 223,220 Wells Fargo 14,086 711,766 Total 5,043,086 Beverages & tobacco (4.5%) Altria Group 20,137 805,682 Anheuser-Busch 1,750 90,685 Coca-Cola 9,990 449,250 Pepsi Bottling Group 8,850 194,523 PepsiCo 10,315 475,212 Total 2,015,352 Broker dealers (4.2%) J.P. Morgan Chase 21,517 754,170 Merrill Lynch 10,797 587,033 Morgan Stanley 11,756 557,705 Total 1,898,908 Building materials & construction (0.6%) Masco 5,615 136,838 Temple-Inland 3,142 145,757 Total 282,595 Cable (1.7%) Comcast Cl A 7,814(b) 236,921 Comcast Special Cl A 5,341(b) 156,491 EchoStar Communications Cl A 5,075(b) 184,070 NTL 4,800(b) 200,688 Total 778,170 Cellular telecommunications (0.4%) Vodafone Group ADR 10,100(c) 191,698 Chemicals (3.0%) Dow Chemical 16,084 567,764 du Pont (EI) de Nemours 6,939 304,900 Lyondell Chemical 10,402 155,718 Praxair 2,762 178,591 RPM Intl 6,900 97,083 Solutia 21,580 26,328 Total 1,330,384 Computer hardware (2.5%) Apple Computer 9,958(b) 209,616 Cisco Systems 3,618(b) 70,623 Dell 2,750(b) 92,620 Hewlett-Packard 25,383 537,358 Sun Microsystems 63,400(b) 237,116 Total 1,147,333 Computer software & services (1.8%) Affiliated Computer Services Cl A 1,600(b) 79,280 Cadence Design Systems 7,500(b) 102,525 First Data 2,100 79,296 Microsoft 21,258 561,211 Total 822,312 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 8 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Electronics (1.3%) ChipPAC Cl A 7,700(b) $43,890 Micron Technology 10,180(b) 149,035 Natl Semiconductor 6,032(b) 134,815 Teradyne 5,017(b) 82,530 Texas Instruments 8,204 154,810 Total 565,080 Energy (8.4%) Anadarko Petroleum 2,450 107,310 Burlington Resources 4,326 199,731 ChevronTexaco 16,895 1,218,298 ConocoPhillips 24,240 1,268,722 Exxon Mobil 27,796 988,982 Total 3,783,043 Energy equipment & services (1.2%) Grant Prideco 5,815(b) 62,511 Schlumberger 4,895 220,618 Transocean 13,401(b) 262,257 Total 545,386 Environmental services (0.4%) Allied Waste Inds 14,750(b) 178,770 Finance companies (4.7%) Citigroup 47,491 2,127,597 Financial services (4.0%) Capital One Financial 4,700 225,177 Fannie Mae 8,849 566,690 Freddie Mac 9,034 441,311 MBNA 24,697 550,496 Total 1,783,674 Food (1.0%) General Mills 4,776 219,075 Kraft Foods Cl A 8,486 235,996 Total 455,071 Furniture & appliances (0.3%) Black & Decker 1,543 63,047 Leggett & Platt 4,088 90,508 Total 153,555 Health care products (5.3%) Bristol-Myers Squibb 4,706 123,297 Merck & Co 12,435 687,406 Pfizer 15,103 503,836 Schering-Plough 38,323 650,725 Wyeth 8,958 408,306 Total 2,373,570 Health care services (1.9%) AmerisourceBergen 1,100 69,399 Caremark Rx 5,929(b) 148,344 HCA 3,608 127,182 Lincare Holdings 2,900(b) 105,560 McKesson 4,474 144,331 Select Medical 1,050(b) 29,505 Tenet Healthcare 15,400(b) 212,212 Total 836,533 Household products (2.8%) Avon Products 4,101 255,861 Clorox 2,100 91,119 Kimberly-Clark 8,861 428,872 Newell Rubbermaid 1,930 45,606 Procter & Gamble 4,946 434,606 Total 1,256,064 Insurance (5.5%) ACE 6,038(c) 199,194 Allstate 11,291 429,397 American Intl Group 11,210 719,682 Chubb 4,550 294,840 CIGNA 1,250 58,475 Hartford Financial Services Group 4,669 243,675 Montpelier Re Holdings 2,428(b,c) 78,157 Prudential Financial 6,428 228,708 Travelers Property Casualty Cl A 8,376 135,691 Travelers Property Casualty Cl B 4,579 73,905 Total 2,461,724 Leisure time & entertainment (1.9%) AOL Time Warner 12,200(b) 188,246 Mattel 9,196 178,678 Viacom Cl B 11,304(b) 491,950 Total 858,874 Machinery (1.1%) Caterpillar 3,517 237,292 Illinois Tool Works 2,100 146,265 Ingersoll-Rand Cl A 1,111(c) 60,261 SPX 700(b) 32,963 Total 476,781 Media (4.0%) Cendant 21,700(b) 389,515 Disney (Walt) 28,220 618,583 InterActiveCorp 3,251(b) 131,568 Liberty Media Cl A 27,648(b) 306,616 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 9 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Media (cont.) McGraw-Hill Companies 1,437 $87,341 Scripps (EW) Cl A 1,100 91,256 Tribune 3,479 164,278 Total 1,789,157 Metals (0.9%) Alcan 2,552(c) 88,835 Alcoa 6,468 179,617 Phelps Dodge 3,155(b) 133,109 Total 401,561 Multi-industry (2.0%) Dover 9,184 336,226 General Electric 10,873 309,228 ITT Inds 2,263 150,942 Tyco Intl 6,616(c) 123,058 Total 919,454 Paper & packaging (1.1%) Avery Dennison 3,700 199,653 Bowater 4,093 157,662 Intl Paper 3,843 150,338 Total 507,653 Real estate investment trust (1.3%) Apartment Investment & Management Cl A 2,518 99,234 Equity Office Properties Trust 12,356 342,756 Starwood Hotels & Resorts Worldwide 4,584 149,438 Total 591,428 Restaurants (0.8%) McDonald's 15,999 368,137 Retail -- general (3.0%) BJ's Wholesale Club 7,585(b) 147,908 Circuit City Stores 23,460 215,363 Dollar General 4,830 88,872 Home Depot 8,893 277,461 Sonic Automotive 5,818(b) 149,232 Staples 3,000(b) 60,420 Target 5,854 224,325 Wal-Mart Stores 3,400 190,094 Total 1,353,675 Retail -- grocery (0.6%) Kroger 9,000(b) 152,550 Safeway 5,670(b) 121,055 Total 273,605 Telecom equipment & services (0.5%) Motorola 23,134 209,131 Textiles & apparel (0.2%) Liz Claiborne 3,204 110,314 Utilities -- electric (2.7%) Dominion Resources 4,910 295,091 DTE Energy 1,622 57,922 Exelon 5,200 298,844 FirstEnergy 10,045 346,452 FPL Group 2,129 131,295 Pepco Holdings 5,000 86,600 Total 1,216,204 Utilities -- telephone (4.1%) BellSouth 25,988 661,915 Davel Communications 5,200(b) 62 KT ADR 10,296(c) 195,521 SBC Communications 15,773 368,457 Verizon Communications 17,819 621,170 Total 1,847,125 Total common stocks (Cost: $39,365,347) $42,527,393 Short-term securities (6.4%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agency Federal Natl Mtge Assn Disc Nts 08-04-03 0.91% $500,000 $499,949 09-17-03 1.00 1,200,000 1,198,555 09-24-03 0.98 300,000 299,577 10-01-03 0.98 400,000 399,302 10-15-03 1.00 500,000 498,927 Total short-term securities (Cost: $2,896,248) $2,896,310 Total investments in securities (Cost: $42,261,595)(d) $45,423,703 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 10 -- AXP LARGE CAP VALUE FUND -- 2003 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, 2003, the value of foreign securities represented 2.1% of net assets. (d) At July 31, 2003, the cost of securities for federal income tax purposes was $42,598,042 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,291,078 Unrealized depreciation (465,417) -------- Net unrealized appreciation $2,825,661 ---------- -------------------------------------------------------------------------------- 11 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Large Cap Value Fund July 31, 2003 Assets Investments in securities, at value (Note 1) (identified cost $42,261,595) $45,423,703 Cash in bank on demand deposit 49,086 Capital shares receivable 119,593 Dividends and accrued interest receivable 65,916 Receivable for investment securities sold 263,172 ------- Total assets 45,921,470 ---------- Liabilities Capital shares payable 5,368 Payable for investment securities purchased 777,384 Accrued investment management services fee 737 Accrued distribution fee 597 Accrued transfer agency fee 233 Accrued administrative services fee 61 Other accrued expenses 80,404 ------ Total liabilities 864,784 ------- Net assets applicable to outstanding capital stock $45,056,686 =========== Represented by Capital stock -- $.01 par value (Note 1) $ 90,706 Additional paid-in capital 41,041,396 Undistributed net investment income 133,587 Accumulated net realized gain (loss) 628,889 Unrealized appreciation (depreciation) on investments 3,162,108 --------- Total -- representing net assets applicable to outstanding capital stock $45,056,686 =========== Net assets applicable to outstanding shares: Class A $30,878,757 Class B $13,397,932 Class C $ 754,403 Class Y $ 25,594 Net asset value per share of outstanding capital stock: Class A shares 6,204,194 $ 4.98 Class B shares 2,708,686 $ 4.95 Class C shares 152,616 $ 4.94 Class Y shares 5,129 $ 4.99 ----- -----------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 12 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Statement of operations AXP Large Cap Value Fund Year ended July 31, 2003 Investment income Income: Dividends $ 497,579 Interest 17,721 Less foreign taxes withheld (310) ---- Total income 514,990 ------- Expenses (Note 2): Investment management services fee 139,254 Distribution fee Class A 39,449 Class B 68,230 Class C 3,620 Transfer agency fee 47,265 Incremental transfer agency fee Class A 3,250 Class B 3,077 Class C 217 Service fee -- Class Y 15 Administrative services fees and expenses 11,000 Compensation of board members 3,058 Custodian fees 228,980 Printing and postage 40,801 Registration fees 43,039 Audit fees 17,000 Other 13,788 ------ Total expenses 662,043 Expenses waived/reimbursed by AEFC (Note 2) (321,108) -------- 340,935 Earnings credits on cash balances (Note 2) (3,515) ------ Total net expenses 337,420 ------- Investment income (loss) -- net 177,570 ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 673,743 Net change in unrealized appreciation (depreciation) on investments 3,294,759 --------- Net gain (loss) on investments 3,968,502 --------- Net increase (decrease) in net assets resulting from operations $4,146,072 ==========
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets AXP Large Cap Value Fund For the period from July 31, 2003 June 27, 2002* to Year ended July 31, 2002 Operations and distributions Investment income (loss) -- net $ 177,570 $ 361 Net realized gain (loss) on investments 673,743 (47,883) Net change in unrealized appreciation (depreciation) on investments 3,294,759 (91,249) --------- ------- Net increase (decrease) in net assets resulting from operations 4,146,072 (138,771) --------- -------- Distributions to shareholders from: Net investment income Class A (40,203) -- Class B (7,259) -- Class C (539) -- Class Y (39) -- --------- -------- Total distributions (48,040) -- --------- -------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 26,344,197 2,213,078 Class B shares 12,297,591 1,424,918 Class C shares 637,405 46,247 Class Y shares 11,000 3,000 Reinvestment of distributions at net asset value Class A shares 34,417 -- Class B shares 7,127 -- Class C shares 514 -- Class Y shares 9 -- Payments for redemptions Class A shares (2,271,256) (25,502) Class B shares (Note 2) (1,533,475) (40,778) Class C shares (Note 2) (11,095) -- --------- -------- Increase (decrease) in net assets from capital share transactions 35,516,434 3,620,963 ---------- --------- Total increase (decrease) in net assets 39,614,466 3,482,192 Net assets at beginning of period (Note 1) 5,442,220 1,960,028** --------- --------- Net assets at end of period $45,056,686 $5,442,220 =========== ========== Undistributed net investment income $ 133,587 $ 2,951 ----------- ----------
* When shares became publicly available. ** Initial capital of $2,000,000 was contributed on June 20, 2002. The Fund had a decrease in net assets resulting from operations of $39,972 during the period from June 20, 2002 to June 27, 2002 (when shares became publicly available). See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Notes to Financial Statements AXP Large Cap Value Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund invests primarily in equity securities of companies with a market capitalization greater than $5 billion. On June 20, 2002, American Express Financial Corporation (AEFC) invested $2,000,000 in the Fund which represented 394,000 shares for Class A, 2,000 shares for Class B, Class C and Class Y, respectively, which represented the initial capital for each class at $5 per share. Shares of the Fund were first offered to the public on June 27, 2002. 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. The Fund's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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. -------------------------------------------------------------------------------- 15 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Option transactions To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. -------------------------------------------------------------------------------- 16 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $1,106 and accumulated net realized gain has been increased by $2,968 resulting in a net reclassification adjustment to decrease paid-in capital by $4,074. -------------------------------------------------------------------------------- 17 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT The tax character of distributions paid for the periods indicated is as follows: For the period from July 31, 2003 June 27, 2002* to Year ended July 31, 2002 Class A Distributions paid from: Ordinary income $40,203 $-- Long-term capital gain -- -- Class B Distributions paid from: Ordinary income 7,259 -- Long-term capital gain -- -- Class C Distributions paid from: Ordinary income 539 -- Long-term capital gain -- -- Class Y Distributions paid from: Ordinary income 39 -- Long-term capital gain -- -- * When shares became publicly available. As of July 31, 2003, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $1,093,627 Accumulated long-term gain (loss) $ 5,296 Unrealized appreciation (depreciation) $2,825,661 Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium and discount using the effective interest method, is accrued daily. -------------------------------------------------------------------------------- 18 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Value Funds Index. Prior to Dec. 1, 2002, the maximum adjustment was 0.12% of the Fund's average daily net assets after deducting 1%, from the performance difference. If the performance difference was less than 1%, the adjustment was zero. On Nov. 13, 2002, shareholders approved modification of the performance incentive adjustment calculation by adjusting the performance difference intervals, while retaining the previous maximum adjustment and reducing the amount of the performance difference for which no adjustment is made to 0.50%. The effect of the modifications began Dec. 1, 2002. The adjustment increased the fee by $1,373 for the year ended July 31, 2003 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 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 $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 In addition, there is an annual closed-account fee of $5 per inactive account, charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system generally within one year. Under terms of a prior agreement that ended April 30, 2003, the Fund paid a transfer agency fee at an annual rate per shareholder account of $19 for Class A, $20 for Class B, $19.50 for Class C and $17 for Class Y. The Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. -------------------------------------------------------------------------------- 19 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $175,798 for Class A, $4,447 for Class B and $18 for Class C for the year ended July 31, 2003. For the year ended July 31, 2003, AEFC and American Express Financial Advisors Inc. waived certain fees and expenses to 1.25% for Class A, 2.00% for Class B, 2.00% for Class C and .95% for Class Y. In addition, AEFC and American Express Financial Advisors Inc. have agreed to waive certain fees and expenses until July 31, 2004. Under this agreement, total expenses will not exceed 1.25% for Class A, 2.01% for Class B, 2.01% for Class C and 1.07% for Class Y of the Fund's average daily net assets. During the year ended July 31, 2003, the Fund's custodian and transfer agency fees were reduced by $3,515 as a result of earnings credits from overnight cash balances. The Fund also pays custodian fees to American Express Trust Company, an affiliate of AEFC. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $50,432,888 and $16,765,447, respectively, for the year ended July 31, 2003. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $1,577 for the year ended July 31, 2003. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Year ended July 31, 2003 Class A Class B Class C Class Y Sold 5,828,574 2,731,482 142,666 2,495 Issued for reinvested distributions 7,804 1,620 117 2 Redeemed (509,520) (335,784) (2,292) -- --------- --------- ------- ----- Net increase (decrease) 5,326,858 2,397,318 140,491 2,497 --------- --------- ------- ----- June 27, 2002* to July 31, 2002 Class A Class B Class C Class Y Sold 489,221 318,593 10,125 632 Issued for reinvested distributions -- -- -- -- Redeemed (5,885) (9,225) -- -- ------- ------- ------ --- Net increase (decrease) 483,336 309,368 10,125 632 ------- ------- ------ ---
* When shares became publicly available. -------------------------------------------------------------------------------- 20 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The agreement went into effect Sept. 24, 2002. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $200 million with U.S. Bank, N.A. The Fund had no borrowings outstanding during the year ended July 31, 2003. 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, 2003 2002(b) Net asset value, beginning of period $4.52 $4.90 Income from investment operations: Net investment income (loss) .03 -- Net gains (losses) (both realized and unrealized) .44 (.38) Total from investment operations .47 (.38) Less distributions: Dividends from net investment income (.01) -- Net asset value, end of period $4.98 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $31 $4 Ratio of expenses to average daily net assets(c),(e) 1.25% 1.19%(d) Ratio of net investment income (loss) to average daily net assets 1.01% .23%(d) Portfolio turnover rate (excluding short-term securities) 77% 9% Total return(i) 10.52% (7.75%)(j)
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 21 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002(b) Net asset value, beginning of period $4.52 $4.90 Income from investment operations: Net investment income (loss) .01 -- Net gains (losses) (both realized and unrealized) .43 (.38) Total from investment operations .44 (.38) Less distributions: Dividends from net investment income (.01) -- Net asset value, end of period $4.95 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $13 $1 Ratio of expenses to average daily net assets(c),(f) 2.00% 1.95%(d) Ratio of net investment income (loss) to average daily net assets .25% (.49%)(d) Portfolio turnover rate (excluding short-term securities) 77% 9% Total return(i) 9.66% (7.75%)(j)
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 22 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002(b) Net asset value, beginning of period $4.52 $4.90 Income from investment operations: Net investment income (loss) .01 -- Net gains (losses) (both realized and unrealized) .42 (.38) Total from investment operations .43 (.38) Less distributions: Dividends from net investment income (.01) -- Net asset value, end of period $4.94 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $1 $-- Ratio of expenses to average daily net assets(c),(g) 2.00% 1.95%(d) Ratio of net investment income (loss) to average daily net assets .26% (.45%)(d) Portfolio turnover rate (excluding short-term securities) 77% 9% Total return(i) 9.50% (7.75%)(j)
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 23 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002(b) Net asset value, beginning of period $4.52 $4.90 Income from investment operations: Net investment income (loss) .03 -- Net gains (losses) (both realized and unrealized) .45 (.38) Total from investment operations .48 (.38) Less distributions: Dividends from net investment income (.01) -- Net asset value, end of period $4.99 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- Ratio of expenses to average daily net assets(c),(h) .95% 1.01%(d) Ratio of net investment income (loss) to average daily net assets 1.30% .31%(d) Portfolio turnover rate (excluding short-term securities) 77% 9% Total return(i) 10.76% (7.75%)(j)
Notes to financial highlights (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 2.64% and 20.50% for the periods ended July 31, 2003 and 2002, respectively. (f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 3.40% and 21.26% for the periods ended July 31, 2003 and 2002, respectively. (g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 3.40% and 21.26% for the periods ended July 31, 2003 and 2002, respectively. (h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class Y would have been 2.46% and 20.32% for the periods ended July 31, 2003 and 2002, respectively. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. -------------------------------------------------------------------------------- 24 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Independent Auditors' Report THE BOARD AND SHAREHOLDERS AXP GROWTH SERIES, INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of AXP Large Cap Value Fund (a series of AXP Growth Series, Inc.) as of July 31, 2003, the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for the year ended July 31, 2003, and for the period from June 27, 2002 (when shares became publicly available) to July 31, 2002. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with 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. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Large Cap Value Fund as of July 31, 2003, 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 12, 2003 -------------------------------------------------------------------------------- 25 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT Federal Income Tax Information (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. AXP Large Cap Value Fund Fiscal year ended July 31, 2003 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals (effective for distributions made after Jan. 1, 2003) 0.00% Dividends Received Deduction for corporations 44.43% Payable date Per share Dec. 19, 2002 $0.01380 Class B Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals (effective for distributions made after Jan. 1, 2003) 0.00% Dividends Received Deduction for corporations 44.43% Payable date Per share Dec. 19, 2002 $0.00587 Class C Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals (effective for distributions made after Jan. 1, 2003) 0.00% Dividends Received Deduction for corporations 44.43% Payable date Per share Dec. 19, 2002 $0.00839 Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals (effective for distributions made after Jan. 1, 2003) 0.00% Dividends Received Deduction for corporations 44.43% Payable date Per share Dec. 19, 2002 $0.01463 -------------------------------------------------------------------------------- 26 -- AXP LARGE CAP VALUE FUND -- 2003 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 83 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service ---------------------------------- ------------------ ------------------------------------- --------------------------------- Arne H. Carlson Board member Chair, Board Services Corporation 901 S. Marquette Ave. since 1999 (provides administrative services Minneapolis, MN 55402 to boards). Former Governor of Age 68 Minnesota ---------------------------------- ------------------ ------------------------------------- --------------------------------- Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan 901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc. Minneapolis, MN 55402 construction) since 1998 (construction Age 65 materials/chemicals) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated 30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and Suite 3050 Mining and Manufacturing (3M) processors), General Mills, St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan Age 69 Materials Company (construction materials/ chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. ---------------------------------- ------------------ ------------------------------------- --------------------------------- Heinz F. Hutter* Board member Retired President and Chief 901 S. Marquette Ave. since 1994 Operating Officer, Cargill, Minneapolis, MN 55402 Incorporated (commodity merchants Age 74 and processors) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 68 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 64 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont 901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken Minneapolis, MN 55402 equities) Energy Corporation (oil and gas Age 53 exploration) and SIRIT Inc. (radio frequency identification technology) ---------------------------------- ------------------ ------------------------------------- ---------------------------------
* Interested person of AXP Partners International Aggressive Growth Fund and AXP Partners Aggressive Growth Fund by reason of being a security holder of J P Morgan Chase & Co., which has a 45% interest in American Century Companies, Inc., the parent company of the subadviser of two of the AXP Partners Funds, American Century Investment Management, Inc. ** Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Liberty Wanger Asset Management, L.P., one of the fund's subadvisers. -------------------------------------------------------------------------------- 27 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Alan K. Simpson Board member Former three-term United States Biogen, Inc. 1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals) Cody, WY 82414 Age 71 --------------------------------- ------------------- ------------------------------------- --------------------------------- Alison Taunton-Rigby Board member President, Forester Biotech since 901 S. Marquette Ave. since 2002 2000. Former President and CEO, Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc. Age 59 --------------------------------- ------------------- ------------------------------------- --------------------------------- Board Members Affiliated with AEFC*** Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Barbara H. Fraser Board member Executive Vice President - AEFA 1546 AXP Financial Center since 2002 Products and Corporate Marketing of Minneapolis, MN 55474 AEFC since 2002. President - Age 53 Travelers Check Group, American Express Company, 2001-2002. Management Consultant, Reuters, 2000-2001. Managing Director - International Investments, Citibank Global, 1999-2000. Chairman and CEO, Citicorp Investment Services and Citigroup Insurance Group, U.S., 1998-1999 --------------------------------- ------------------- ------------------------------------- --------------------------------- Stephen W. Roszell Board member Senior Vice President - 50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC Minneapolis, MN 55474 President since Age 54 2002 --------------------------------- ------------------- ------------------------------------- --------------------------------- William F. Truscott Board member Senior Vice President - Chief 53600 AXP Financial Center since 2001, Vice Investment Officer of AEFC since Minneapolis, MN 55474 President since 2001. Former Chief Investment Age 42 2002 Officer and Managing Director, Zurich Scudder Investments --------------------------------- ------------------- ------------------------------------- ---------------------------------
*** Interested person by reason of being an officer, director and/or employee of AEFC. -------------------------------------------------------------------------------- 28 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Roszell, who is vice president, and Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Jeffrey P. Fox Treasurer since Vice President - Investment 50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice Minneapolis, MN 55474 President - Finance, American Age 48 Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Paula R. Meyer President since Senior Vice President and General 596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since Minneapolis, MN 55474 2002; Vice President and Managing Age 49 Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Leslie L. Ogg Vice President, President of Board Services 901 S. Marquette Ave. General Counsel, Corporation Minneapolis, MN 55402 and Secretary Age 64 since 1978 --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. -------------------------------------------------------------------------------- 29 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT The policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities can be found in the Fund's Statement of Additional Information (SAI) which is available (i) without charge, upon request, by calling toll-free (800) 862-7919; (ii) on the American Express Company Web site at americanexpress.com/funds; and (iii) on the Securities and Exchange Commission Web site at http://www.sec.gov. -------------------------------------------------------------------------------- (logo) AMERICAN EXPRESS(R) -------------------------------------------------------------------------------- American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Quantitative Large Cap Equity Fund Annual Report for the Period Ended July 31, 2003 AXP Quantitative Large Cap Equity Fund seeks to provide shareholders with long-term capital growth. -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) -------------------------------------------------------------------------------- Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 Investments in Securities 7 Financial Statements 11 Notes to Financial Statements 14 Independent Auditors' Report 23 Board Members and Officers 24 -------------------------------------------------------------------------------- 2 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Fund Snapshot AS OF JULY 31, 2003 PORTFOLIO MANAGER Portfolio manager Dimitris J. Bertsimas Since 4/03 Years in industry 10 FUND OBJECTIVE This Fund seeks to provide shareholders with long-term capital growth. Inception dates A: 4/24/03 B: 4/24/03 C: 4/24/03 Y: 4/24/03 Ticker symbols A: -- B: -- C: -- Y: -- Total net assets $8.6 million Number of holdings 201 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Health care 21.8% Financials 14.2% Consumer discretionary 13.6% Technology 10.9% Short-term securities 10.5% Telecommunications 6.7% Utilities 6.0% Consumer staples 5.9% Industrials 5.9% Energy 3.8% Materials 0.7% TOP TEN HOLDINGS Percentage of portfolio assets Merck & Co (Health care products) 5.1% Amgen (Health care products) 4.7 Bank of America (Banks and savings & loans) 3.5 Comcast Cl A (Cable) 3.0 eBay (Media) 2.4 Altria Group (Beverages & tobacco) 2.2 Intl Business Machines (Computer software & services) 1.9 Tyco Intl (Multi-industry) 1.7 Oracle (Computer software & services) 1.7 Pfizer (Health care products) 1.6 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Fund holdings are subject to change. -------------------------------------------------------------------------------- 3 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Q: How did AXP Quantitative Large Cap Equity Fund perform for the initial fiscal period through July 31, 2003? A: AXP Quantitative Large Cap Equity Fund's Class A shares (excluding sales charge) rose 8.80% from April 24, 2003 (when the Fund's shares became publicly available) to July 31, 2003. From May 1, 2003 through July 31, 2003, the Fund's benchmark, the S&P 500 Index gained 8.49%, while the Lipper Large-Cap Core Funds Index rose 7.55%. Q: How was the Fund's initial portfolio built? A: The Fund uses a quantitative approach to construct its portfolio based on three sophisticated computer models developed by a team of research and mathematics Ph.D.s from the Massachusetts Institute of Technology. Starting with the universe of large-cap stocks in the S&P 500 Index, all three models rank each stock, creating three different sets of recommendations. The Fund then sums up the rankings from the models to create its portfolio of both value and growth stocks, giving more or less emphasis to the three model outputs based on current market conditions. The Fund does not make specific sector or industry bets based on economic or market conditions. Rather the sector and industry weightings are a result of the stocks that are selected by the quantitative models. The Fund's risk control measures ensure that no one sector or industry becomes too large within the portfolio. PERFORMANCE COMPARISON For the period ended July 31, 2003 10% (bar 1) (bar 2) 8% +8.80% +8.49% (bar 3) +7.55% 6% 4% 2% 0% (bar 1) AXP Quantitative Large Cap Equity Fund Class A (excluding sales charge) (bar 2) S&P 500 Index(1) (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index(2) (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) 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. Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. -------------------------------------------------------------------------------- 4 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Questions & Answers (begin callout quote)> During the period, the Fund had a slight bias toward value stocks in its holdings, which could change over time as the model weightings change.(end callout quote) During the period, the Fund had a slight bias toward value stocks in its holdings, which could change over time as the model weightings change. In addition to the model outputs, risk controls are applied to the Fund's construction. These include a 6% limit on individual stock positions within the portfolio, a 5% over/under-weight limit on sector and industry variances relative to the benchmark and constraints for holding securities with potential market liquidity issues. Going forward, we plan to rebalance the Fund holdings at least once a month, more often if cash flows or unpredictable market conditions dictate. TOTAL RETURNS as of July 31, 2003
Class A Class B Class C Class Y (Inception dates) (4/24/03) (4/24/03) (4/24/03) (4/24/03) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) Since inception* +8.80% +2.54% +8.60% +3.60% +8.60% +7.60% +9.00% +9.00%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. 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/funds for current information. -------------------------------------------------------------------------------- 5 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Questions & Answers Q. What factors affected the Fund for the initial fiscal period through July 31, 2003? A: During the period, the Fund's largest holdings included pharmaceutical company Merck, financial services company Bank of America, biotechnology company Amgen, cable provider Comcast and tobacco/food company Altria Group. The Fund's industry overweightings versus the S&P 500 Index included drug, telecommunication, electric utility and broadcasting companies, while industries such as department stores, electronics and semiconductors, and financials were underweighted. The best performing stocks for the Fund during the period were Computer Associates, a computer software company; PG&E, an electricity and natural gas distributor; and Boston Scientific, a medical device company. Q: How will you manage AXP Quantitative Large Cap Equity Fund in the coming months? A: In the months ahead we will continue to follow our three quantitative models and adapt our weightings as market conditions change. We will maintain strong risk controls in terms of individual stock positions as well as sector/industry exposures in place and the current modest level of turnover. We believe that following a consistent strategy will allow the Fund to provide steady results over time. -------------------------------------------------------------------------------- 6 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Investments in Securities AXP Quantitative Large Cap Equity Fund July 31, 2003 (Percentages represent value of investments compared to net assets) Common stocks (99.3%) Issuer Shares Value(a) Aerospace & defense (1.9%) Boeing 1,777 $58,854 General Dynamics 245 19,438 Goodrich 806 18,538 Honeywell Intl 890 25,169 Northrop Grumman 149 13,744 Rockwell Automation 850 21,964 Rockwell Collins 322 8,382 Total 166,089 Automotive & related (2.1%) Delphi 2,969 24,940 General Motors 3,362 125,839 PACCAR 433 33,428 Total 184,207 Banks and savings & loans (7.3%) AmSouth Bancorporation 464 10,055 Bank of America 3,992 329,618 Charter One Financial 401 13,041 First Tennessee Natl 649 27,842 FleetBoston Financial 628 19,525 KeyCorp 705 18,972 Natl City 584 19,243 North Fork Bancorporation 268 9,393 Regions Financial 206 7,437 SouthTrust 248 7,108 Wachovia 2,239 97,822 Washington Mutual 1,790 70,669 Total 630,725 Beverages & tobacco (3.7%) Altria Group 5,149 206,011 Brown-Forman Cl B 102 7,946 Coca-Cola 996 44,790 Coca-Cola Enterprises 1,269 21,636 Fortune Brands 244 13,569 PepsiCo 212 9,767 RJ Reynolds Tobacco Holdings 442 15,700 Total 319,419 Broker dealers (0.4%) Bear Stearns Companies 237 15,879 Lehman Brothers Holdings 267 16,893 Total 32,772 Cable (3.3%) Comcast Cl A 9,436(b) 286,100 Cellular telecommunications (2.1%) AT&T Wireless Services 9,140(b) 77,964 Nextel Communications Cl A 5,446(b) 99,444 Total 177,408 Chemicals (0.1%) Sigma-Aldrich 162 9,229 Computer hardware (0.8%) EMC 712(b) 7,576 Lexmark Intl Cl A 372(b) 23,871 Network Appliance 1,534(b) 24,514 NVIDIA 762(b) 14,569 Total 70,530 Computer software & services (8.7%) Adobe Systems 894 29,216 BMC Software 501(b) 7,064 Citrix Systems 4,859(b) 88,191 Computer Associates Intl 1,814 46,166 Comverse Technology 1,037(b) 15,296 Deluxe 1,011 44,888 Electronic Arts 394(b) 33,096 Electronic Data Systems 2,856 63,603 Intl Business Machines 2,250 182,814 Intuit 499(b) 21,467 Oracle 13,238(b) 158,856 QLogic 255(b) 10,748 Siebel Systems 1,338(b) 12,550 VERITAS Software 1,129(b) 34,773 Total 748,728 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 7 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Electronics (2.6%) Altera 1,500(b) $28,860 American Power Conversion 722(b) 12,584 Analog Devices 996(b) 37,798 KLA-Tencor 519(b) 26,806 Linear Technology 851 31,385 PMC-Sierra 664(b) 8,141 Xerox 3,847(b) 41,548 Xilinx 1,259(b) 33,087 Total 220,209 Energy (3.9%) Amerada Hess 777 36,496 Anadarko Petroleum 286 12,527 Apache 671 41,575 Ashland 419 13,739 Burlington Resources 1,016 46,909 ConocoPhillips 488 25,542 Devon Energy 841 39,838 Kerr-McGee 257 11,308 Marathon Oil 1,580 40,669 Occidental Petroleum 1,907 62,340 Sunoco 189 6,993 Total 337,936 Energy equipment & services (0.3%) BJ Services 408(b) 13,974 Nabors Inds 384(b,c) 13,747 Total 27,721 Finance companies (0.5%) MGIC Investment 714 39,627 Financial services (3.0%) Capital One Financial 248 11,882 Countrywide Financial 574 38,349 Fannie Mae 704 45,084 Freddie Mac 431 21,054 Janus Capital Group 1,296 22,680 Moody's 341 17,637 Providian Financial 2,457(b) 23,710 SLM 1,959 81,220 Total 261,616 Food (0.9%) General Mills 215 9,862 Sara Lee 1,775 33,175 Sysco 1,265 38,114 Total 81,151 Furniture & appliances (0.2%) Black & Decker 212 8,662 Whirlpool 190 12,309 Total 20,971 Health care products (21.3%) Abbott Laboratories 1,128 44,274 Amgen 6,448(b) 448,652 Biomet 917 27,152 Boston Scientific 1,681(b) 106,290 Bristol-Myers Squibb 3,023 79,203 Chiron 356(b) 16,234 Forest Laboratories 1,275(b) 61,047 Genzyme-General Division 1,227(b) 61,890 Guidant 1,250 59,025 MedImmune 1,274(b) 49,928 Medtronic 1,376 70,864 Merck & Co 8,873 490,498 PerkinElmer 908 13,493 Pfizer 4,699 156,759 Schering-Plough 1,348 22,889 St. Jude Medical 807(b) 43,296 Stryker 697 53,334 Waters 330(b) 10,464 Watson Pharmaceuticals 344(b) 13,739 Total 1,829,031 Health care services (2.9%) Aetna 223 13,741 AmerisourceBergen 141 8,896 Cardinal Health 272 14,892 HCA 1,350 47,588 Manor Care 216 6,156 Tenet Healthcare 2,603(b) 35,869 UnitedHealth Group 1,706 88,866 WellPoint Health Networks 413(b) 34,547 Total 250,555 Home building (1.2%) Centex 669 48,550 KB HOME 456 25,814 Pulte Homes 434 26,526 Total 100,890 Household products (1.1%) Avon Products 145 9,047 Colgate-Palmolive 1,034 56,456 Kimberly-Clark 621 30,056 Total 95,559 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 8 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Industrial transportation (0.1%) Burlington Northern Santa Fe 305 $8,406 Insurance (4.1%) AFLAC 838 26,883 Allstate 1,153 43,849 Aon 851 20,467 CIGNA 650 30,407 Jefferson-Pilot 353 15,532 John Hancock Financial Services 221 7,216 Lincoln Natl 430 16,056 Loews 1,332 61,271 MBIA 156 7,897 MetLife 1,970 54,608 Progressive 353 23,277 SAFECO 392 14,594 Torchmark 178 7,234 UnumProvident 1,429 19,406 Total 348,697 Leisure time & entertainment (0.1%) Viacom Cl B 271(b) 11,794 Lodging & gaming (0.3%) Intl Game Technology 993 25,272 Machinery (0.1%) Thermo Electron 334(b) 7,432 Media (4.9%) Cendant 2,778(b) 49,865 eBay 2,169(b) 232,517 Gannett 563 43,255 New York Times Cl A 339 15,119 Yahoo! 2,698(b) 83,989 Total 424,745 Metals (0.2%) Freeport McMoRan Cooper & Gold Cl B 440 11,788 Phelps Dodge 121(b) 5,105 Total 16,893 Multi-industry (4.5%) 3M 111 15,562 Apollo Group Cl A 688(b) 44,555 Eastman Kodak 1,326 36,637 General Electric 4,401 125,165 Tyco Intl 8,640(c) 160,704 Total 382,623 Paper & packaging (0.2%) Sealed Air 368(b) 17,565 Precious metals (0.3%) Newmont Mining 650 23,465 Real estate investment trust (0.4%) Equity Office Properties Trust 558 15,478 Simon Property Group 311 13,171 Starwood Hotels & Resorts Worldwide 236 7,694 Total 36,343 Restaurants (0.2%) Starbucks 689(b) 18,830 Retail -- general (2.5%) Best Buy 1,202(b) 52,467 Federated Dept Stores 461 18,445 Home Depot 1,408 43,930 Penney (JC) 443 8,231 Sears, Roebuck & Co 1,912 77,818 Toys "R" Us 888(b) 9,901 Total 210,792 Retail -- grocery (0.7%) Kroger 1,164(b) 19,730 Safeway 1,672(b) 35,697 SUPERVALU 268 6,311 Total 61,738 Telecom equipment & services (1.8%) ADC Telecom 3,618(b) 7,887 JDS Uniphase 7,207(b) 21,693 Lucent Technologies 3,753(b) 6,605 QUALCOMM 2,540 95,149 Scientific-Atlanta 342 10,359 Tellabs 1,403(b) 9,442 Total 151,135 Textiles & apparel (0.2%) Nike Cl B 266 13,763 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 9 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Utilities -- electric (6.0%) American Electric Power 563 $15,798 CenterPoint Energy 8,317 67,118 Constellation Energy Group 646 21,576 DTE Energy 290 10,356 Duke Energy 909 15,953 Edison Intl 2,837(b) 46,555 Exelon 647 37,183 FirstEnergy 186 6,415 FPL Group 271 16,713 PG&E 4,709(b) 101,008 Pinnacle West Capital 231 7,928 PPL 357 14,134 Public Service Enterprise Group 655 26,691 Southern Co 1,617 45,987 TECO Energy 1,305 16,182 TXU 1,203 24,265 Xcel Energy 3,142 45,496 Total 519,358 Utilities -- natural gas (0.6%) Kinder Morgan 497 26,589 Sempra Energy 784 21,819 Total 48,408 Utilities -- telephone (3.6%) ALLTEL 546 25,547 AT&T 4,727 100,495 BellSouth 1,568 39,937 Citizens Communications 1,596(b) 18,913 Qwest Communications Intl 2,535(b) 10,115 SBC Communications 1,611 37,633 Sprint (FON Group) 5,399 76,234 Total 308,874 Total common stocks (Cost: $8,158,141) $8,526,606 Short-term securities (11.6%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agency Federal Natl Mtge Assn Disc Nts 08-15-03 0.98% $500,000 $499,796 10-15-03 1.06 500,000 498,886 Total short-term securities (Cost: $998,711) $998,682 Total investments in securities (Cost: $9,156,852)(d) $9,525,288 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, 2003, the value of foreign securities represented 2.0% of net assets. (d) At July 31, 2003, the cost of securities for federal income tax purposes was $9,157,434 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 497,311 Unrealized depreciation (129,457) -------- Net unrealized appreciation $ 367,854 --------- -------------------------------------------------------------------------------- 10 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Quantitative Large Cap Equity Fund July 31, 2003 Assets Investments in securities, at value (Note 1) (identified cost $9,156,852) $9,525,288 Capital shares receivable 14,180 Dividends and accrued interest receivable 9,387 Receivable for investment securities sold 439,141 ------- Total assets 9,987,996 --------- Liabilities Disbursements in excess of cash on demand deposit 8,144 Payable for investment securities purchased 1,342,456 Accrued investment management services fee 141 Accrued distribution fee 80 Accrued transfer agency fee 23 Accrued administrative services fee 12 Other accrued expenses 54,452 ------ Total liabilities 1,405,308 --------- Net assets applicable to outstanding capital stock $8,582,688 ========== Represented by Capital stock -- $.01 par value (Note 1) $ 15,785 Additional paid-in capital 8,077,538 Undistributed net investment income 15,388 Accumulated net realized gain (loss) 105,541 Unrealized appreciation (depreciation) on investments 368,436 ------- Total -- representing net assets applicable to outstanding capital stock $8,582,688 ========== Net assets applicable to outstanding shares: Class A $7,539,431 Class B $ 961,510 Class C $ 60,870 Class Y $ 20,877 Net asset value per share of outstanding capital stock: Class A shares 1,386,347 $ 5.44 Class B shares 177,153 $ 5.43 Class C shares 11,214 $ 5.43 Class Y shares 3,834 $ 5.45 ----- ----------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 11 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Statement of operations AXP Quantitative Large Cap Equity Fund For the period from April 24, 2003* to July 31, 2003 Investment income Income: Dividends $ 36,655 Interest 1,302 ----- Total income 37,957 ------ Expenses (Note 2): Investment management services fee 11,265 Distribution fee Class A 4,331 Class B 1,458 Class C 84 Transfer agency fee 1,114 Incremental transfer agency fee Class A 86 Class B 52 Class C 5 Service fee -- Class Y 4 Administrative services fees and expenses 939 Custodian fees 19,600 Printing and postage 10,000 Registration fees 76,460 Audit fees 15,500 Other 2,986 ----- Total expenses 143,884 Expenses waived/reimbursed by AEFC (Note 2) (119,460) -------- 24,424 Earnings credits on cash balances (Note 2) (491) ---- Total net expenses 23,933 ------ Investment income (loss) -- net 14,024 ------ Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 88,880 Futures contracts 16,525 ------ Net realized gain (loss) on investments 105,405 Net change in unrealized appreciation (depreciation) on investments 368,601 ------- Net gain (loss) on investments 474,006 ------- Net increase (decrease) in net assets resulting from operations $ 488,030 =========
* When shares became publicly available. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 12 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Statement of changes in net assets AXP Quantitative Large Cap Equity Fund For the period from April 24, 2003* to July 31, 2003 Operations Investment income (loss) -- net $ 14,024 Net realized gain (loss) on investments 105,405 Net change in unrealized appreciation (depreciation) on investments 368,601 ------- Net increase (decrease) in net assets resulting from operations 488,030 ------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 2,122,213 Class B shares 985,940 Class C shares 49,247 Class Y shares 10,000 Payments for redemptions Class A shares (18,491) Class B shares (Note 2) (53,851) ------- Increase (decrease) in net assets from capital share transactions 3,095,058 --------- Total increase (decrease) in net assets 3,583,088 Net assets at beginning of period (Note 1) 4,999,600** --------- Net assets at end of period $8,582,688 ========== Undistributed net investment income $ 15,388 ----------
* When shares became publicly available. ** Initial capital of $5,000,000 was contributed on April 17, 2003. The Fund had a decrease in net assets resulting from operations of $400 during the period from April 17, 2003 to April 24, 2003 (when shares became publicly available). See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Notes to Financial Statements AXP Quantitative Large Cap Equity Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund invests primarily in equity securities of companies listed on U.S. exchanges with market capitalizations greater than $5 billion at the time of purchase. On April 17, 2003, American Express Financial Corporation (AEFC) invested $5,000,000 in the Fund which represented 994,000 shares for Class A, 2,000 shares for Class B, Class C and Class Y, respectively, which represented the initial capital for each class at $5 per share. Shares of the Fund were first offered to the public on April 24, 2003. As of July 31, 2003, AEFC owned approximately 63% of the Fund. 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. The Fund's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. -------------------------------------------------------------------------------- 14 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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 Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. -------------------------------------------------------------------------------- 15 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. -------------------------------------------------------------------------------- 16 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $1,599 and accumulated net realized gain has been increased by $136 resulting in a net reclassification adjustment to decrease paid-in capital by $1,735. For the period from April 24, 2003* to July 31, 2003 Class A Distributions paid from: Ordinary income $-- Long-term capital gain -- Class B Distributions paid from: Ordinary income -- Long-term capital gain -- Class C Distributions paid from: Ordinary income -- Long-term capital gain -- Class Y Distributions paid from: Ordinary income -- Long-term capital gain -- * When shares became publicly available. As of July 31, 2003, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $111,460 Accumulated long-term gain (loss) $ 10,051 Unrealized appreciation (depreciation) $367,854 Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium and discount using the effective interest method, is accrued daily. -------------------------------------------------------------------------------- 17 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The first adjustment will be made on Nov. 1, 2003 and will cover the six-month period beginning May 1, 2003. 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 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 $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 Under terms of a prior agreement that ended April 30, 2003, the Fund paid a transfer agency fee at an annual rate per shareholder account of $19 for Class A, $20 for Class B, $19.50 for Class C and $17 for Class Y. In addition, there is an annual closed-account fee of $5 per inactive account, charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system generally within one year. The Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $15,207 for Class A for the period ended July 31, 2003. -------------------------------------------------------------------------------- 18 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT For the period ended July 31, 2003, AEFC and American Express Financial Advisors Inc. waived certain fees and expenses to 1.22% for Class A, 2.01% for Class B, 2.01% for Class C and 1.01% for Class Y. In addition, AEFC and American Express Financial Advisors Inc. have agreed to waive certain fees and expenses until July 31, 2004. Under this agreement, total expenses will not exceed 1.25% for Class A, 2.04% for Class B, 2.06% for Class C and 1.06% for Class Y of the Fund's average daily net assets. During the period ended July 31, 2003, the Fund's custodian and transfer agency fees were reduced by $491 as a result of earnings credits from overnight cash balances. The Fund also pays custodian fees to American Express Trust Company, an affiliate of AEFC. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $9,197,653 and $1,128,346 respectively, for the period ended July 31, 2003. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the period from April 24, 2003* to July 31, 2003 are as follows:
Class A Class B Class C Class Y Sold 395,711 184,979 9,214 1,834 Issued for reinvested distributions -- -- -- -- Redeemed (3,364) (9,826) -- -- ------- ------- ----- ----- Net increase (decrease) 392,347 175,153 9,214 1,834 ------- ------- ----- -----
* When shares became publicly available. 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. The Fund had no borrowings outstanding during the period ended July 31, 2003. -------------------------------------------------------------------------------- 19 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 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, 2003(b) Net asset value, beginning of period $5.00 Income from investment operations: Net investment income (loss) .01 Net gains (losses) (both realized and unrealized) .43 Total from investment operations .44 Net asset value, end of period $5.44 Ratios/supplemental data Net assets, end of period (in millions) $8 Ratio of expenses to average daily net assets(c),(e) 1.22%(d) Ratio of net investment income (loss) to average daily net assets .81%(d) Portfolio turnover rate (excluding short-term securities) 17% Total return(i) 8.80%(j) Class B Per share income and capital changes(a) Fiscal period ended July 31, 2003(b) Net asset value, beginning of period $5.00 Income from investment operations: Net gains (losses) (both realized and unrealized) .43 Net asset value, end of period $5.43 Ratios/supplemental data Net assets, end of period (in millions) $1 Ratio of expenses to average daily net assets(c),(f) 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.08%)(d) Portfolio turnover rate (excluding short-term securities) 17% Total return(i) 8.60%(j) See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 20 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Class C Per share income and capital changes(a) Fiscal period ended July 31, 2003(b) Net asset value, beginning of period $5.00 Income from investment operations: Net gains (losses) (both realized and unrealized) .43 Net asset value, end of period $5.43 Ratios/supplemental data Net assets, end of period (in millions) $-- Ratio of expenses to average daily net assets(c),(g) 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.05%)(d) Portfolio turnover rate (excluding short-term securities) 17% Total return(i) 8.60%(j) Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2003(b) Net asset value, beginning of period $5.00 Income from investment operations: Net investment income (loss) .01 Net gains (losses) (both realized and unrealized) .44 Total from investment operations .45 Net asset value, end of period $5.45 Ratios/supplemental data Net assets, end of period (in millions) $-- Ratio of expenses to average daily net assets(c),(h) 1.01%(d) Ratio of net investment income (loss) to average daily net assets .90%(d) Portfolio turnover rate (excluding short-term securities) 17% Total return(i) 9.00%(j) See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 21 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Notes to financial highlights (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses for Class A would have been 7.39% for the period ended July 31, 2003. (f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses for Class B would have been 8.18% for the period ended July 31, 2003. (g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses for Class C would have been 8.20% for the period ended July 31, 2003. (h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses for Class Y would have been 7.20% for the period ended July 31, 2003. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. -------------------------------------------------------------------------------- 22 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT Independent Auditors' Report THE BOARD AND SHAREHOLDERS AXP GROWTH SERIES, INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of AXP Quantitative Large Cap Equity Fund (a series of AXP Growth Series, Inc.) as of July 31, 2003, and the related statements of operations, changes in net assets and the financial highlights for the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audit. We conducted our audit 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. Our procedures included confirmation of securities owned as of July 31, 2003, 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Quantitative Large Cap Equity Fund as of July 31, 2003, and the results of its operations, changes in its net assets and the financial highlights for the period stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota September 12, 2003 -------------------------------------------------------------------------------- 23 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 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 83 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service ---------------------------------- ------------------ ------------------------------------- --------------------------------- Arne H. Carlson Board member Chair, Board Services Corporation 901 S. Marquette Ave. since 1999 (provides administrative services Minneapolis, MN 55402 to boards). Former Governor of Age 68 Minnesota ---------------------------------- ------------------ ------------------------------------- --------------------------------- Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan 901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc. Minneapolis, MN 55402 construction) since 1998 (construction Age 65 materials/chemicals) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated 30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and Suite 3050 Mining and Manufacturing (3M) processors), General Mills, St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan Age 69 Materials Company (construction materials/ chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. ---------------------------------- ------------------ ------------------------------------- --------------------------------- Heinz F. Hutter* Board member Retired President and Chief 901 S. Marquette Ave. since 1994 Operating Officer, Cargill, Minneapolis, MN 55402 Incorporated (commodity merchants Age 74 and processors) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 68 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 64 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont 901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken Minneapolis, MN 55402 equities) Energy Corporation (oil and gas Age 53 exploration) and SIRIT Inc. (radio frequency identification technology) ---------------------------------- ------------------ ------------------------------------- ---------------------------------
* Interested person of AXP Partners International Aggressive Growth Fund and AXP Partners Aggressive Growth Fund by reason of being a security holder of J P Morgan Chase & Co., which has a 45% interest in American Century Companies, Inc., the parent company of the subadviser of two of the AXP Partners Funds, American Century Investment Management, Inc. ** Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Liberty Wanger Asset Management, L.P., one of the fund's subadvisers. -------------------------------------------------------------------------------- 24 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Alan K. Simpson Board member Former three-term United States Biogen, Inc. 1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals) Cody, WY 82414 Age 71 --------------------------------- ------------------- ------------------------------------- --------------------------------- Alison Taunton-Rigby Board member President, Forester Biotech since 901 S. Marquette Ave. since 2002 2000. Former President and CEO, Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc. Age 59 --------------------------------- ------------------- ------------------------------------- --------------------------------- Board Members Affiliated with AEFC*** Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Barbara H. Fraser Board member Executive Vice President - AEFA 1546 AXP Financial Center since 2002 Products and Corporate Marketing of Minneapolis, MN 55474 AEFC since 2002. President - Age 53 Travelers Check Group, American Express Company, 2001-2002. Management Consultant, Reuters, 2000-2001. Managing Director - International Investments, Citibank Global, 1999-2000. Chairman and CEO, Citicorp Investment Services and Citigroup Insurance Group, U.S., 1998-1999 --------------------------------- ------------------- ------------------------------------- --------------------------------- Stephen W. Roszell Board member Senior Vice President - 50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC Minneapolis, MN 55474 President since Age 54 2002 --------------------------------- ------------------- ------------------------------------- --------------------------------- William F. Truscott Board member Senior Vice President - Chief 53600 AXP Financial Center since 2001, Vice Investment Officer of AEFC since Minneapolis, MN 55474 President since 2001. Former Chief Investment Age 42 2002 Officer and Managing Director, Zurich Scudder Investments --------------------------------- ------------------- ------------------------------------- ---------------------------------
*** Interested person by reason of being an officer, director and/or employee of AEFC. -------------------------------------------------------------------------------- 25 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Roszell, who is vice president, and Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Jeffrey P. Fox Treasurer since Vice President - Investment 50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice Minneapolis, MN 55474 President - Finance, American Age 48 Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Paula R. Meyer President since Senior Vice President and General 596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since Minneapolis, MN 55474 2002; Vice President and Managing Age 49 Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Leslie L. Ogg Vice President, President of Board Services 901 S. Marquette Ave. General Counsel, Corporation Minneapolis, MN 55402 and Secretary Age 64 since 1978 --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. -------------------------------------------------------------------------------- 26 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT The policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities can be found in the Fund's Statement of Additional Information (SAI) which is available (i) without charge, upon request, by calling toll-free (800) 862-7919; (ii) on the American Express Company Web site at americanexpress.com/funds; and (iii) on the Securities and Exchange Commission Web site at http://www.sec.gov. -------------------------------------------------------------------------------- (logo) AMERICAN EXPRESS(R) -------------------------------------------------------------------------------- American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Research Opportunities Fund Annual Report for the Period Ended July 31, 2003 AXP Research Opportunities Fund seeks to provide shareholders with long-term capital growth. -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) -------------------------------------------------------------------------------- Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 The Fund's Long-term Performance 7 Investments in Securities 8 Financial Statements (Portfolio) 11 Notes to Financial Statements (Portfolio) 13 Independent Auditors' Report (Portfolio) 17 Financial Statements (Fund) 18 Notes to Financial Statements (Fund) 21 Independent Auditors' Report (Fund) 28 Board Members and Officers 29 (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. -------------------------------------------------------------------------------- 2 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Fund Snapshot AS OF JULY 31, 2003 PORTFOLIO MANAGERS Portfolio manager Joan Kampmeyer, CFA Since 1/02 Years in industry 17 Portfolio manager Tom Mahowald, CFA Since 6/02 Years in industry 13 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 $240.7 million Number of holdings 107 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Financials 20.7% Technology 17.6% Health care 13.7% Consumer discretionary 13.5% Industrials 10.7% Consumer staples 8.1% Energy 5.3% Telecommunications 3.7% Short-term securities 2.6% Utilities 2.4% Materials 1.7% TOP TEN HOLDINGS Percentage of portfolio assets Microsoft (Computer software & services) 4.5% General Electric (Multi-industry) 3.8 Citigroup (Finance companies) 3.5 Pfizer (Health care) 3.1 Wal-Mart Stores (Retail-general) 2.9 Bank of America (Banks and savings & loans) 2.5 Wells Fargo (Banks and savings & loans) 2.4 Intel (Electronics) 2.1 Amgen (Health care products) 1.8 Altria Group (Beverages & tobacco) 1.8 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Stock prices of established companies that pay dividends may be less volatile than the stock market as a whole. Fund holdings are subject to change. -------------------------------------------------------------------------------- 3 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Q: How did AXP Research Opportunities Fund perform in fiscal year 2003? A: AXP Research Opportunities Fund's Class A shares, excluding sales charge, gained 6.41% for the 12 months ended July 31, 2003. In comparison, the S&P 500 Index increased 10.64% while the Lipper Large-Cap Core Funds Index, representing the Fund's peer group, rose 8.63% over the same period. Q: What factors most significantly affected Fund performance during the annual period? A: After several difficult years for the U.S. equity markets, we are pleased to report a positive return. However, the Fund did not achieve its goal this past year largely due to stock selection. The Fund held relatively conservative stocks that did not rally as much as more aggressive, high-risk stocks amid an equity rebound that began last fall. In addition, the Fund emphasized large-capitalization stocks in an environment in which small- and medium-capitalization stocks performed better. The Fund's holdings in banks, telecom services and equipment, and computer-related stocks also hurt performance. Several stocks that were especially weak included TXU Corp., Tenet Healthcare and Baxter International. We did have a number of successes. Selected retailing, pharmaceutical and electric utility stocks boosted performance. In terms of specific stocks, medical device maker Boston Scientific rose on strong anticipated demand for the company's drug-coated stents. After a two-year slump in demand, KLA-Tencor, a semiconductor equipment company, benefited from increased orders. Also, eBay was up dramatically on stellar earnings and market share gains in the online auction market. (bar chart) PERFORMANCE COMPARISON For the period ended July 31, 2003 12% (bar 2) +10.64% 10% (bar 3) +8.63% 8% (bar 1) 6% +6.41% 4% 2% 0% (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 expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. -------------------------------------------------------------------------------- 4 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Questions & Answers (begin callout quote)> The Fund held relatively conservative stocks that did not rally as much as more aggressive high risk stocks. (end callout quote) Q: What changes did you make to the portfolio and how is it currently positioned? A: Most of the changes that occur in the Fund are the result of adjustments in how stocks are rated by our in-house research analysts. We eliminated foreign-based holdings, consistent with the changes in the S&P 500 Index. This effectively trimmed the Fund's energy position. We initiated positions in several health care stocks, including medical device makers and health maintenance organizations, based on improving fundamentals. We purchased media stocks to gain exposure to a recovering advertising market. We added personal computer hardware and storage stocks, as technology demand showed signs of improvement.
AVERAGE ANNUAL TOTAL RETURNS as of July 31, 2003 Class A Class B Class C Class Y (Inception dates) (8/19/96) (8/19/96) (6/26/00) (8/19/96) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) 1 year +6.41% +0.29% +5.69% +1.69% +5.96% +5.96% +6.87% +6.87% 5 years -3.89% -5.02% -4.63% -4.76% N/A N/A -3.70% -3.70% Since inception +3.24% +2.37% +2.46% +2.46% -14.61% -14.61% +3.44% +3.44%
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. 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/funds for current information. -------------------------------------------------------------------------------- 5 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Questions & Answers During the second half of the fiscal year, we reduced the number of Fund holdings in order to increase the Fund's exposure to selected stocks. We also added a small number of non-S&P 500 Index stocks that were among our research analysts' favorite ideas. Finally, we shifted a portion of Fund assets within our biggest large-capitalization holdings to several small-capitalization stocks in an effort to take advantage of anticipated strong performance in those names. For the 12 months ended July 31, 2003, we reduced the Fund's portfolio turnover to levels significantly below last year's. At the end of the fiscal year, the Fund had 107 holdings representing a broad cross section of growth and value stocks. The Fund had meaningful exposure to health care products and services companies and industrial conglomerates. By contrast, the Fund had limited exposure to pharmaceutical stocks due to political risks and had no exposure to telecommunications equipment and chemical stocks. Q: How do you intend to manage the Fund in the coming months? A: We are optimistic about the U.S. equity market because there are definite signs of an economic upturn. Corporate earnings have in turn been improving. Interest rates are low. There has been a huge amount of fiscal and monetary stimulus pumped into the economy. Mergers and acquisition activity has revived. Equity valuations, while not at historic lows as measured by price-to-earnings ratios, are currently more attractive than in recent years. Of course, risk always exists. Investors will likely be paying close attention to employment trends, commodity prices, geopolitical events, currencies and inflation in the coming months. Our focus will remain on seeking long-term growth of capital. We intend to continue to position the Fund in stocks that we believe offer the best potential over the long term while maintaining sector weights similar to the S&P 500 Index. As we emphasize individual stock selection, our research analysts carefully seek solid companies that are innovators and industry leaders with stable to improving fundamentals, strong management teams, superior growth potential and attractive stock valuations. -------------------------------------------------------------------------------- 6 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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 7/31/03) as compared to the performance of two widely cited performance indices, the S&P 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 chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP RESEARCH OPPORTUNITIES FUND $26,000 $19,500 (dotted line) S&P 500 Index(1) $13,000 (dashed line) Lipper Large-Cap Core Funds Index(2) (solid line) AXP Research Opportunities Fund Class A $6,500 9/1/96 7/97 7/98 7/99 7/00 7/01 7/02 7/03 (solid line) AXP Large Cap Equity Fund Class A $11,764 (dotted line) S&P 500 Index(1) $16,850 (dashed line) Lipper Large-Cap Core Funds Index(2) $15,621 (1) 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, 2003 1 year +0.29% 5 years -5.02% Since inception (8/19/96) +2.37% Results for other share classes can be found on page 5. -------------------------------------------------------------------------------- 7 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Investments in Securities Aggressive Growth Portfolio July 31, 2003 (Percentages represent value of investments compared to net assets) Common stocks (96.9%) Issuer Shares Value(a) Aerospace & defense (2.3%) Lockheed Martin 50,100 $2,622,234 Northrop Grumman 18,500 1,706,440 United Technologies 14,700 1,105,881 Total 5,434,555 Automotive & related (0.6%) Johnson Controls 14,500 1,400,845 Banks and savings & loans (7.8%) Bank of America 71,800 5,928,526 KeyCorp 47,300 1,272,843 TCF Financial 36,100 1,647,965 U.S. Bancorp 174,300 4,273,836 Wells Fargo 112,500 5,684,625 Total 18,807,795 Beverages & tobacco (3.4%) Altria Group 106,900 4,277,069 PepsiCo 85,800 3,952,806 Total 8,229,875 Broker dealers (1.3%) Merrill Lynch 36,100 1,962,757 Morgan Stanley 25,900 1,228,696 Total 3,191,453 Cable (0.4%) Comcast CL A 29,600(b) 897,472 Cellular telecommunications (0.7%) Vodafone Group ADR 89,600(c) 1,700,608 Computer hardware (2.8%) Dell Computer 88,500(b) 2,980,680 EMC 57,000(b) 606,480 Hewlett-Packard 151,400 3,205,138 Total 6,792,298 Computer software & services (9.4%) Adobe Systems 37,500 1,225,500 Autodesk 110,100 1,647,096 Electronic Arts 33,600(b,e) 2,822,400 Fiserv 38,200(b) 1,491,328 Intl Business Machines 43,700 3,550,625 Microsoft 405,000 10,692,000 SunGard Data Systems 47,900(b) 1,256,896 Total 22,685,845 Electronics (5.3%) Applied Materials 46,500(b) 906,750 Flextronics Intl 113,200(b,c) 1,245,200 Intel 200,300 4,997,485 Jabil Circuit 53,500(b) 1,233,175 KLA-Tencor 22,900(b) 1,182,785 Linear Technology 24,400(e) 899,872 Maxim Integrated Products 17,500 683,900 Novellus Systems 41,700(b) 1,493,277 Total 12,642,444 Energy (3.6%) Apache 23,325 1,445,217 BP ADR 102,500(c) 4,258,875 ChevronTexaco 41,900 3,021,409 Total 8,725,501 Energy equipment & services (1.6%) Nabors Inds 37,400(b,c) 1,338,920 Schlumberger 28,700 1,293,509 Weatherford Intl 33,800(b) 1,225,926 Total 3,858,355 Finance companies (3.4%) Citigroup 185,100 8,292,480 Financial services (2.8%) Capital One Financial 41,000 1,964,310 Fannie Mae 33,800 2,164,552 MBNA 115,850 2,582,297 Total 6,711,159 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 8 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Food (1.3%) Dean Foods 39,900(b) $1,194,207 Kellogg 53,200 1,826,356 Total 3,020,563 Health care products (9.7%) Amgen 62,100(b) 4,320,918 Baxter Intl 71,900 1,985,159 Boston Scientific 35,700(b) 2,257,311 Johnson & Johnson 63,400 3,283,486 Medtronic 46,500 2,394,750 Pfizer 220,000 7,339,199 St. Jude Medical 31,500(b) 1,689,975 Total 23,270,798 Health care services (4.0%) Aetna 29,500 1,817,790 Anthem 23,000(b) 1,736,730 Cardinal Health 28,500 1,560,375 Patterson Dental 27,100(b) 1,449,850 UnitedHealth Group 45,800 2,385,722 WellPoint Health Networks 8,600(b) 719,390 Total 9,669,857 Household products (2.7%) Colgate-Palmolive 22,100 1,206,660 Kimberly-Clark 46,900 2,269,960 Procter & Gamble 35,300 3,101,811 Total 6,578,431 Industrial transportation (0.3%) Union Pacific 9,900 603,306 Insurance (5.2%) AFLAC 79,100 2,537,528 Aon 47,900 1,151,995 Lincoln Natl 34,100 1,273,294 Marsh & McLennan 14,200 704,604 Montpelier Re Holdings 40,600(b,c) 1,306,914 Principal Financial Group 36,500 1,189,900 St. Paul Companies 38,300 1,347,011 UnumProvident 108,400 1,472,072 XL Capital Cl A 18,700(c) 1,486,650 Total 12,469,968 Leisure time & entertainment (1.7%) Viacom Cl B 93,100(b) 4,051,712 Machinery (2.0%) Caterpillar 43,700 2,948,439 Illinois Tool Works 27,800 1,936,270 Total 4,884,709 Media (3.8%) Cendant 114,900(b) 2,062,455 Clear Channel Communications 58,100(b) 2,379,195 eBay 9,200(b) 986,240 Knight-Ridder 36,000 2,470,680 Univision Communications Cl A 39,900(b) 1,244,880 Total 9,143,450 Metals (1.3%) Alcoa 92,700 2,574,279 Phelps Dodge 14,300(b) 603,317 Total 3,177,596 Multi-industry (6.1%) 3M 20,800 2,916,160 Danaher 19,700 1,422,340 General Electric 316,000 8,987,040 Tyco Intl 75,500(c) 1,404,300 Total 14,729,840 Paper & packaging (0.4%) Intl Paper 22,000 860,640 Restaurants (1.0%) Darden Restaurants 77,700 1,453,767 Starbucks 38,600(b) 1,054,938 Total 2,508,705 Retail -- general (6.0%) Best Buy 39,950(b) 1,743,818 Family Dollar Stores 17,300 648,923 Lowe's Companies 65,800 3,129,448 Target 50,900 1,950,488 Wal-Mart Stores 123,800 6,921,658 Total 14,394,335 Retail -- grocery (0.6%) SUPERVALU 65,800 1,549,590 Telecom equipment & services (1.1%) Corning 140,500(b) 1,143,670 Nokia ADR 104,600(c) 1,600,380 Total 2,744,050 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 9 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Utilities -- electric (2.4%) Dominion Resources 44,400 $2,668,440 Exelon 35,100 2,017,197 Public Service Enterprise Group 28,200 1,149,150 Total 5,834,787 Utilities -- telephone (1.9%) BellSouth 31,900 812,493 Verizon Communications 106,700 3,719,562 Total 4,532,055 Total common stocks (Cost: $234,146,731) $233,395,077 Short-term securities (2.6%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agency (2.0%) Federal Natl Mtge Assn Disc Nts 09-30-03 1.04% $1,800,000 $1,796,940 10-01-03 0.97 1,000,000 998,255 10-15-03 1.00 800,000 798,283 10-22-03 1.00 500,000 498,827 10-29-03 1.06 800,000 797,963 Total 4,890,268 Commercial paper (0.5%) Barton Capital 08-01-03 1.12 1,300,000(d) 1,299,960 Total short-term securities (Cost: $6,190,343) $6,190,228 Total investments in securities (Cost: $240,337,074)(f) $239,585,305 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, 2003, the value of foreign securities represented 6.0% 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, 2003, securities valued at $1,796,800 were held to cover open call options written as follows (see Note 4 to the financial statements): Issuer Contracts Exercise Expiration Value(a) price date Electronic Arts 170 $90.00 Sept. 2003 $29,750 Linear Technology 100 40.00 Aug. 2003 2,000 ------- Total value $31,750 ------- (f) At July 31, 2003, the cost of securities for federal income tax purposes was $241,649,455 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 15,970,753 Unrealized depreciation (18,034,903) ----------- Net unrealized depreciation $ (2,064,150) ------------ -------------------------------------------------------------------------------- 10 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Financial Statements
Statement of assets and liabilities Aggressive Growth Portfolio July 31, 2003 Assets Investments in securities, at value (Note 1) (identified cost $240,337,074) $239,585,305 Dividends and accrued interest receivable 216,950 Receivable for investment securities sold 3,306,688 --------- Total assets 243,108,943 ----------- Liabilities Disbursements in excess of cash on demand deposit 14,991 Payable for investment securities purchased 2,166,574 Accrued investment management services fee 4,291 Other accrued expenses 22,608 Options contracts written, at value (premiums received $25,579) (Note 4) 31,750 ------ Total liabilities 2,240,214 --------- Net assets $240,868,729 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 11 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Statement of operations Aggressive Growth Portfolio Year ended July 31, 2003 Investment income Income: Dividends $ 4,459,453 Interest 100,218 Fee income from securities lending (Note 3) 114 --- Total income 4,559,785 --------- Expenses (Note 2): Investment management services fee 1,484,028 Compensation of board members 8,383 Custodian fees 23,204 Audit fees 21,000 Other 7,032 ----- Total expenses 1,543,647 Earnings credits on cash balances (Note 2) (7) -- Total net expenses 1,543,640 --------- Investment income (loss) -- net 3,016,145 --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (54,102,469) Options contracts written (Note 4) 14,289 ------ Net realized gain (loss) on investments (54,088,180) Net change in unrealized appreciation (depreciation) on investments 65,040,858 ---------- Net gain (loss) on investments 10,952,678 ---------- Net increase (decrease) in net assets resulting from operations $ 13,968,823 ============
Statements of changes in net assets Aggressive Growth Portfolio Year ended July 31, 2003 2002 Operations Investment income (loss) -- net $ 3,016,145 $ 3,496,349 Net realized gain (loss) on investments (54,088,180) (113,496,294) Net change in unrealized appreciation (depreciation) on investments 65,040,858 (28,602,926) ---------- ----------- Net increase (decrease) in net assets resulting from operations 13,968,823 (138,602,871) ---------- ------------ Proceeds from contributions 280,192 4,397,176 Fair value of withdrawals (82,264,696) (157,127,612) ----------- ------------ Net contributions (withdrawals) from partners (81,984,504) (152,730,436) ----------- ------------ Total increase (decrease) in net assets (68,015,681) (291,333,307) Net assets at beginning of year 308,884,410 600,217,717 ----------- ----------- Net assets at end of year $240,868,729 $ 308,884,410 ============ =============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 12 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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. -------------------------------------------------------------------------------- 13 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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. -------------------------------------------------------------------------------- 14 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium and discount using the effective interest method, is accrued daily. 2. FEES AND EXPENSES The Trust on behalf of the Portfolio, has an Investment Management Services Agreement with 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. Prior to Dec.1, 2002, the maximum adjustment was 0.12% of the Portfolio's average daily net assets after deducting 1% from the performance difference. If the performance difference was less than 1%, the adjustment was zero. On Nov. 13, 2002, shareholders approved modification of the performance incentive adjustment calculation by adjusting the performance difference intervals, while retaining the previous maximum adjustment and reducing the amount of the performance difference for which no adjustment is made to 0.50%. The effect of the modifications began Dec. 1, 2002. The adjustment decreased the fee by $181,188 for the year ended July 31, 2003. 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, 2003, the Portfolio's custodian fees were reduced by $7 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. -------------------------------------------------------------------------------- 15 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $205,274,935 and $281,945,714, respectively, for the year ended July 31, 2003. For the same period, the portfolio turnover rate was 82%. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $46,054 for the year ended July 31, 2003. Income from securities lending amounted to $114 for the year ended July 31, 2003. 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. 4. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows: Year ended July 31, 2003 Calls Contracts Premiums Balance July 31, 2002 -- $ -- Opened 764 88,434 Closed -- -- Exercised (264) (48,566) Expired (230) (14,289) ---- ------- Balance July 31, 2003 270 $ 25,579 --- -------- See "Summary of significant accounting policies." -------------------------------------------------------------------------------- 16 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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, 2003, 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, 2003. 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, 2003, 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, 2003, 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 12, 2003 -------------------------------------------------------------------------------- 17 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Research Opportunities Fund July 31, 2003 Assets Investment in Portfolio (Note 1) $ 240,807,347 Capital shares receivable 933 --- Total assets 240,808,280 ----------- Liabilities Capital shares payable 31,155 Accrued distribution fee 3,530 Accrued transfer agency fee 1,852 Accrued administrative services fee 395 Other accrued expenses 68,280 ------ Total liabilities 105,212 ------- Net assets applicable to outstanding capital stock $ 240,703,068 ============= Represented by Capital stock -- $.01 par value (Note 1) $ 593,484 Additional paid-in capital 514,070,863 Undistributed net investment income 338,450 Accumulated net realized gain (loss) (Note 5) (273,542,013) Unrealized appreciation (depreciation) on investments (757,716) -------- Total -- representing net assets applicable to outstanding capital stock $ 240,703,068 ============= Net assets applicable to outstanding shares: Class A $ 149,101,302 Class B $ 91,325,311 Class C $ 275,194 Class Y $ 1,261 Net asset value per share of outstanding capital stock: Class A shares 35,889,959 $ 4.15 Class B shares 23,387,745 $ 3.90 Class C shares 70,413 $ 3.91 Class Y shares 300 $ 4.20 --- -------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 18 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Statement of operations AXP Research Opportunities Fund Year ended July 31, 2003 Investment income Income: Dividends $ 4,458,482 Interest 100,196 Fee income from securities lending 114 --- Total income 4,558,792 --------- Expenses (Note 2): Expenses allocated from Portfolio 1,543,302 Distribution fee Class A 392,605 Class B 990,618 Class C 2,630 Transfer agency fee 796,870 Incremental transfer agency fee Class A 55,639 Class B 55,748 Class C 146 Service fee -- Class Y 50 Administrative services fees and expenses 154,538 Compensation of board members 8,150 Printing and postage 179,445 Registration fees 30,250 Audit fees 7,000 Other 7,628 ----- Total expenses 4,224,619 Earnings credits on cash balances (Note 2) (4,277) ------ Total net expenses 4,220,342 --------- Investment income (loss) -- net 338,450 ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (54,095,224) Options contracts written 14,286 ------ Net realized gain (loss) on investments (54,080,938) Net change in unrealized appreciation (depreciation) on investments 65,030,053 ---------- Net gain (loss) on investments 10,949,115 ---------- Net increase (decrease) in net assets resulting from operations $ 11,287,565 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 19 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets AXP Research Opportunities Fund Year ended July 31, 2003 2002 Operations and distributions Investment income (loss) -- net $ 338,450 $ (700,665) Net realized gain (loss) on investments (54,080,938) (113,481,022) Net change in unrealized appreciation (depreciation) on investments 65,030,053 (28,596,657) ---------- ----------- Net increase (decrease) in net assets resulting from operations 11,287,565 (142,778,344) ---------- ------------ Distributions to shareholders from: Net investment income Class A -- (548,089) Class C -- (96) Class Y -- (693) ---------- ------------ Total distributions -- (548,878) ---------- ------------ Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 10,144,239 43,870,066 Class B shares 4,732,632 10,812,283 Class C shares 67,130 159,554 Class Y shares 4,652 9,017 Reinvestment of distributions at net asset value Class A shares -- 543,290 Class C shares -- 95 Class Y shares -- 689 Payments for redemptions Class A shares (57,637,339) (133,571,180) Class B shares (Note 2) (36,351,756) (69,710,542) Class C shares (Note 2) (91,096) (48,509) Class Y shares (198,402) (37,131) -------- ------- Increase (decrease) in net assets from capital share transactions (79,329,940) (147,972,368) ----------- ------------ Total increase (decrease) in net assets (68,042,375) (291,299,590) Net assets at beginning of year 308,745,443 600,045,033 ----------- ----------- Net assets at end of year $240,703,068 $ 308,745,443 ============ ============= Undistributed net investment income $ 338,450 $ -- ------------ -------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 20 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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, 2003, was 99.97%. 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. -------------------------------------------------------------------------------- 21 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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. The tax character of distributions paid for the years indicated is as follows: Year ended July 31, 2003 2002 Class A Distributions paid from: Ordinary income $-- $548,089 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- 96 Long-term capital gain -- -- Class Y Distributions paid from: Ordinary income -- 693 Long-term capital gain -- -- As of July 31, 2003, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ 338,450 Accumulated long-term gain (loss) $(272,229,915) Unrealized appreciation (depreciation) $ (2,069,814) 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. -------------------------------------------------------------------------------- 22 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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 $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 In addition, there is an annual closed-account fee of $5 per inactive account, charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system generally within one year. Under terms of a prior agreement that ended April 30, 2003, the Fund paid a transfer agency fee at an annual rate per shareholder account of $19 for Class A, $20 for Class B, $19.50 for Class C and $17 for Class Y. The Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $202,452 for Class A, $92,648 for Class B and $24 for Class C for the year ended July 31, 2003. -------------------------------------------------------------------------------- 23 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT For the year ended July 31, 2003, AEFC and American Express Financial Advisors Inc. waived certain fees and expenses to 1.35% for Class A, 2.11% for Class B, 2.11% for Class C and 1.13% for Class Y. In addition, AEFC and American Express Financial Advisors Inc. have agreed to waive certain fees and expenses until July 31, 2004. Under this agreement, total expenses will not exceed 1.35% for Class A, 2.11% for Class B, 2.11% for Class C and 1.18% for Class Y of the Fund's average daily net assets. During the year ended July 31, 2003, the Fund's transfer agency fees were reduced by $4,277 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, 2003 Class A Class B Class C Class Y Sold 2,606,091 1,322,189 18,719 1,227 Issued for reinvested distributions -- -- -- -- Redeemed (15,298,541) (10,145,114) (24,738) (53,135) ----------- ----------- ------- ------- Net increase (decrease) (12,692,450) (8,822,925) (6,019) (51,908) ----------- ---------- ------ ------- 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) ----------- ----------- ------ ------
4. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The agreement went into effect Sept. 24, 2002. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $200 million with U.S. Bank, N.A. The Fund had no borrowings outstanding during the year ended July 31, 2003. 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $272,229,915 as of July 31, 2003, that will expire in 2009 through 2012 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. -------------------------------------------------------------------------------- 24 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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, 2003 2002 2001 2000 1999 Net asset value, beginning of period $3.90 $ 5.37 $ 7.61 $7.94 $6.98 Income from investment operations: Net investment income (loss) .02 -- .02 -- (.01) Net gains (losses) (both realized and unrealized) .23 (1.46) (1.27) .66 1.32 Total from investment operations .25 (1.46) (1.25) .66 1.31 Less distributions: Dividends from net investment income -- (.01) -- -- -- Distributions from realized gains -- -- (.99) (.99) (.35) Total distributions -- (.01) (.99) (.99) (.35) Net asset value, end of period $4.15 $ 3.90 $ 5.37 $7.61 $7.94 Ratios/supplemental data Net assets, end of period (in millions) $149 $189 $365 $540 $481 Ratio of expenses to average daily net assets(c) 1.35% 1.22% 1.16% 1.14% 1.12% Ratio of net investment income (loss) to average daily net assets .43% .15% .37% .02% .04% Portfolio turnover rate (excluding short-term securities) 82% 144% 234% 160% 143% Total return(e) 6.41% (27.24%) (17.54%) 7.73% 19.21% Class B Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002 2001 2000 1999 Net asset value, beginning of period $3.69 $ 5.12 $ 7.36 $7.76 $6.88 Income from investment operations: Net investment income (loss) (.02) (.01) (.02) (.05) (.02) Net gains (losses) (both realized and unrealized) .23 (1.42) (1.23) .64 1.25 Total from investment operations .21 (1.43) (1.25) .59 1.23 Less distributions: Distributions from realized gains -- -- (.99) (.99) (.35) Net asset value, end of period $3.90 $ 3.69 $ 5.12 $7.36 $7.76 Ratios/supplemental data Net assets, end of period (in millions) $91 $119 $235 $336 $276 Ratio of expenses to average daily net assets(c) 2.11% 1.98% 1.92% 1.91% 1.88% Ratio of net investment income (loss) to average daily net assets (.33%) (.62%) (.39%) (.73%) (.72%) Portfolio turnover rate (excluding short-term securities) 82% 144% 234% 160% 143% Total return(e) 5.69% (27.93%) (18.19%) 7.03% 18.31%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 25 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002 2001 2000(b) Net asset value, beginning of period $3.69 $ 5.13 $ 7.36 $7.50 Income from investment operations: Net investment income (loss) (.01) (.02) (.02) .02 Net gains (losses) (both realized and unrealized) .23 (1.42) (1.22) (.16) Total from investment operations 0.22 (1.44) (1.24) (.14) Less distributions: Distributions from realized gains -- -- (.99) -- Net asset value, end of period $3.91 $ 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) 2.11% 1.99% 1.92% 1.91%(d) Ratio of net investment income (loss) to average daily net assets (.34%) (.61%) (.36%) (.50%)(d) Portfolio turnover rate (excluding short-term securities) 82% 144% 234% 160% Total return(e) 5.96% (28.05%) (18.03%) (1.87%)(f)
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2003 2002 2001 2000 1999 Net asset value, beginning of period $3.93 $ 5.42 $ 7.65 $7.96 $7.01 Income from investment operations: Net investment income (loss) .04 -- .04 .01 -- Net gains (losses) (both realized and unrealized) .23 (1.48) (1.28) .67 1.32 Total from investment operations 0.27 (1.48) (1.24) .68 1.32 Less distributions: Dividends from net investment income -- (.01) -- -- (.02) Distributions from realized gains -- -- (.99) (.99) (.35) Total distributions -- (.01) (.99) (.99) (.37) Net asset value, end of period $4.20 $ 3.93 $ 5.42 $7.65 $7.96 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- $-- $-- Ratio of expenses to average daily net assets(c) 1.13% 1.04% 1.00% .97% 1.02% Ratio of net investment income (loss) to average daily net assets .64% .33% .54% .17% .12% Portfolio turnover rate (excluding short-term securities) 82% 144% 234% 160% 143% Total return(e) 6.87% (27.30%) (17.29%) 7.99% 19.34%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 26 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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. (f) Not annualized. -------------------------------------------------------------------------------- 27 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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, 2003, 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, 2003, and the financial highlights for each of the years in the five-year period ended July 31, 2003. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with 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 and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Research Opportunities Fund as of July 31, 2003, 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 12, 2003 -------------------------------------------------------------------------------- 28 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 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 83 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service ---------------------------------- ------------------ ------------------------------------- --------------------------------- Arne H. Carlson Board member Chair, Board Services Corporation 901 S. Marquette Ave. since 1999 (provides administrative services Minneapolis, MN 55402 to boards). Former Governor of Age 68 Minnesota ---------------------------------- ------------------ ------------------------------------- --------------------------------- Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan 901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc. Minneapolis, MN 55402 construction) since 1998 (construction Age 65 materials/chemicals) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated 30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and Suite 3050 Mining and Manufacturing (3M) processors), General Mills, St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan Age 69 Materials Company (construction materials/ chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. ---------------------------------- ------------------ ------------------------------------- --------------------------------- Heinz F. Hutter* Board member Retired President and Chief 901 S. Marquette Ave. since 1994 Operating Officer, Cargill, Minneapolis, MN 55402 Incorporated (commodity merchants Age 74 and processors) ---------------------------------- ------------------ ------------------------------------- --------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 68 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 64 ---------------------------------- ------------------ ------------------------------------- --------------------------------- Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont 901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken Minneapolis, MN 55402 equities) Energy Corporation (oil and gas Age 53 exploration) and SIRIT Inc. (radio frequency identification technology) ---------------------------------- ------------------ ------------------------------------- ---------------------------------
* Interested person of AXP Partners International Aggressive Growth Fund and AXP Partners Aggressive Growth Fund by reason of being a security holder of J P Morgan Chase & Co., which has a 45% interest in American Century Companies, Inc., the parent company of the subadviser of two of the AXP Partners Funds, American Century Investment Management, Inc. ** Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Liberty Wanger Asset Management, L.P., one of the fund's subadvisers. -------------------------------------------------------------------------------- 29 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Alan K. Simpson Board member Former three-term United States Biogen, Inc. 1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals) Cody, WY 82414 Age 71 --------------------------------- ------------------- ------------------------------------- --------------------------------- Alison Taunton-Rigby Board member President, Forester Biotech since 901 S. Marquette Ave. since 2002 2000. Former President and CEO, Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc. Age 59 --------------------------------- ------------------- ------------------------------------- --------------------------------- Board Members Affiliated with AEFC*** Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Barbara H. Fraser Board member Executive Vice President - AEFA 1546 AXP Financial Center since 2002 Products and Corporate Marketing of Minneapolis, MN 55474 AEFC since 2002. President - Age 53 Travelers Check Group, American Express Company, 2001-2002. Management Consultant, Reuters, 2000-2001. Managing Director - International Investments, Citibank Global, 1999-2000. Chairman and CEO, Citicorp Investment Services and Citigroup Insurance Group, U.S., 1998-1999 --------------------------------- ------------------- ------------------------------------- --------------------------------- Stephen W. Roszell Board member Senior Vice President - 50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC Minneapolis, MN 55474 President since Age 54 2002 --------------------------------- ------------------- ------------------------------------- --------------------------------- William F. Truscott Board member Senior Vice President - Chief 53600 AXP Financial Center since 2001, Vice Investment Officer of AEFC since Minneapolis, MN 55474 President since 2001. Former Chief Investment Age 42 2002 Officer and Managing Director, Zurich Scudder Investments --------------------------------- ------------------- ------------------------------------- ---------------------------------
*** Interested person by reason of being an officer, director and/or employee of AEFC. -------------------------------------------------------------------------------- 30 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Roszell, who is vice president, and Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service --------------------------------- ------------------- ------------------------------------- --------------------------------- Jeffrey P. Fox Treasurer since Vice President - Investment 50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice Minneapolis, MN 55474 President - Finance, American Age 48 Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Paula R. Meyer President since Senior Vice President and General 596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since Minneapolis, MN 55474 2002; Vice President and Managing Age 49 Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 --------------------------------- ------------------- ------------------------------------- --------------------------------- Leslie L. Ogg Vice President, President of Board Services 901 S. Marquette Ave. General Counsel, Corporation Minneapolis, MN 55402 and Secretary Age 64 since 1978 --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. -------------------------------------------------------------------------------- 31 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT The policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities can be found in the Fund's Statement of Additional Information (SAI) which is available (i) without charge, upon request, by calling toll-free (800) 862-7919; (ii) on the American Express Company Web site at americanexpress.com/funds; and (iii) on the Securities and Exchange Commission Web site at http://www.sec.gov. -------------------------------------------------------------------------------- (logo) AMERICAN EXPRESS (R) -------------------------------------------------------------------------------- American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Livio D. DeSimone, Anne P. Jones, and Alan G. Quasha, each qualify as audit committee financial experts. Item 4. Principal Accountant Fees and Services. Not applicable pursuant to SEC Release No. IC-25915 (January 28, 2003). Items 5-6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. [Reserved] Item 9. Controls and Procedures. (a) The Registrant's Principal Executive Officer and Principal Financial Officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) At the date of filing this Form N-CSR, the registrant's Principal Executive Officer and Principal Financial Officer are aware of no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 10. Exhibits. (a) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (b) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) AXP Growth Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date October 1, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date October 1, 2003 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date October 1, 2003