EX-99.17H ANNUAL REP 10 ex17h_bluechip-annual.txt AXP BLUE CHIP ADVANTAGE FUND-ANNUAL REPORT AXP(R) Blue Chip Advantage Fund Annual Report for the Period Ended Jan. 31, 2004 AXP Blue Chip Advantage Fund seeks to provide shareholders with a long-term total return exceeding that of the U.S. stock market. (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 12 Notes to Financial Statements 15 Independent Auditors' Report 25 Federal Income Tax Information 26 Board Members and Officers 28 Proxy Voting 30 (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 BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Fund Snapshot AS OF JAN. 31, 2004 PORTFOLIO MANAGER Portfolio manager Doug Chase Since 1/04 Years in industry 12 FUND OBJECTIVE For investors seeking long-term total return exceeding that of the U.S. stock market. Inception dates A: 3/5/90 B: 3/20/95 C: 6/26/00 Y: 3/20/95 Ticker symbols A: IBLUX B: IDBCX C: AXACX Y: IBCYX Total net assets $1.585 billion Number of holdings 99 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 22.7% Financials 20.5% Consumer discretionary 13.7% Technology 13.5% Consumer staples 10.4% Industrials 7.3% Energy 6.6% Materials 3.5% Short-term securities 0.8% Telecommunications 0.5% Utilities 0.5% TOP TEN HOLDINGS Percentage of portfolio assets Pfizer (Health care products) 6.8% Citigroup (Finance companies) 5.1 Cendant (Media) 3.4 Viacom Cl B (Leisure time & entertainment) 3.2 PepsiCo (Beverages & tobacco) 2.9 Microsoft (Computer software & services) 2.9 Colgate-Palmolive (Household products) 2.7 Fannie Mae (Financial services) 2.5 Procter & Gamble (Household products) 2.4 McKesson (Health care services) 2.4 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Fund holdings subject to change. -------------------------------------------------------------------------------- 3 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Doug Chase began managing AXP Blue Chip Advantage Fund at the start of January 2004. Below, he discusses the Fund's positioning and results for the 12 months ended Jan. 31, 2004. Shareholders will be asked to approve a merger of the Fund into AXP Large Cap Equity Fund at a shareholder meeting on June 9, 2004. This approval is not guaranteed. If shareholder approval is obtained, no new purchases or exchanges into the Fund will be allowed, although existing shareholders may redeem or exchange out of the Fund. Q: How did AXP Blue Chip Advantage Fund perform for the fiscal year ended Jan. 31, 2004? A: AXP Blue Chip Advantage Fund's Class A shares advanced 31.20% for the 12 months ended Jan. 31, 2004, excluding sales charge. This outpaced the Fund's peer group as represented by the Lipper Large-Cap Core Funds Index, which advanced 29.98% for the same period. The Fund underperformed the S&P 500 Index, which gained 34.57%. The Fund's conservative positioning relative to the S&P 500 was responsible for its underperformance, as the riskier sectors and lower-quality stocks in the index were very strong performers during much of the year. Q: What factors had the most significant effect on performance? A: At the start of our fiscal period, the outlook for stocks was still very negative due to continuing economic uncertainty, poor corporate earnings and escalating global tensions. Then, in mid-March, when the U.S.-led action in Iraq was imminent, stocks began a rally that continued nearly uninterrupted through the end of our annual period. The Fund capitalized on the improved stock performance to deliver a strong absolute return. (bar chart) PERFORMANCE COMPARISON For the year ended Jan. 31, 2004 35% (bar 2) (bar 1) +34.57% 30% +31.20% (bar 3) +29.98% 25% 20% 15% 10% 5% 0% (bar 1) AXP Blue Chip Advantage Fund Class A (excluding sales charge) (bar 2) S&P 500 Index Fund (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 BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Questions & Answers (begin callout quote)> The most significant changes occurred in January, when we began managing the Fund. We substantially altered the portfolio's sector allocations and individual holdings. (end callout quote) However, the Fund fell short of its benchmark primarily because of its emphasis on higher-quality stocks. In general, lower-quality stocks performed better than higher-quality stocks through much of the last year. During the second half of the year, the Fund benefited from a higher-than-index position in the technology sector.
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class Y (Inception dates) (3/5/90) (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) as of Jan. 31, 2004 1 year +31.20% +23.66% +30.36% +26.36% +30.07% +30.07% +31.53% +31.53% 5 years -3.54% -4.68% -4.26% -4.42% N/A N/A -3.38% -3.38% 10 years +8.22% +7.58% N/A N/A N/A N/A N/A N/A Since inception N/A N/A +7.86% +7.86% -8.76% -8.76% +8.84% +8.84% as of Dec. 31, 2003 1 year +27.37% +20.04% +26.45% +22.45% +26.54% +26.54% +27.69% +27.69% 5 years -2.76% -3.90% -3.49% -3.65% N/A N/A -2.59% -2.59% 10 years +8.52% +7.88% N/A N/A N/A N/A N/A N/A Since inception N/A N/A +7.88% +7.88% -9.07% -9.07% +8.87% +8.87%
The performance information shown represents the past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. (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. -------------------------------------------------------------------------------- 5 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Questions & Answers However, the Fund's underlying sub-sector exposure proved to be a detractor. Specifically, the Fund had a lower-than-index weighting in semiconductor firms, one of the strongest technology groups, and a higher-than-index position in software, one of the weaker industries in the latter part of the fiscal period. Q: What changes did you make to the portfolio during the fiscal period? A: There were few meaningful changes to sector or industry positions in the first half of the fiscal year. Later in the period, the Fund's allocation to consumer cyclical stocks was increased and the Fund went from a market weight in financials to a higher-than-index position. Allocations to both health care and technology stocks were reduced. The most significant changes occurred in January, when new management took over the Fund. We substantially altered the portfolio's sector allocations and individual holdings. We moved to higher-than-index positions in the health care and industrials sectors and lower-than-index positions in the technology, financial, telecommunications and utility sectors. All other sectors were weighted about equal to the benchmark. We established a large position in health care in spite of last year's weakness because long term, we believe health care earnings will grow faster than the market due to demographics, specifically the aging of the U.S. population. The Fund's well-diversified health care position includes pharmaceutical firms, biotechnology companies, hospitals, medical device providers and drug distributors. Our primary concern about healthcare stocks is that they could suffer from rhetoric related to the presidential election. Therefore, we will probably be a bit cautious in adding further to the healthcare sector, but may take advantage of any election-related declines to add to some existing positions. The Fund has a higher-than-index position in the industrial sector, despite less attractive valuations on some industrial stocks, because we want exposure to cyclically sensitive areas in case the economy does deliver explosive growth. The Fund's weighting in the technology sector is smaller than the index. We believe these stocks, as a group, are very expensive, and, in our opinion, the only way to justify current valuations is to assume exceptional economic growth for several quarters to come. We think that if growth is indeed that strong, it will also -------------------------------------------------------------------------------- 6 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Questions & Answers drive performance in other sectors such as media, which we consider more reasonably priced. The Fund ended the period with a lower-than-index position in financial stocks because we believe many of these companies are vulnerable to the negative effects of a potential increase in interest rates. Q: How will you manage the Fund for the coming months? A: One key issue for the market in 2004 is whether large-cap stocks can regain market leadership from small-cap stocks. We believe several factors support such an outcome. First, the overvaluation of small-caps versus large-caps suggests that a period of large-cap outperformance may be due. Other factors favoring large-caps include the decline in the U.S. dollar, which has made U.S. exports more competitive, and the possibility of higher interest rates. Small-cap companies generally don't benefit from export growth the way large-cap companies do. In addition, smaller companies are often more dependent on borrowed money and could suffer from either expectations of rising interest rates or actual rate increases. Consumer staples is a sector that looks interesting to us now precisely because it is one of the most multinational groups in the market and could benefit from the lower dollar. Anywhere you travel globally, you will find the products of U.S. based multinationals -- from cola to razor blades to hamburgers. We think such companies are attractive given the improved export environment. Currently, we believe the best market opportunities are in growth stocks that have a high degree of stability to their growth. These stocks have become cheaper relative to the market; yet in any given year, they tend to grow earnings faster than the S&P 500. We have been making a concerted effort to move money into more stable growth stocks and out of companies that require record levels of profitability to justify their current share prices. Given the improving global economy, the weak dollar, and large-cap relative underperformance in 2003, we think the environment may be more favorable for large stocks in 2004 and we consider the portfolio well positioned for such a scenario. -------------------------------------------------------------------------------- 7 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT The Fund's Long-term Performance This chart illustrates the total value of an assumed $10,000 investment in AXP Blue Chip Advantage Fund Class A shares (from 2/1/94 to 1/31/04) as compared to the performance of two widely cited performance indices, Standard & Poor's 500 Index (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. The performance information shown represents the past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current prospectus. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing.
(mountain chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP BLUE CHIP ADVANTAGE FUND AXP Blue Chip Advantage Fund Class A $9,425 $9,410 $13,081 $16,193 $19,467 $24,861 $27,173 $25,722 $20,737 $15,822 $20,759 S&P 500 Index(1) $10,000 $10,053 $13,939 $17,611 $22,350 $29,612 $32,677 $32,383 $27,146 $20,897 $28,121 Lipper Large-Cap Core Funds Index(2) $10,000 $9,753 $12,999 $15,960 $19,747 $25,689 $28,425 $28,218 $23,542 $18,346 $23,846 `94 `95 `96 `97 `98 `99 `00 `01 `02 `03 `04
(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. (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 Jan. 31, 2004 1 year +23.66% 5 years -4.68% 10 years +7.58% Results for other share classes can be found on page 5. -------------------------------------------------------------------------------- 8 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Investments in Securities AXP Blue Chip Advantage Fund Jan. 31, 2004 (Percentages represent value of investments compared to net assets) Common stocks (99.3%) Issuer Shares Value(a) Aerospace & defense (2.6%) Empresa Brasileira de Aeronautica ADR 114,550(c) $3,375,789 Lockheed Martin 303,500 14,756,170 Northrop Grumman 86,300 8,346,073 United Technologies 156,500 14,952,010 Total 41,430,042 Banks and savings & loans (3.5%) Bank of America 301,000 24,519,460 U.S. Bancorp 322,200 9,108,594 Washington Mutual 125,500 5,559,650 Wells Fargo 295,500 16,964,655 Total 56,152,359 Beverages & tobacco (5.3%) Altria Group 473,100 26,299,629 Anheuser-Busch Companies 73,400 3,722,848 Coca-Cola 163,550 8,053,202 PepsiCo 980,300 46,328,978 Total 84,404,657 Broker dealers (1.8%) Merrill Lynch & Co 234,400 13,780,376 Morgan Stanley 261,600 15,227,736 Total 29,008,112 Building materials & construction (0.5%) American Standard 74,100(b) 7,869,420 Cable (0.7%) EchoStar Communications Cl A 134,500(b) 4,909,250 NTL 81,500(b) 5,406,710 Total 10,315,960 Cellular telecommunications (0.5%) Nextel Communications Cl A 304,800(b) 8,043,672 Chemicals (1.5%) Dow Chemical 289,800 12,157,110 Lyondell Chemical 652,750 11,188,135 Total 23,345,245 Computer hardware (4.8%) Cisco Systems 1,154,500(b) 29,601,380 Dell 604,000(b) 20,215,880 Hewlett-Packard 952,300 22,655,217 NVIDIA 160,600(b) 3,573,350 Total 76,045,827 Computer software & services (4.4%) Affiliated Computer Services Cl A 64,500(b) 3,576,525 BMC Software 202,400(b) 4,027,760 Investors Financial Services 64,600 2,677,024 Microsoft 1,674,500 46,299,925 Oracle 641,900(b) 8,864,639 VERITAS Software 125,800(b) 4,133,788 Total 69,579,661 Electronics (4.3%) Analog Devices 207,200 9,914,520 Applied Materials 216,200(b) 4,704,512 Intel 1,004,200 30,728,520 Jabil Circuit 95,500(b) 2,826,800 KLA-Tencor 140,000(b) 7,989,800 STMicroelectronics 281,900(c) 7,566,196 Taiwan Semiconductor Mfg ADR 359,300(c) 4,016,974 Total 67,747,322 Energy (5.3%) ChevronTexaco 260,700 22,511,445 ConocoPhillips 222,500 14,658,300 Devon Energy 135,600 7,655,976 Exxon Mobil 843,400 34,402,286 Newfield Exploration 89,100(b) 4,204,629 Total 83,432,636 Energy equipment & services (1.3%) Halliburton 287,800 8,677,170 Noble 215,200(b) 7,983,920 Weatherford Intl 103,200(b) 4,161,024 Total 20,822,114 Finance companies (5.1%) Citigroup 1,646,900 81,488,612 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 9 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Financial services (4.9%) Capital One Financial 98,200 $6,980,056 Countrywide Financial 170,166 14,217,369 Fannie Mae 514,200 39,644,820 MBNA 620,600 16,731,376 Total 77,573,621 Health care products (16.3%) Amgen 344,700(b) 22,229,703 Baxter Intl 393,910 11,482,477 Boston Scientific 223,600(b) 9,120,644 Forest Laboratories 250,000(b) 18,622,500 Gilead Sciences 64,400(b) 3,533,628 Johnson & Johnson 675,750 36,098,564 Medtronic 216,400 10,651,208 Merck & Co 173,900 8,277,640 Novartis ADR 378,350(c) 17,082,503 Pfizer 2,932,800 107,428,463 Teva Pharmaceutical Inds ADR 65,300(c) 4,087,127 Wyeth 182,100 7,456,995 Total 256,071,452 Health care services (6.5%) AmerisourceBergen 423,100 23,291,655 Anthem 105,500(b) 8,627,790 Cardinal Health 299,300 19,188,123 Caremark Rx 159,800(b) 4,274,650 HCA 196,500 8,822,850 McKesson 1,289,100 37,873,758 Tenet Healthcare 128,900(b) 1,598,360 Total 103,677,186 Household products (5.1%) Colgate-Palmolive 846,600 43,405,182 Procter & Gamble 375,400 37,945,432 Total 81,350,614 Insurance (5.1%) ACE 186,100(c) 8,080,462 Allstate 397,400 18,065,804 American Intl Group 289,300 20,091,885 Chubb 348,600 24,921,414 Hartford Financial Services Group 97,400 6,266,716 MBIA 64,000 4,032,000 Total 81,458,281 Leisure time & entertainment (4.3%) Mattel 914,500 17,293,195 Viacom Cl B 1,270,700 51,209,210 Total 68,502,405 Machinery (0.8%) Caterpillar 160,300 12,524,239 Media (6.9%) Cendant 2,360,300(b) 53,460,795 Disney (Walt) 1,318,900 31,653,600 InterActiveCorp 255,300(b) 8,271,720 Liberty Media Cl A 718,800(b) 8,366,832 Tribune 156,200 7,995,878 Total 109,748,825 Multi-industry (3.9%) Accenture Cl A 172,800(b,c) 4,090,176 General Electric 992,206 33,367,888 ITT Inds 52,300 3,898,442 Tyco Intl 759,900(c) 20,327,325 Total 61,683,831 Paper & packaging (0.9%) Avery Dennison 162,550 10,104,108 Weyerhaeuser 60,800 3,736,768 Total 13,840,876 Precious metals (0.7%) Freeport McMoRan Cooper & Gold Cl B 289,500 10,670,970 Retail -- general (1.8%) Best Buy 333,500 16,805,065 Wal-Mart Stores 218,400 11,760,840 Total 28,565,905 Utilities -- electric (0.5%) Exelon 58,900 3,945,122 FirstEnergy 108,700 4,078,424 Total 8,023,546 Total common stocks (Cost: $1,528,896,966) $1,573,377,390 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 10 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Short-term securities (0.8%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agency (0.2%) Federal Natl Mtge Assn Disc Nt 04-28-04 1.01% $3,200,000 $3,192,278 Commercial paper (0.6%) Fleet Funding 02-06-04 1.09 2,500,000(d) 2,499,461 Household Finance 02-02-04 1.02 7,200,000 7,199,389 Total 9,698,850 Total short-term securities (Cost: $12,891,236) $12,891,128 Total investments in securities (Cost: $1,541,788,202)(e) $1,586,268,518 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 Jan. 31, 2004, the value of foreign securities represented 4.3% 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. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of Jan. 31, 2004, the value of these securities amounted to $2,499,461 or 0.2% of net assets. (e) At Jan. 31, 2004, the cost of securities for federal income tax purposes was $1,575,444,685 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 44,948,835 Unrealized depreciation (34,125,002) ----------- Net unrealized appreciation $ 10,823,833 ------------ -------------------------------------------------------------------------------- 11 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Blue Chip Advantage Fund Jan. 31, 2004 Assets Investments in securities, at value (Note 1) (identified cost $1,541,788,202) $ 1,586,268,518 Capital shares receivable 77,213 Dividends and accrued interest receivable 1,766,504 Receivable for investment securities sold 35,588,103 ---------- Total assets 1,623,700,338 ------------- Liabilities Disbursements in excess of cash on demand deposit 129,906 Capital shares payable 85,841 Payable for investment securities purchased 38,621,681 Accrued investment management services fee 20,810 Accrued distribution fee 21,941 Accrued service fee 271 Accrued transfer agency fee 8,514 Accrued administrative services fee 1,210 Other accrued expenses 204,891 ------- Total liabilities 39,095,065 ---------- Net assets applicable to outstanding capital stock $ 1,584,605,273 =============== Represented by Capital stock -- $.01 par value (Note 1) $ 2,035,639 Additional paid-in capital 2,545,457,350 Undistributed net investment income 566,599 Accumulated net realized gain (loss) (Note 7) (1,007,934,631) Unrealized appreciation (depreciation) on investments 44,480,316 ---------- Total -- representing net assets applicable to outstanding capital stock $ 1,584,605,273 =============== Net assets applicable to outstanding shares: Class A $ 913,221,327 Class B $ 567,680,792 Class C $ 4,677,635 Class Y $ 99,025,519 Net asset value per share of outstanding capital stock: Class A shares 116,142,338 $ 7.86 Class B shares 74,241,206 $ 7.65 Class C shares 613,490 $ 7.62 Class Y shares 12,566,854 $ 7.88 ---------- ---------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 12 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Statement of operations AXP Blue Chip Advantage Fund Year ended Jan. 31, 2004 Investment income Income: Dividends $ 26,678,335 Interest 434,830 Fee income from securities lending (Note 3) 13,004 ------ Total income 27,126,169 ---------- Expenses (Note 2): Investment management services fee 7,547,131 Distribution fee Class A 2,192,461 Class B 5,564,674 Class C 42,586 Transfer agency fee 3,558,268 Incremental transfer agency fee Class A 214,365 Class B 229,836 Class C 2,053 Service fee -- Class Y 122,921 Administrative services fees and expenses 465,352 Compensation of board members 15,067 Custodian fees 105,813 Printing and postage 492,299 Registration fees 75,509 Audit fees 26,500 Other 34,343 ------ Total expenses 20,689,178 Earnings credits on cash balances (Note 2) (19,728) ------- Total net expenses 20,669,450 ---------- Investment income (loss) -- net 6,456,719 --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 41,752,414 Futures contracts 7,243,735 Options contracts written (Note 5) 616,032 ------- Net realized gain (loss) on investments 49,612,181 Net change in unrealized appreciation (depreciation) on investments 363,514,410 ----------- Net gain (loss) on investments 413,126,591 ----------- Net increase (decrease) in net assets resulting from operations $419,583,310 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets AXP Blue Chip Advantage Fund Year ended Jan. 31, 2004 2003 Operations and distributions Investment income (loss) -- net $ 6,456,719 $ 7,276,521 Net realized gain (loss) on investments 49,612,181 (324,321,708) Net change in unrealized appreciation (depreciation) on investments 363,514,410 (288,292,776) ----------- ------------ Net increase (decrease) in net assets resulting from operations 419,583,310 (605,337,963) ----------- ------------ Distributions to shareholders from: Net investment income Class A (5,779,812) (5,062,662) Class B (171,405) -- Class C (1,158) -- Class Y (1,044,739) (1,215,387) ---------- ---------- Total distributions (6,997,114) (6,278,049) ---------- ---------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 76,906,611 182,752,085 Class B shares 28,269,314 47,803,193 Class C shares 809,934 1,661,370 Class Y shares 35,629,604 58,125,349 Reinvestment of distributions at net asset value Class A shares 5,636,195 4,932,119 Class B shares 168,919 -- Class C shares 1,121 -- Class Y shares 1,044,739 1,215,387 Payments for redemptions Class A shares (252,077,109) (541,090,333) Class B shares (Note 2) (175,937,521) (301,061,281) Class C shares (Note 2) (1,298,049) (1,655,252) Class Y shares (94,981,459) (169,455,492) ----------- ------------ Increase (decrease) in net assets from capital share transactions (375,827,701) (716,772,855) ------------ ------------ Total increase (decrease) in net assets 36,758,495 (1,328,388,867) Net assets at beginning of year 1,547,846,778 2,876,235,645 ------------- ------------- Net assets at end of year $1,584,605,273 $ 1,547,846,778 ============== =============== Undistributed net investment income $ 566,599 $ 1,222,525 -------------- ---------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Notes to Financial Statements AXP Blue Chip Advantage Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Market Advantage Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Market Advantage Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. Under normal market conditions, at least 80% of the Fund's net assets are invested in blue chip stocks. Blue chip stocks are issued by companies with a market capitalization of at least $1 billion, an established management, a history of consistent earnings and a leading position within their respective industries. 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. American Express Financial Corporation (AEFC) may use fair value if a security's value has been materially affected by events after the close of the primary exchanges or markets on which the security is traded and before the NAV is calculated. The fair value of a security may be different from the quoted or published price. AEFC will price a security at fair value in accordance with procedures adopted by the Fund and board if a reliable market quotation is not readily available. 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 BLUE CHIP ADVANTAGE FUND -- 2004 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 call 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 risk in buying an option is that the Fund pays a premium whether or not the option is exercised. 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 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 and the cost of a security for a purchased 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 financial futures contracts and also may buy call options on these futures contracts. Risks of entering into futures contracts include the possibility of an illiquid market and that a change in the value of the contract 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. 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 decreased by $115,531 and accumulated net realized loss has been decreased by $115,531. -------------------------------------------------------------------------------- 16 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT The tax character of distributions paid for the years indicated is as follows: Year ended Jan. 31, 2004 2003 Class A Distributions paid from: Ordinary income $5,779,812 $5,062,662 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income 171,405 -- Long-term capital gain -- -- Class C Distributions paid from: Ordinary income 1,158 -- Long-term capital gain -- -- Class Y Distributions paid from: Ordinary income 1,044,739 1,215,387 Long-term capital gain -- -- As of Jan. 31, 2004, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ 566,599 Accumulated long-term gain (loss) $(974,278,148) Unrealized appreciation (depreciation) $ 10,823,833 Dividends to shareholders Dividends from net investment income, declared and paid each calendar quarter, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. 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, market discount and original issue 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 0.54% to 0.35% 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 adjustment increased the fee by $57,205 for the year ended Jan. 31, 2004. -------------------------------------------------------------------------------- 17 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT 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 0.04% 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 deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other American Express mutual funds. The Funds liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. The Fund pays AECSC an annual fee per shareholder account for this service as follows: o Class A $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. In addition, AECSC is entitled to charge 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. However, the closed account fee is currently not effective. 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 $1,030,050 for Class A, $486,073 for Class B and $1,290 for Class C for the year ended Jan. 31, 2004. During the year ended Jan. 31, 2004, the Fund's custodian and transfer agency fees were reduced by $19,728 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. -------------------------------------------------------------------------------- 18 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $2,269,009,166 and $2,626,331,581, respectively, for the year ended Jan. 31, 2004. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $36,538 for the year ended Jan. 31, 2004. Income from securities lending amounted to $13,004 for the year ended Jan. 31, 2004. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows: Year ended Jan. 31, 2004 Class A Class B Class C Class Y Sold 11,178,891 4,261,937 120,573 5,222,827 Issued for reinvested distributions 813,906 26,946 178 150,891 Redeemed (37,065,033) (26,677,573) (197,922) (13,406,511) ----------- ----------- -------- ----------- Net increase (decrease) (25,072,236) (22,388,690) (77,171) (8,032,793) ----------- ----------- ------- ---------- Year ended Jan. 31, 2003 Class A Class B Class C Class Y Sold 24,860,224 7,033,264 245,508 8,374,682 Issued for reinvested distributions 732,455 -- -- 178,866 Redeemed (77,333,074) (45,318,877) (249,971) (24,560,966) ----------- ----------- -------- ----------- Net increase (decrease) (51,740,395) (38,285,613) (4,463) (16,007,418) ----------- ----------- ------ -----------
5. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows: Year ended Jan. 31, 2004 Calls Contracts Premiums Balance Jan. 31, 2003 -- $ -- Opened 22,743 1,389,325 Closed (22,743) (1,389,325) ------- ---------- Balance Jan. 31, 2004 -- $ -- ------- ----------- See "Summary of significant accounting policies." -------------------------------------------------------------------------------- 19 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT 6. 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 year ended Jan. 31, 2004. 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $974,278,148 as of Jan. 31, 2004, 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. 8. SUBSEQUENT EVENT Shareholders will be asked to approve a merger of the Fund into AXP Large Cap Equity Fund at a shareholder meeting on June 9, 2004. This approval is not guaranteed. If shareholder approval is obtained, no new purchases or exchanges into the Fund will be allowed, although existing shareholders may redeem or exchange out of the Fund. -------------------------------------------------------------------------------- 20 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT 9. 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 Jan. 31, 2004 2003 2002 2001 2000 Net asset value, beginning of period $6.03 $ 7.94 $ 9.92 $11.80 $11.88 Income from investment operations: Net investment income (loss) .04 .04 .03 .05 .03 Net gains (losses) (both realized and unrealized) 1.84 (1.92) (1.95) (.76) 1.11 Total from investment operations 1.88 (1.88) (1.92) (.71) 1.14 Less distributions: Dividends from net investment income (.05) (.03) (.04) (.04) (.03) Distributions from realized gains -- -- (.02) (1.13) (1.19) Total distributions (.05) (.03) (.06) (1.17) (1.22) Net asset value, end of period $7.86 $ 6.03 $ 7.94 $ 9.92 $11.80 Ratios/supplemental data Net assets, end of period (in millions) $913 $852 $1,533 $2,247 $2,455 Ratio of expenses to average daily net assets(c) 1.06% 1.00% .89% .85% .83% Ratio of net investment income (loss) to average daily net assets .67% .61% .54% .50% .40% Portfolio turnover rate (excluding short-term securities) 149% 104% 135% 140% 81% Total return(e) 31.20% (23.70%) (19.38%) (5.34%) 9.30%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 21 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended Jan. 31, 2004 2003 2002 2001 2000 Net asset value, beginning of period $5.87 $ 7.76 $ 9.72 $11.63 $11.79 Income from investment operations: Net gains (losses) (both realized and unrealized) 1.78 (1.89) (1.94) (.78) 1.03 Less distributions: Distributions from realized gains -- -- (.02) (1.13) (1.19) Net asset value, end of period $7.65 $ 5.87 $ 7.76 $ 9.72 $11.63 Ratios/supplemental data Net assets, end of period (in millions) $568 $568 $1,047 $1,530 $1,588 Ratio of expenses to average daily net assets(c) 1.83% 1.77% 1.65% 1.60% 1.59% Ratio of net investment income (loss) to average daily net assets (.09%) (.16%) (.22%) (.25%) (.36%) Portfolio turnover rate (excluding short-term securities) 149% 104% 135% 140% 81% Total return(e) 30.36% (24.36%) (19.98%) (6.01%) 8.45%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 22 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended Jan. 31, 2004 2003 2002 2001(b) Net asset value, beginning of period $5.86 $ 7.74 $ 9.70 $11.99 Income from investment operations: Net investment income (loss) -- -- -- .03 Net gains (losses) (both realized and unrealized) 1.76 (1.88) (1.94) (1.16) Total from investment operations 1.76 (1.88) (1.94) (1.13) Less distributions: Dividends from net investment income -- -- -- (.03) Distributions from realized gains -- -- (.02) (1.13) Total distributions -- -- (.02) (1.16) Net asset value, end of period $7.62 $ 5.86 $ 7.74 $ 9.70 Ratios/supplemental data Net assets, end of period (in millions) $5 $4 $5 $4 Ratio of expenses to average daily net assets(c) 1.84% 1.79% 1.67% 1.60%(d) Ratio of net investment income (loss) to average daily net assets (.10%) (.16%) (.26%) .04%(d) Portfolio turnover rate (excluding short-term securities) 149% 104% 135% 140% Total return(e) 30.07% (24.29%) (19.98%) (8.79%)(f)
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 23 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended Jan. 31, 2004 2003 2002 2001 2000 Net asset value, beginning of period $6.04 $ 7.96 $ 9.94 $11.81 $11.89 Income from investment operations: Net investment income (loss) .05 .05 .04 .06 .04 Net gains (losses) (both realized and unrealized) 1.85 (1.93) (1.95) (.75) 1.11 Total from investment operations 1.90 (1.88) (1.91) (.69) 1.15 Less distributions: Dividends from net investment income (.06) (.04) (.05) (.05) (.04) Distributions from realized gains -- -- (.02) (1.13) (1.19) Total distributions (.06) (.04) (.07) (1.18) (1.23) Net asset value, end of period $7.88 $ 6.04 $ 7.96 $ 9.94 $11.81 Ratios/supplemental data Net assets, end of period (in millions) $99 $124 $291 $362 $369 Ratio of expenses to average daily net assets(c) .89% .82% .72% .68% .69% Ratio of net investment income (loss) to average daily net assets .86% .76% .70% .67% .54% Portfolio turnover rate (excluding short-term securities) 149% 104% 135% 140% 81% Total return(e) 31.53% (23.63%) (19.23%) (5.16%) 9.44%
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. -------------------------------------------------------------------------------- 24 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Independent Auditors' Report THE BOARD AND SHAREHOLDERS AXP MARKET ADVANTAGE SERIES, INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of AXP Blue Chip Advantage Fund (a series of AXP Market Advantage Series, Inc.) as of January 31, 2004, 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 January 31, 2004, and the financial highlights for each of the years in the five-year period ended January 31, 2004. 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 January 31, 2004, 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 Blue Chip Advantage Fund as of January 31, 2004, 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 March 22, 2004 -------------------------------------------------------------------------------- 25 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 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 Blue Chip Advantage Fund Fiscal year ended Jan. 31, 2004 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share March 21, 2003 $0.01317 June 20, 2003 0.01274 Sept. 19, 2003 0.00751 Dec. 19, 2003 0.01206 Total distributions $0.04548 Class B Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share March 21, 2003 $0.00139 June 20, 2003 0.00050 Total distributions $0.00189 -------------------------------------------------------------------------------- 26 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT Class C Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share March 21, 2003 $0.00114 June 20, 2003 0.00065 Total distributions $0.00179 Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share March 21, 2003 $0.01601 June 20, 2003 0.01568 Sept. 19, 2003 0.00994 Dec. 19, 2003 0.01529 Total distributions $0.05692 -------------------------------------------------------------------------------- 27 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 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 94 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 901 S. Marquette Ave. since 1999 Corporation (provides Minneapolis, MN 55402 administrative services to Age 69 boards). Former Governor of 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 66 materials/chemicals) ------------------------------------ -------------------- ---------------------------------- ------------------------------- Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated 30 Seventh Street East since 2001 Chief Executive Officer, (commodity merchants and Suite 3050 Minnesota Mining and processors), General Mills, St. Paul, MN 55101-4901 Manufacturing (3M) 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 Age 74 merchants and processors) ------------------------------------ -------------------- ---------------------------------- ------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 69 ------------------------------------ -------------------- ---------------------------------- ------------------------------- Stephen R. Lewis, Jr.** Board member Retired President and Professor Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 of Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 65 ------------------------------------ -------------------- ---------------------------------- -------------------------------
* Interested person of AXP Partners International Aggressive Growth Fund, AXP Partners Aggressive Growth Fund, AXP Partners Small Cap Core Fund and AXP Discovery 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 four AXP 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 Columbia Wanger Asset Management, L.P., one of the fund's subadvisers. -------------------------------------------------------------------------------- 28 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 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 G. Quasha Board member President, Quadrant Management, Compagnie Financiere 901 S. Marquette Ave. since 2002 Inc. (management of private Richemont AG (luxury goods), Minneapolis, MN 55402 equities) Harken Energy Corporation Age 54 (oil and gas exploration) and SIRIT Inc. (radio frequency identification technology) ------------------------------------ -------------------- ---------------------------------- ------------------------------ 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 72 ------------------------------------ -------------------- ---------------------------------- ------------------------------ Alison Taunton-Rigby Board member since President, Forester Biotech 901 S. Marquette Ave. 2002 since 2000. Former President and Minneapolis, MN 55402 CEO, Aquila Biopharmaceuticals, Age 59 Inc. ------------------------------------ -------------------- ---------------------------------- ------------------------------ 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 since Executive Vice President - Chief 1546 AXP Financial Center 2002 Marketing Officer, AEFC, since Minneapolis, MN 55474 2003. Executive Vice President Age 54 - AEFA Products and Corporate Marketing, AEFC, 2002-2003. President - Travelers Check Group, American Express Company, 2001-2002. Management Consultant, Reuters, 2000-2001. Managing Director - International Investments, Citibank Global, 1999-2000. ------------------------------------ -------------------- ---------------------------------- ------------------------------ Stephen W. Roszell Board member since Senior Vice President - 50238 AXP Financial Center 2002, Vice Institutional Group of AEFC Minneapolis, MN 55474 President since Age 55 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 43 2002 Officer and Managing Director, Zurich Scudder Investments ------------------------------------ -------------------- ---------------------------------- ------------------------------
*** Interested person by reason of being an officer, director and/or employee of AEFC. -------------------------------------------------------------------------------- 29 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 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; Minneapolis, MN 55474 Vice President - Finance, Age 48 American Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 ------------------------------------ -------------------- ---------------------------------- ------------------------------ Paula R. Meyer President since Senior Vice President and 596 AXP Financial Center 2002 General Manager - Mutual Funds, Minneapolis, MN 55474 AEFC, since 2002; Vice President Age 50 and Managing 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 65 since 1978 ------------------------------------ -------------------- ---------------------------------- ------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the Web site americanexpress.com/funds; or by searching the Web site of the Securities and Exchange Commission http://www.sec.gov. You may view the Fund's voting record for all portfolio companies whose shareholders meetings were completed the previous quarter on americanexpress.com/funds or obtain a copy by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283. In addition, after Aug. 1, 2004, information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available at http://www.sec.gov. -------------------------------------------------------------------------------- 30 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT (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.