EX-99.17L ANNUAL REP 12 ex17l_researchopps-annual.txt AXP RESEARCH OPPORTUNITIES FUND-ANNUAL REPORT 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.