-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, URI0JbB/M4NmmTOPur21NtYqmtV4Sn5ML/8/yQxEHtVMeBoqgrTkcwFbJoFSQ/ov 13qdnXEDbDt/Y3DbHX8OKg== 0000820027-04-000256.txt : 20040406 0000820027-04-000256.hdr.sgml : 20040406 20040406091446 ACCESSION NUMBER: 0000820027-04-000256 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040131 FILED AS OF DATE: 20040406 EFFECTIVENESS DATE: 20040406 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP GROWTH SERIES INC/MN CENTRAL INDEX KEY: 0000049702 IRS NUMBER: 410962638 STATE OF INCORPORATION: MN FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02111 FILM NUMBER: 04719235 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126712772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP GROWTH FUND INC DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS GROWTH FUND INC DATE OF NAME CHANGE: 19920703 N-CSRS 1 growth-ncsrs.txt AXP GROWTH SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-2111 ------------ AXP GROWTH SERIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 AXP Financial Center, Minneapolis, Minnesota 55474 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 7/31 -------------- Date of reporting period: 1/31 -------------- AXP(R) Growth Fund Semiannual Report for the Period Ended Jan. 31, 2004 AXP Growth Fund seeks to provide shareholders with long-term capital growth. (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 Investments in Securities 8 Financial Statements (Portfolio) 12 Notes to Financial Statements (Portfolio) 15 Financial Statements (Fund) 19 Notes to Financial Statements (Fund) 22 Proxy Voting 27 (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- 2 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Fund Snapshot AS OF JAN. 31, 2004 PORTFOLIO MANAGER Portfolio manager Nick Thakore Since 4/02 Years in industry 11 FUND OBJECTIVE For investors seeking long-term capital growth. Inception dates A: 3/1/72 B: 3/20/95 C: 6/26/00 Y: 3/20/95 Ticker symbols A: INIDX B: IGRBX C: AXGCX Y: IGRYX Total net assets $3.521 billion Number of holdings 135 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 graph) Health care 22.2% Consumer discretionary 18.1% Technology 14.8% Financials 9.5% Consumer staples 8.9% Short-term securities 7.8% Telecommunications 6.5% Energy 5.9% Industrials 3.4% Materials 2.4% Other 0.5% TOP TEN HOLDINGS Percentage of portfolio assets NTL (Cable) 5.7% Nextel Communications Cl A (Cellular telecommunications) 3.7 Pfizer (Health care products) 3.6 Boston Scientific (Health care products) 3.3 Intel (Electronics) 2.6 Amgen (Health care products) 2.1 Freddie Mac (Financial services) 1.9 Hewlett-Packard (Computer hardware) 1.9 Dell (Computer hardware) 1.8 Johnson & Johnson (Health care products) 1.7 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. Stocks of small- and medium-sized companies may be subject to more abrupt or erratic price movements than stocks of larger companies. Some of these companies also may have fewer financial resources. There are special risk considerations associated with international investing related to market, currency, political, economic and other factors. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 3 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Nick Thakore discusses AXP Growth Fund's results and positioning for the six-month period ended Jan. 31, 2004. Q: How did AXP Growth Fund perform for fiscal year 2004? A: AXP Growth Fund's Class A shares rose 7.89%, excluding sales charge, for the six-month period ended Jan. 31, 2004. The Fund lagged the 12.52% gain of its peer group as represented by the Lipper Large-Cap Growth Funds Index. The Fund's benchmark, the Russell 1000(R) Growth Index, climbed 14.23% for the same period. Q: What factors influenced performance during the period? A: While the Fund benefited from the stock market's ongoing rally in this most recent six-month period, it lagged its benchmark and its peers primarily because it did not have enough of a pro-cyclical tilt and because of lower-than-index weightings in certain stocks which were among the index's stronger performers. The Fund limited its exposure to certain cyclical sectors of the market due to concerns about companies' abilities to achieve the historically high level of earnings growth being forecast and due to concern that even if estimates were achieved that this was already discounted in the valuations. During the (bar graph) PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2004 15% (bar 2) (bar 3) 12% +14.23% +12.52% 9% (bar 1) 6% +7.89% 3% 0% (bar 1) AXP Growth Fund Class A (excluding sales charge) (bar 2) Russell 1000(R) Growth Index(1) (unmanaged) (bar 3) Lipper Large-Cap Growth Funds Index(2) (1) The Russell 1000(R) Growth Index, an unmanaged index, measures the performance of those companies among the 1,000 largest companies included in the Russell 3000(R) Index with higher price-to-book ratios and higher forecasted growth values. (2) The Lipper Large-Cap Growth Funds Index, published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 4 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> The most significant change to the portfolio's positioning was a substantial increase in the weighting of cable companies and telecommunications services stocks, particularly wireless service providers.(end callout quote) period discussed, these concerns proved poorly placed. The sectors where exposure was limited due to these concerns were technology, industrials and consumer discretionary. As a substitute for lower cyclical exposure, the Fund had significant exposure to more stable growth sectors of the economy.
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class Y (Inception dates) (3/1/72) (3/20/95) (6/26/00) (3/20/95) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) as of Jan. 31, 2004 6 months* +7.89% +1.69% +7.48% +3.48% +7.48% +6.48% +8.01% +8.01% 1 year +23.87% +16.74% +22.86% +18.86% +22.86% +22.86% +24.08% +24.08% 5 years -8.25% -9.33% -8.95% -9.12% N/A N/A -8.10% -8.10% 10 years +6.28% +5.65% N/A N/A N/A N/A N/A N/A Since inception N/A N/A +5.52% +5.52% -19.33% -19.33% +6.48% +6.48% as of Dec. 31, 2003 6 months* +6.29% +0.18% +5.86% +0.86% +5.86% +4.86% +6.34% +6.34% 1 year +20.75% +13.80% +19.79% +15.79% +19.79% +19.79% +20.94% +20.94% 5 years -6.58% -7.68% -7.31% -7.48% N/A N/A -6.44% -6.44% 10 years +6.65% +6.02% N/A N/A N/A N/A N/A N/A Since inception N/A N/A +5.53% +5.53% -19.83% -19.83% +6.50% +6.50%
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. * Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 5 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Questions & Answers As the market embraced expectations for a vigorous economic recovery, stable growth stocks underperformed cyclical growth stocks. Some large index components that were underweighted in the Fund and performed well include 3M, Cisco, Intel and Texas Instruments. On a positive note, performance benefited from the Fund's positioning in the telecommunications sector, as well as its positioning in energy and materials. There were a number of individual stocks which added to relative return, including NTL, a U.K. cable company, which advanced strongly following its emergence from bankruptcy and Schlumberger, an energy equipment and services company, which benefited as the energy sector, which has lagged other cyclical sectors, began to catch up. Another name which boosted performance is Boston Scientific, a provider of specialized medical devices, which will soon release a next generation product which we anticipated would lead to explosive growth. The stock appreciated as analysts' earnings expectations rose. The Fund also benefited from some exposure to small- and mid-cap stocks. Although our focus continues to be large-cap stocks, the smaller companies that we owned generally added to relative return, as the small- and mid-cap sectors meaningfully outperformed their large-cap peers over the past six months. Q: What changes did you make during the six-month period? A: The most significant change to the portfolio's positioning within the last six months was a substantial increase in the weighting of cable companies and telecommunications services stocks, particularly wireless service providers. We are focused on identifying stocks where we see potential for very strong earnings growth, but reasonable valuations, as well, so that the Fund won't be significantly affected should the economy not perform as well as anticipated, but are also likely to do well if economic growth remains strong. We have seen such potential within the wireless telecommunication sector. In our view, the sector 1) has a good growth outlook, 2) is attractively valued and 3) has historically performed well in periods of consolidation which we believe 2004 is shaping up to be. Although the stock prices haven't received much of a boost from economic growth so far, renewed employment growth could have a positive impact on fundamentals. At the end of the period, the Fund maintained a modest tilt toward stable growth, but it is somewhat smaller than it has been, and while we remain somewhat concerned about valuation levels on many technology stocks, we have identified some attractive opportunities within the - -------------------------------------------------------------------------------- 6 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Questions & Answers sector. Nevertheless, we have kept the Fund's weightings in technology and industrials lower than those of the index. To offset this positioning, we have substituted other cyclical sectors where we believe valuations are more reasonable, including energy and materials in lieu of industrials and cable and telecommunications in lieu of technology. Q: How do you plan to manage the Fund in the coming months given current market conditions? A: Regardless of the market environment, we will adhere to our long-term investment discipline, striving to identify companies with good growth rates. We believe we do not need to overpay for such growth. Given the strong fundamentals in the economy, we have added to some pro-cyclical stocks where we viewed prices as reasonable. However, because we believe the penalty could be high if economic growth weakens, we are also maintaining a healthy weighting in the stable growth sectors of the market. If the economy maintains its current strong growth rate, we may not see any major shift in market trends. If, however, overall growth slows or rates begin to rise, we believe investors may demonstrate a preference for higher quality growth stocks. - -------------------------------------------------------------------------------- 7 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Investments in Securities Growth Portfolio Jan. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (94.5%) Issuer Shares Value(a) Aerospace & defense (2.8%) Empresa Brasileira de Aeronautica ADR 1,442,000(c) $42,495,740 Lockheed Martin 711,000 34,568,820 Northrop Grumman 75,000 7,253,250 United Technologies 135,000 12,897,900 Total 97,215,710 Airlines (0.1%) JetBlue Airways 78,000(b) 1,772,940 Banks and savings & loans (0.9%) Bank of America 87,000 7,087,020 U.S. Bancorp 430,000 12,156,100 Wells Fargo 202,000 11,596,820 Total 30,839,940 Beverages & tobacco (4.8%) Altria Group 1,037,000 57,646,830 Anheuser-Busch Companies 320,000 16,230,400 Coca-Cola 587,000 28,903,880 PepsiCo 910,000 43,006,600 RJ Reynolds Tobacco Holdings 381,000 22,501,860 Total 168,289,570 Broker dealers (--%) Piper Jaffray 4,300(b) 201,885 Cable (9.7%) Cablevision Systems NY Group Cl A 1,883,000(b) 48,167,140 Comcast Cl A 630,000(b) 21,495,600 Comcast Special Cl A 1,107,000(b) 36,475,650 EchoStar Communications Cl A 893,000(b) 32,594,500 NTL 3,089,000(b) 204,924,260 Total 343,657,150 Cellular telecommunications (4.7%) AT&T Wireless Services 1,030,000(b) 11,381,500 China Unicom ADR 796,000(c) 9,233,600 Nextel Communications Cl A 5,120,000(b) 135,116,800 Telesystem Intl Wireless 276,000(b,c) 3,560,400 Western Wireless Cl A 302,150(b) 6,846,719 Total 166,139,019 Chemicals (0.5%) Dow Chemical 420,000 17,619,000 Computer hardware (4.6%) Cisco Systems 616,000(b) 15,794,240 Dell 1,979,000(b) 66,237,130 EMC 729,625(b) 10,243,935 Hewlett-Packard 2,870,000 68,277,300 Total 160,552,605 Computer software & services (2.5%) First Data 657,000 25,728,120 Microsoft 1,447,000 40,009,550 Oracle 804,000(b) 11,103,240 VERITAS Software 322,000(b) 10,580,920 Total 87,421,830 Electronics (8.2%) Analog Devices 842,000 40,289,700 Applied Materials 1,615,000(b) 35,142,400 Intel 3,093,000 94,645,800 KLA-Tencor 190,000(b) 10,843,300 Marvell Technology Group 466,000(b,c) 19,385,600 Maxim Integrated Products 394,000 20,153,100 STMicroelectronics 519,000(c) 13,929,960 Taiwan Semiconductor Mfg ADR 3,802,000(c) 42,506,360 United Microelectronics ADR 2,201,000(c) 11,907,410 Total 288,803,630 Energy (3.6%) Anadarko Petroleum 690,000 34,431,000 Apache 528,000 20,317,440 ConocoPhillips 213,000 14,032,440 Devon Energy 794,320 44,847,307 Newfield Exploration 103,000(b) 4,860,570 XTO Energy 346,666 9,093,049 Total 127,581,806 Energy equipment & services (2.5%) Halliburton 1,296,600 39,092,490 Schlumberger 795,600 48,674,808 Total 87,767,298 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 8 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Finance companies (1.0%) Citigroup 732,500 $36,244,100 Financial services (4.4%) Capital One Financial 138,000 9,809,040 Countrywide Financial 62,000 5,180,100 Fannie Mae 350,000 26,985,000 Freddie Mac 1,098,000 68,537,160 MBNA 340,000 9,166,400 Nomura Holdings 2,157,000(c) 35,294,511 Total 154,972,211 Food (0.4%) Kellogg 352,000 13,309,120 Health care products (17.9%) Amgen 1,188,000(b) 76,614,120 Baxter Intl 1,603,000 46,727,450 Boston Scientific 2,976,000(b) 121,391,040 Cytyc 1,473,000(b) 23,862,600 Forest Laboratories 262,000(b) 19,516,380 Gilead Sciences 66,000(b) 3,621,420 Guidant 280,000 17,886,400 Johnson & Johnson 1,171,000 62,554,820 Medtronic 700,000 34,454,000 Merck & Co 754,000 35,890,400 Novartis ADR 297,700(c) 13,441,155 Pfizer 3,542,000 129,743,461 Schering-Plough 788,000 13,821,520 Wyeth 855,000 35,012,250 Total 634,537,016 Health care services (4.8%) Aetna 266,000 18,620,000 Anthem 327,000(b) 26,742,060 Caremark Rx 1,189,000(b) 31,805,750 Fisher Scientific Intl 167,000(b) 7,456,550 Healthsouth 6,010,590(b) 30,233,268 Lincare Holdings 853,286(b) 27,458,743 Select Medical 1,542,000 26,676,600 Total 168,992,971 Household products (4.0%) Colgate-Palmolive 1,076,000 55,166,520 Gillette 1,099,000 39,838,750 Procter & Gamble 443,000 44,778,440 Total 139,783,710 Insurance (2.3%) Allstate 784,000 35,640,640 American Intl Group 120,400 8,361,780 Chubb 501,000 35,816,490 Total 79,818,910 Investment companies (1.3%) iShares MSCI Japan Index Fund 4,552,000 44,154,400 Leisure time & entertainment (1.2%) Viacom Cl B 1,078,000 43,443,400 Media (3.9%) Cendant 1,579,900(b) 35,784,735 Disney (Walt) 2,552,000 61,248,000 InterActiveCorp 1,004,000(b) 32,529,600 Liberty Media Cl A 795,000(b) 9,253,800 Total 138,816,135 Metals (0.2%) Teck Cominco Cl B 500,000(c) 7,640,559 Multi-industry (0.7%) Accenture Cl A 493,000(b,c) 11,669,310 Sony 320,000(c) 12,848,370 Total 24,517,680 Precious metals (1.8%) Agnico-Eagle Mines 540,000(c) 6,885,000 AngloGold ADR 185,000(c) 7,461,050 Barrick Gold 295,000(c) 5,811,500 Coeur d'Alene Mines 1,498,000(b) 8,164,100 Glamis Gold 250,000(b) 3,750,000 Newmont Mining 736,000 30,661,760 Total 62,733,410 Restaurants (0.3%) McDonald's 367,000 9,446,580 Retail -- general (3.0%) Home Depot 1,078,000 38,236,660 Kohl's 909,000(b) 40,268,700 Target 281,000 10,666,760 Wal-Mart Stores 315,000 16,962,750 Total 106,134,870 Telecom equipment & services (1.1%) Ericsson (LM) ADR Cl B 976,000(c) 22,448,000 Motorola 984,000 16,314,720 Total 38,762,720 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 9 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Textiles & apparel (0.5%) Polo Ralph Lauren 551,300 $16,649,260 Utilities -- natural gas (--%) Kinder Morgan Management LLC --(b) 13 Utilities -- telephone (0.8%) Sprint (PCS Group) 3,589,000(b) 29,178,570 Total common stocks (Cost: $2,930,277,251) $3,326,998,018 Options purchased (0.5%) Issuer Contracts Exercise Expiration Value(a) price date Puts S&P 500 Index 6,140 $1,075 Feb. 2004 $1,657,800 S&P 500 Index 2,029 1,060 March 2004 1,542,040 S&P 500 Index 2,440 1,150 June 2004 13,273,600 Total options purchased (Cost: $23,206,852) $16,473,440 Short-term securities (8.0%) Issuer Annualized Account Value(a) Yield on date payable at of purchase maturity U.S. government agencies (3.6%) Federal Home Loan Mtge Corp Disc Nts 02-12-04 1.07% $14,800,000 $14,794,625 02-26-04 1.09 6,200,000 6,195,367 03-04-04 1.08 3,800,000 3,796,529 04-01-04 1.03 43,100,000 43,028,670 Federal Natl Mtge Assn Disc Nts 02-11-04 1.08 3,200,000 3,198,945 04-07-04 1.00 19,200,000 19,164,979 04-07-04 1.02 9,900,000 9,881,942 04-14-04 1.00 27,900,000 27,843,642 Total 127,904,699 Commercial paper (4.4%) Bear Stearns 04-02-04 1.04 20,000,000 19,964,178 CC (USA)/Centauri 03-05-04 1.04 10,400,000(d) 10,389,485 Citigroup Global Markets 02-05-04 1.02 3,000,000 2,999,490 CRC Funding LLC 03-09-04 1.04 17,000,000(d) 16,980,939 Falcon Asset Securitization 02-11-04 1.10 8,700,000(d) 8,696,891 HBOS Treasury Services 04-05-04 1.07 18,200,000 18,165,824 Household Finance 02-02-04 1.02 2,100,000 2,099,822 Nordea North America 04-28-04 1.05 17,135,000 17,091,439 Northern Rock 02-24-04 1.12 6,400,000(d) 6,395,156 Scaldis Capital LLC 02-10-04 1.10 6,100,000(d) 6,098,001 Sigma Finance 02-12-04 1.11 17,900,000(d) 17,892,955 Societe Generale North America 05-06-04 1.05 10,683,000 10,651,663 White Pine Finance LLC 02-10-04 1.09 2,200,000(d) 2,199,279 04-27-04 1.04 14,142,000(d) 14,106,456 Total 153,731,578 Total short-term securities (Cost: $281,631,624) $281,636,277 Total investments in securities (Cost: $3,235,115,727)(e) $3,625,107,735 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. As of Jan. 31, 2004, the value of foreign securities represented 7.6% 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 $82,759,162 or 2.4% of net assets. (e) At Jan. 31, 2004, the cost of securities for federal income tax purposes was approximately $3,235,116,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $424,422,000 Unrealized depreciation (34,430,000) ----------- Net unrealized appreciation $389,992,000 ------------ - -------------------------------------------------------------------------------- 11 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities Growth Portfolio Jan. 31, 2004 (Unaudited) Assets Investments in securities, at value (Note 1)* (identified cost $3,235,115,727) $3,625,107,735 Dividends and accrued interest receivable 1,559,414 Receivable for investment securities sold 128,186,390 U.S. government securities held as collateral (Note 4) 1,739,520 --------- Total assets 3,756,593,059 ------------- Liabilities Disbursements in excess of cash on demand deposit 654,087 Payable for investment securities purchased 160,377,214 Payable upon return of securities loaned (Note 4) 74,453,420 Accrued investment management services fee 54,555 Other accrued expenses 77,016 ------ Total liabilities 235,616,292 ----------- Net assets $3,520,976,767 ============== *Including securities on loan, at value (Note 4) $ 72,236,354 --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 12 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Statement of operations Growth Portfolio Six months ended Jan. 31, 2004 (Unaudited) Investment income Income: Dividends $ 19,111,186 Interest 1,660,431 Fee income from securities lending (Note 4) 163,710 Less foreign taxes withheld (133,293) -------- Total income 20,802,034 ---------- Expenses (Note 2): Investment management services fee 8,818,118 Compensation of board members 9,750 Custodian fees 123,140 Audit fees 15,000 Other 23,409 ------ Total expenses 8,989,417 Earnings credits on cash balances (Note 2) (1,156) ------ Total net expenses 8,988,261 --------- Investment income (loss) -- net 11,813,773 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 169,026,491 Foreign currency transactions (85,035) ------- Net realized gain (loss) on investments 168,941,456 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 97,250,943 ---------- Net gain (loss) on investments and foreign currencies 266,192,399 ----------- Net increase (decrease) in net assets resulting from operations $278,006,172 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Statements of changes in net assets Growth Portfolio Jan. 31, 2004 July 31, 2003 Six months ended Year ended (Unaudited) Operations Investment income (loss) -- net $ 11,813,773 $ 19,243,868 Net realized gain (loss) on investments 168,941,456 (462,434,032) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 97,250,943 741,212,811 ---------- ----------- Net increase (decrease) in net assets resulting from operations 278,006,172 298,022,647 ----------- ----------- Proceeds from contributions 15,829,318 46,555,814 Fair value of withdrawals (220,107,841) (443,556,729) ------------ ------------ Net contributions (withdrawals) from partners (204,278,523) (397,000,915) ------------ ------------ Total increase (decrease) in net assets 73,727,649 (98,978,268) Net assets at beginning of period 3,447,249,118 3,546,227,386 ------------- ------------- Net assets at end of period $3,520,976,767 $3,447,249,118 ============== ==============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Notes to Financial Statements Growth Portfolio (Unaudited as to Jan. 31, 2004) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Growth Portfolio (the Portfolio) is a series of Growth Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Growth Portfolio invests primarily in common stocks and securities convertible into common stocks of U.S. and foreign companies that appear to offer growth opportunities. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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 Portfolio and board of trustees 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. 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. - -------------------------------------------------------------------------------- 15 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Portfolio will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Portfolio may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. - -------------------------------------------------------------------------------- 16 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue 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 AEFC to manage its portfolio. Under an Investment Management Service Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Portfolio's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of AXP Growth Fund to the Lipper Large-Cap Growth Funds Index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment decreased the fee by $1,162,900 for the six months ended Jan. 31, 2004. 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. Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the underlying Fund or other American Express mutual funds. The Portfolio's liability for these amounts is adjusted for market value changes and remains in the Portfolio until distributed in accordance with the Plan. During the six months ended Jan. 31, 2004, the Portfolio's custodian fees were reduced by $1,156 as a result of earnings credits from overnight cash balances. The Portfolio also pays custodian fees to American Express Trust Company, an affiliate of AEFC. According to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the Trust's units. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $2,448,058,605 and $2,630,558,655, respectively, for the six months 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 $80,916 for the six months ended Jan. 31, 2004. - -------------------------------------------------------------------------------- 17 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT 4. LENDING OF PORTFOLIO SECURITIES As of Jan. 31, 2004, securities valued at $72,236,354 were on loan to brokers. For collateral, the Portfolio received $72,713,900 in cash and U.S. government securities valued at $1,739,520. Cash collateral received is invested in short-term securities, which are included in the short-term section of the "Investments in securities." Income from securities lending amounted to $163,710 for the six months ended Jan. 31, 2004. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 5. FINANCIAL HIGHLIGHTS The table below shows certain important financial information for evaluating the Portfolio's results.
Ratios/supplemental data: Fiscal period ended July 31, 2004(e) 2003 2002 2001 2000 Ratio of expenses to average daily net assets(a) .51%(c) .62% .47% .55% .59% Ratio of net investment income (loss) to average daily net assets .67%(c) .59% .37% .09% .09% Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23% Total return(b) 8.22%(d) 9.73% (29.17%) (41.87%) 31.53%
Notes to financial highlights (a) Expense ratio is based on total expenses of the Portfolio before reduction of earnings credits on cash balances. The ratio does not include feeder fund expenses. (b) Total return is based on a calculated Portfolio NAV and does not reflect payment of a sales charge. (c) Adjusted to an annual basis. (d) Not annualized. (e) Six months ended Jan. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 18 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Growth Fund Jan. 31, 2004 (Unaudited) Assets Investment in Portfolio (Note 1) $ 3,520,930,603 Capital shares receivable 822,977 ------- Total assets 3,521,753,580 ------------- Liabilities Capital shares payable 328,186 Accrued distribution fee 38,222 Accrued service fee 1,012 Accrued transfer agency fee 18,812 Accrued administrative services fee 4,181 Other accrued expenses 229,933 ------- Total liabilities 620,346 ------- Net assets applicable to outstanding capital stock $ 3,521,133,234 =============== Represented by Capital stock -- $.01 par value (Note 1) $ 1,454,721 Additional paid-in capital 4,551,579,077 Net operating loss (588,634) Accumulated net realized gain (loss) (Note 5) (1,421,329,504) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 390,017,574 ----------- Total -- representing net assets applicable to outstanding capital stock $ 3,521,133,234 =============== Net assets applicable to outstanding shares: Class A $ 2,331,265,023 Class B $ 803,255,630 Class C $ 14,112,295 Class Y $ 372,500,286 Net asset value per share of outstanding capital stock: Class A shares 94,757,911 $ 24.60 Class B shares 35,161,349 $ 22.84 Class C shares 617,752 $ 22.84 Class Y shares 14,935,055 $ 24.94 ---------- ---------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 19 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Statement of operations AXP Growth Fund Six months ended Jan. 31, 2004 (Unaudited) Investment income Income: Dividends $ 19,110,945 Interest 1,660,414 Fee income from securities lending 163,708 Less foreign taxes withheld (133,292) -------- Total income 20,801,775 ---------- Expenses (Note 2): Expenses allocated from Portfolio 8,988,148 Distribution fee Class A 2,884,657 Class B 3,972,296 Class C 65,916 Transfer agency fee 3,595,428 Incremental transfer agency fee Class A 249,957 Class B 195,193 Class C 3,185 Service fee -- Class Y 199,799 Administrative services fees and expenses 776,252 Compensation of board members 7,067 Printing and postage 403,600 Registration fees 27,758 Audit fees 5,000 Other 30,577 ------ Total expenses 21,404,833 Earnings credits on cash balances (Note 2) (14,424) ------- Total net expenses 21,390,409 ---------- Investment income (loss) -- net (588,634) -------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 169,024,438 Foreign currency transactions (85,034) ------- Net realized gain (loss) on investments 168,939,404 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 97,249,639 ---------- Net gain (loss) on investments and foreign currencies 266,189,043 ----------- Net increase (decrease) in net assets resulting from operations $265,600,409 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 20 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Statements of changes in net assets AXP Growth Fund Jan. 31, 2004 July 31, 2003 Six months ended Year ended (Unaudited) Operations Investment income (loss) -- net $ (588,634) $ (5,450,978) Net realized gain (loss) on investments 168,939,404 (462,429,500) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 97,249,639 741,204,696 ---------- ----------- Net increase (decrease) in net assets resulting from operations 265,600,409 273,324,218 ----------- ----------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 118,870,557 299,443,361 Class B shares 50,719,975 108,759,258 Class C shares 2,718,490 5,623,858 Class Y shares 60,011,121 141,293,380 Payments for redemptions Class A shares (226,619,558) (425,072,323) Class B shares (Note 2) (80,161,060) (240,971,184) Class C shares (Note 2) (1,490,861) (1,739,474) Class Y shares (116,008,278) (258,890,708) ------------ ------------ Increase (decrease) in net assets from capital share transactions (191,959,614) (371,553,832) ------------ ------------ Total increase (decrease) in net assets 73,640,795 (98,229,614) Net assets at beginning of period 3,447,492,439 3,545,722,053 ------------- ------------- Net assets at end of period $3,521,133,234 $3,447,492,439 ============== ==============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 21 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT Notes to Financial Statements AXP Growth Fund (Unaudited as to Jan. 31, 2004) 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. Effective March 4, 2004, the Fund will offer an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Investment in Growth Portfolio The Fund invests all of its assets in Growth Portfolio (the Portfolio), a series of Growth Trust (the Trust), an open-end investment company that has the same objectives as the Fund. The Portfolio invests primarily in common stocks and securities convertible into common stocks of U.S. and foreign companies that appear to offer growth opportunities. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund as of Jan. 31, 2004 was 99.99%. Valuation of securities held by the Portfolio is discussed in Note 1 of the Portfolio's "Notes to financial statements" (included elsewhere in this report). Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - -------------------------------------------------------------------------------- 22 - AXP GROWTH FUND - 2004 SEMIANNUAL 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. Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with AEFC to provide administrative services. Under an Administrative Services Agreement, the Fund pays AEFC a fee for administrative and accounting services at a percentage of the Fund's average daily net assets in reducing percentages 0.05% to 0.02% annually. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees, and any other expenses properly payable by the Fund and approved by the board. Under a 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 Fund's 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. - -------------------------------------------------------------------------------- 23 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT 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. 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 $2,396,819 for Class A, $436,451 for Class B and $2,181 for Class C for the six months ended Jan.31, 2004. During the six months ended Jan. 31, 2004, the Fund's transfer agency fees were reduced by $14,424 as a result of earnings credits from overnight cash balances. 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Jan. 31, 2004 Class A Class B Class C Class Y Sold 5,049,553 2,316,869 124,387 2,512,018 Issued for reinvested distributions -- -- -- -- Redeemed (9,561,348) (3,632,096) (67,551) (4,792,818) ---------- ---------- ------- ---------- Net increase (decrease) (4,511,795) (1,315,227) 56,836 (2,280,800) ---------- ---------- ------ ---------- Year ended July 31, 2003 Class A Class B Class C Class Y Sold 13,842,204 5,510,181 283,408 6,670,940 Issued for reinvested distributions -- -- -- -- Redeemed (20,576,625) (12,101,320) (89,705) (12,224,761) ----------- ----------- ------- ----------- Net increase (decrease) (6,734,421) (6,591,139) 193,703 (5,553,821) ---------- ---------- ------- ----------
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 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 six months ended Jan. 31, 2004. - -------------------------------------------------------------------------------- 24 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $1,525,200,562 as of July 31, 2003, that will expire in 2010 through 2012 if not offset by capital gains. It is unlikely the board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. 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, 2004(g) 2003 2002 2001 2000 Net asset value, beginning of period $22.80 $20.88 $29.68 $ 54.36 $42.14 Income from investment operations: Net investment income (loss) .02 -- (.04) (.14) (.14) Net gains (losses) (both realized and unrealized) 1.78 1.92 (8.74) (22.34) 13.14 Total from investment operations 1.80 1.92 (8.78) (22.48) 13.00 Less distributions: Distributions from realized gains -- -- (.02) (2.20) (.78) Net asset value, end of period $24.60 $22.80 $20.88 $ 29.68 $54.36 Ratios/supplemental data Net assets, end of period (in millions) $2,331 $2,263 $2,213 $3,851 $6,637 Ratio of expenses to average daily net assets(c) 1.06%(d) 1.21% .99% .99% .99% Ratio of net investment income (loss) to average daily net assets .12%(d) --% (.15%) (.34%) (.30%) Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23% Total return(e) 7.89%(f) 9.20% (29.59%) (42.14%) 31.01%
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 25 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2004(g) 2003 2002 2001 2000 Net asset value, beginning of period $21.25 $19.61 $28.11 $ 52.02 $40.65 Income from investment operations: Net investment income (loss) (.07) (.17) (.25) (.42) (.46) Net gains (losses) (both realized and unrealized) 1.66 1.81 (8.23) (21.29) 12.61 Total from investment operations 1.59 1.64 (8.48) (21.71) 12.15 Less distributions: Distributions from realized gains -- -- (.02) (2.20) (.78) Net asset value, end of period $22.84 $21.25 $19.61 $ 28.11 $52.02 Ratios/supplemental data Net assets, end of period (in millions) $803 $775 $845 $1,510 $2,468 Ratio of expenses to average daily net assets(c) 1.84%(d) 1.99% 1.77% 1.75% 1.75% Ratio of net investment income (loss) to average daily net assets (.65%)(d) (.77%) (.93%) (1.11%) (1.06%) Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23% Total return(e) 7.48%(f) 8.36% (30.18%) (42.57%) 30.02% Class C Per share income and capital changes(a) Fiscal period ended July 31, 2004(g) 2003 2002 2001 2000(b) Net asset value, beginning of period $21.25 $19.62 $28.12 $ 52.03 $52.65 Income from investment operations: Net investment income (loss) (.07) (.17) (.21) (.42) (.04) Net gains (losses) (both realized and unrealized) 1.66 1.80 (8.27) (21.29) (.58) Total from investment operations 1.59 1.63 (8.48) (21.71) (.62) Less distributions: Distributions from realized gains -- -- (.02) (2.20) -- Net asset value, end of period $22.84 $21.25 $19.62 $ 28.12 $52.03 Ratios/supplemental data Net assets, end of period (in millions) $14 $12 $7 $9 $1 Ratio of expenses to average daily net assets(c) 1.83%(d) 2.01% 1.80% 1.75% 1.75%(d) Ratio of net investment income (loss) to average daily net assets (.65%)(d) (.81%) (.96%) (1.10%) (1.30%)(d) Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23% Total return(e) 7.48%(f) 8.31% (30.17%) (42.56%) (1.18%)(f)
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 26 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2004(g) 2003 2002 2001 2000 Net asset value, beginning of period $23.09 $21.11 $29.96 $ 54.75 $42.37 Income from investment operations: Net investment income (loss) .04 .04 -- (.07) (.06) Net gains (losses) (both realized and unrealized) 1.81 1.94 (8.83) (22.52) 13.22 Total from investment operations 1.85 1.98 (8.83) (22.59) 13.16 Less distributions: Distributions from realized gains -- -- (.02) (2.20) (.78) Net asset value, end of period $24.94 $23.09 $21.11 $ 29.96 $54.75 Ratios/supplemental data Net assets, end of period (in millions) $373 $398 $481 $974 $1,551 Ratio of expenses to average daily net assets(c) .89%(d) 1.03% .82% .83% .83% Ratio of net investment income (loss) to average daily net assets .31%(d) .18% .02% (.18%) (.14%) Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23% Total return(e) 8.01%(f) 9.38% (29.48%) (42.04%) 31.20%
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. (g) Six months ended Jan. 31, 2004 (Unaudited). 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. - -------------------------------------------------------------------------------- 27 - AXP GROWTH FUND - 2004 SEMIANNUAL 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. AXP(R) Large Cap Equity Fund Semiannual Report for the Period Ended Jan. 31, 2004 AXP Large Cap Equity Fund seeks to provide shareholders with long-term growth of capital. (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 Investments in Securities 8 Financial Statements 11 Notes to Financial Statements 14 Proxy Voting 22 (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- 2 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Fund Snapshot AS OF JAN. 31, 2004 PORTFOLIO MANAGER Portfolio manager Doug Chase Since 3/02 Years in industry 12 FUND OBJECTIVE The Fund seeks to provide shareholders with long-term growth of capital. Inception dates A: 3/28/02 B: 3/28/02 C: 3/28/02 Y: 3/28/02 Ticker symbols A: ALEAX B: ALEBX C: -- Y: -- Total net assets $300.2 million Number of holdings 100 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 22.3% Financials 20.0% Consumer discretionary 13.5% Technology 13.2% Consumer staples 10.3% Industrials 7.2% Energy 6.5% Materials 3.5% Short-term securities 2.5% Telecommunications 0.5% Utilities 0.5% TOP TEN HOLDINGS Percentage of portfolio assets Pfizer (Health care products) 6.7% Citigroup (Finance companies) 4.9 Cendant (Media) 3.3 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) 2.3 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Stock prices of established companies that pay dividends may be less volatile than the stock market as a whole. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 3 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Doug Chase discusses AXP(R) Large Cap Equity Fund's results and positioning for the first half of fiscal year 2004. Q: How did the AXP Large Cap Equity Fund perform for the six months ended Jan. 31, 2004? A: AXP Large Cap Equity Fund's Class A shares advanced 11.85%, excluding sales charge, for the six months ended Jan. 31, 2004. This was less than the Fund's benchmark, the Russell 1000(R) Index, which advanced 15.52% for the period. The Fund also underperformed its peers as represented by the Lipper Large-Cap Core Funds Index, which gained 13.12% over the same time frame. Q: What factors significantly affected performance? A: While the Fund benefited from the stock market's ongoing rally, in this most recent six-month period, it lagged its benchmark and peers for two primary reasons, 1) we favored stable growth companies with sound balance sheets while the market rewarded owners of unproven, more volatile companies, and 2) we focused on large-cap companies while the market rewarded smaller and less well-capitalized companies. During the semiannual period, smaller capitalization stocks, in general, performed better than more established companies. This trend, which was evident even within the large-cap oriented S&P 500 Index, negatively affected the Fund's relative performance. (bar chart) PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2004 20% (bar 2) 15% (bar 1) +15.52% (bar 3) +11.85% +13.12% 10% 5% 0% (bar 1) Large Cap Equity Fund Class A (excluding sales charge) (bar 2) Russell 1000(R) Index(1) (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index(2) (1) The Russell 1000(R) Index, an unmanaged index, measures the performance of the 1,000 largest companies in the Russell 3000(R) Index, a broad measure of equity market performance. (2) Lipper Large-Cap Core Funds Index, published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 4 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> 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. (end callout quote) At the start of our fiscal period, we made a strategic decision to emphasize stable growth companies because our research inputs suggested that economically sensitive stocks were discounting improved profits in the near term. As it turned out, economic growth and corporate earnings were stronger than anticipated. In that environment, more economically sensitive sectors such as materials, industrials, technology, consumer discretionary and telecommunications
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class Y (Inception dates) (3/28/02) (3/28/02) (3/28/02) (3/28/02) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) as of Jan. 31, 2004 6 months* +11.85% +5.43% +11.42% +7.42% +11.39% +10.39% +11.87% +11.87% 1 year +30.93% +23.40% +29.65% +25.65% +29.57% +29.57% +30.89% +30.89% Since inception +0.77% -2.41% -0.09% -2.24% +0.02% +0.02% +0.90% +0.90% as of Dec. 31, 2003 6 months* +10.95% +4.58% +10.26% +5.26% +10.24% +9.24% +10.72% +10.72% 1 year +27.57% +20.24% +26.29% +22.29% +26.23% +26.23% +27.54% +27.54% Since inception +0.35% -2.97% -0.56% -2.80% -0.45% -0.45% +0.48% +0.48%
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. * Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 5 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Questions & Answers outperformed, while consumer staples, health care and utilities -- the more stable growth sectors -- lagged. The portfolio's larger-than-index position in health care detracted from relative performance, as did its lower-than-index position in technology. Moreover, we had moved the Fund to a lower-than-index position in consumer discretionary stocks over the course of the past year, which proved a disadvantage in the near term given that sector's strong relative performance. The portfolio's higher-than-index position in the industrial sector benefited relative return. Cendant, in particular, a real estate and travel services company, was a strong performer for the Fund. The portfolio's larger-than-index position in energy benefited relative performance as well, particularly as these stocks rallied in late autumn. Q: What changes were made to the portfolio during the period? A: In August 2003, at the start of our fiscal period, we began to scale back the Fund's exposure to cyclical stocks by reducing our positions in the retail, industrial and materials sectors. Although this move hampered the Fund's performance during the past six months, we remain wary of these sectors because we believe expectations priced into many of these stocks are much too high. We added to media stocks in the portfolio during the period. Although media is a cyclical sector, so far it has not kept pace with the other cyclical sectors and, therefore, in our view, has room for further price appreciation. While we did take some profits in a handful of media stocks that had been strong performers for the Fund, including AOL Time Warner, we continue to hold significant positions in some of media stocks, including Viacom, our largest individual overweight in media relative to the benchmark. Late in the period, we trimmed some of our position in pharmaceutical firm Wyeth, which had appreciated significantly, and used a portion of the proceeds to add a broader mix of pharmaceutical stocks including Johnson & Johnson, Forest Labs and Novartis. We maintained a higher-than-index position in health care despite recent weakness because longer term, we believe earnings in the health care industry will grow at rates faster than the market overall due to demographic factors, specifically the aging of the U.S. population. The Fund's health care position is well-diversified among pharmaceutical firms, biotechnology companies, hospitals, medical device providers and drug distributors. In the near term, because we have some concern that health care stocks may suffer from rhetoric related to the presidential election, we will likely be a bit cautious in adding further to the health care sector, but may take advantage of any election-related declines to add to some existing positions given our constructive long-term views. - -------------------------------------------------------------------------------- 6 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Questions & Answers Among other changes, we trimmed our energy position, particularly in December after the energy stocks rallied. We also reduced our position in General Electric following its recent advance because we are skeptical of the company's ability to grow earnings this year. We maintained some exposure to industrials and energy, and have kept the Fund's weighting in the materials sector similar to that of the index. This positioning should contribute to the Fund's performance should the economy continue to deliver unusually strong growth. Within each of those sectors we have focused on selected companies that we believe demonstrate quality growth. Q: How will you manage the Fund in the coming months? A: Regardless of the economic environment, we expect to continue to adhere to our strategy of identifying stocks with strong fundamentals, sustainable growth rates and reasonable valuations. More cyclical stocks, in our view, are already trading at valuations which discount strong 2005 earnings growth. One key issue for the market and for our investment style 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 multi-national 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 detergents. We think such companies are attractive given the improved export environment. Currently, we believe the most attractive 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 Index. 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 LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Investments in Securities AXP Large Cap Equity Fund Jan. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (98.5%) Issuer Shares Value(a) Aerospace & defense (2.6%) Empresa Brasileira de Aeronautica ADR 21,550(c) $635,079 Lockheed Martin 57,125 2,777,418 Northrop Grumman 16,261 1,572,601 United Technologies 29,468 2,815,372 Total 7,800,470 Banks and savings & loans (3.5%) Bank of America 56,700 4,618,782 U.S. Bancorp 60,700 1,715,989 Washington Mutual 23,600 1,045,480 Wells Fargo 55,700 3,197,737 Total 10,577,988 Beverages & tobacco (5.3%) Altria Group 89,100 4,953,069 Anheuser-Busch Companies 13,800 699,936 Coca-Cola 30,800 1,516,592 PepsiCo 184,624 8,725,330 Total 15,894,927 Broker dealers (1.8%) Merrill Lynch & Co 44,201 2,598,577 Morgan Stanley 49,300 2,869,753 Total 5,468,330 Building materials & construction (0.5%) American Standard 14,000(b) 1,486,800 Cable (0.6%) EchoStar Communications Cl A 25,400(b) 927,100 NTL 15,369(b) 1,019,579 Total 1,946,679 Cellular telecommunications (0.5%) Nextel Communications Cl A 57,400(b) 1,514,786 Chemicals (1.5%) Dow Chemical 54,645 2,292,358 Lyondell Chemical 122,892 2,106,369 Total 4,398,727 Computer hardware (4.8%) Cisco Systems 217,400(b) 5,574,136 Dell 113,700(b) 3,805,539 Hewlett-Packard 179,300 4,265,547 NVIDIA 30,200(b) 671,950 Total 14,317,172 Computer software & services (4.4%) Affiliated Computer Services Cl A 12,200(b) 676,490 BMC Software 38,100(b) 758,190 Investors Financial Services 12,200 505,568 Microsoft 315,200 8,715,280 Oracle 120,800(b) 1,668,248 VERITAS Software 23,700(b) 778,782 Total 13,102,558 Electronics (4.2%) Analog Devices 39,021 1,867,155 Applied Materials 40,600(b) 883,456 Intel 189,100 5,786,460 Jabil Circuit 18,000(b) 532,800 KLA-Tencor 26,300(b) 1,500,941 STMicroelectronics 53,000(c) 1,422,520 Taiwan Semiconductor Mfg ADR 67,600(c) 755,768 Total 12,749,100 Energy (5.2%) ChevronTexaco 49,100 4,239,785 ConocoPhillips 41,873 2,758,593 Devon Energy 25,500 1,439,730 Exxon Mobil 158,746 6,475,250 Newfield Exploration 16,800(b) 792,792 Total 15,706,150 Energy equipment & services (1.3%) Halliburton 54,200 1,634,130 Noble 40,400(b) 1,498,840 Weatherford Intl 19,400(b) 782,208 Total 3,915,178 Finance companies (4.9%) Citigroup 298,008 14,745,436 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 8 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Financial services (4.9%) Capital One Financial 18,500 $1,314,980 Countrywide Financial 32,033 2,676,357 Fannie Mae 96,797 7,463,049 MBNA 116,927 3,152,352 Total 14,606,738 Health care products (16.0%) Amgen 64,900(b) 4,185,401 Baxter Intl 74,200 2,162,930 Boston Scientific 42,100(b) 1,717,259 Forest Laboratories 47,100(b) 3,508,479 Gilead Sciences 12,100(b) 663,927 Johnson & Johnson 127,200 6,795,024 Medtronic 40,700 2,003,254 Merck & Co 32,700 1,556,520 Novartis ADR 71,200(c) 3,214,680 Pfizer 551,900 20,216,096 Teva Pharmaceutical Inds ADR 12,200(c) 763,598 Wyeth 34,300 1,404,585 Total 48,191,753 Health care services (6.5%) AmerisourceBergen 79,655 4,385,008 Anthem 19,800(b) 1,619,244 Cardinal Health 56,400 3,615,804 Caremark Rx 30,100(b) 805,175 HCA 37,000 1,661,300 McKesson 242,666 7,129,527 Tenet Healthcare 24,300(b) 301,320 Total 19,517,378 Household products (5.1%) Colgate-Palmolive 159,400 8,172,438 Procter & Gamble 70,658 7,142,111 Total 15,314,549 Insurance (5.1%) ACE 35,047(c) 1,521,741 Allstate 74,800 3,400,408 American Intl Group 54,494 3,784,608 Chubb 65,600 4,689,744 Hartford Financial Services Group 18,300 1,177,422 MBIA 12,000 756,000 Total 15,329,923 Leisure time & entertainment (4.3%) Mattel 172,100 3,254,411 Viacom Cl B 239,200 9,639,760 Total 12,894,171 Machinery (0.8%) Caterpillar 30,156 2,356,088 Media (6.9%) Cendant 444,435(b) 10,066,453 Disney (Walt) 248,200 5,956,800 InterActiveCorp 48,100(b) 1,558,440 Liberty Media Cl A 135,200(b) 1,573,728 Tribune 29,400 1,504,986 Total 20,660,407 Multi-industry (3.9%) Accenture Cl A 32,500(b,c) 769,275 General Electric 186,850 6,283,766 ITT Inds 9,800 730,492 Tyco Intl 143,000(c) 3,825,250 Total 11,608,783 Paper & packaging (0.9%) Avery Dennison 30,600 1,902,096 Weyerhaeuser 11,500 706,790 Total 2,608,886 Precious metals (0.7%) Freeport McMoRan Cooper & Gold Cl B 54,441 2,006,695 Retail -- general (1.8%) Best Buy 62,800 3,164,492 Wal-Mart Stores 41,100 2,213,235 Total 5,377,727 Utilities -- electric (0.5%) Exelon 11,029 738,722 FirstEnergy 20,500 769,160 Total 1,507,882 Total common stocks (Cost: $275,975,071) $295,605,281 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 9 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Short-term securities (2.6%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (2.1%) Federal Home Loan Mtge Corp Disc Nts 03-04-04 1.01% $2,000,000 $1,998,173 04-06-04 1.03 1,700,000 1,696,947 Federal Natl Mtge Assn Disc Nt 02-19-04 1.07 2,500,000 2,498,616 Total 6,193,736 Commercial paper (0.5%) General Electric Capital 02-02-04 1.02 1,600,000 1,599,864 Total short-term securities (Cost: $7,793,436) $7,793,600 Total investments in securities (Cost: $283,768,507)(d) $303,398,881 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) At Jan. 31, 2004, the cost of securities for federal income tax purposes was approximately $283,769,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $21,748,000 Unrealized depreciation (2,118,000) ---------- Net unrealized appreciation $19,630,000 ----------- - -------------------------------------------------------------------------------- 10 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Large Cap Equity Fund Jan. 31, 2004 (Unaudited) Assets Investments in securities, at value (Note 1) (identified cost $283,768,507) $303,398,881 Capital shares receivable 1,226,438 Dividends and accrued interest receivable 268,925 Receivable for investment securities sold 6,652,596 --------- Total assets 311,546,840 ----------- Liabilities Disbursements in excess of cash on demand deposit 15,207 Capital shares payable 83,596 Payable for investment securities purchased 11,204,114 Accrued investment management services fee 4,905 Accrued distribution fee 3,901 Accrued transfer agency fee 1,587 Accrued administrative services fee 409 Other accrued expenses 70,001 ------ Total liabilities 11,383,720 ---------- Net assets applicable to outstanding capital stock $300,163,120 ============ Represented by Capital stock -- $.01 par value (Note 1) $ 606,864 Additional paid-in capital 274,008,454 Excess of distributions over net investment income (62,598) Accumulated net realized gain (loss) 5,980,026 Unrealized appreciation (depreciation) on investments 19,630,374 ---------- Total -- representing net assets applicable to outstanding capital stock $300,163,120 ============ Net assets applicable to outstanding shares: Class A $209,149,913 Class B $ 85,452,326 Class C $ 5,466,086 Class Y $ 94,795 Net asset value per share of outstanding capital stock: Class A shares 42,113,097 $ 4.97 Class B shares 17,440,845 $ 4.90 Class C shares 1,113,414 $ 4.91 Class Y shares 19,019 $ 4.98 ------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 11 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Statement of operations AXP Large Cap Equity Fund Six months ended Jan. 31, 2004 (Unaudited) Investment income Income: Dividends $ 1,583,906 Interest 52,922 Less foreign taxes withheld (3,763) ------ Total income 1,633,065 --------- Expenses (Note 2): Investment management services fee 620,137 Distribution fee Class A 175,518 Class B 294,882 Class C 18,288 Transfer agency fee 185,768 Incremental transfer agency fee Class A 13,657 Class B 10,557 Class C 663 Service fee -- Class Y 32 Administrative services fees and expenses 51,241 Compensation of board members 4,618 Custodian fees 117,032 Printing and postage 59,546 Registration fees 46,797 Audit fees 8,500 Other 3,829 ----- Total expenses 1,611,065 Expenses waived/reimbursed by AEFC (Note 2) (105,091) -------- 1,505,974 Earnings credits on cash balances (Note 2) (679) ---- Total net expenses 1,505,295 --------- Investment income (loss) -- net 127,770 ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 9,726,957 Net change in unrealized appreciation (depreciation) on investments 13,832,507 ---------- Net gain (loss) on investments 23,559,464 ---------- Net increase (decrease) in net assets resulting from operations $23,687,234 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 12 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets AXP Large Cap Equity Fund Jan. 31, 2004 July 31, 2003 Six months ended Year ended (Unaudited) Operations and distributions Investment income (loss) -- net $ 127,770 $ (820) Net realized gain (loss) on security transactions 9,726,957 1,719,341 Net change in unrealized appreciation (depreciation) on investments 13,832,507 7,080,694 ---------- --------- Net increase (decrease) in net assets resulting from operations 23,687,234 8,799,215 ---------- --------- Distributions to shareholders from: Net investment income Class A (190,269) (27,013) Class Y (99) (21) Net realized gain Class A (3,195,536) -- Class B (1,348,779) -- Class C (87,464) -- Class Y (1,277) -- ---------- ------- Total distributions (4,823,424) (27,034) ---------- ------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 120,257,281 72,641,134 Class B shares 46,497,071 31,826,112 Class C shares 3,306,352 1,776,439 Class Y shares 34,611 35,963 Reinvestment of distributions at net asset value Class A shares 3,355,408 25,435 Class B shares 1,328,324 -- Class C shares 83,247 -- Class Y shares 1,184 13 Payments for redemptions Class A shares (10,888,872) (6,855,152) Class B shares (Note 2) (3,276,914) (4,072,868) Class C shares (Note 2) (312,463) (107,435) Class Y shares (7,963) (1,872) ------ ------ Increase (decrease) in net assets from capital share transactions 160,377,266 95,267,769 ----------- ---------- Total increase (decrease) in net assets 179,241,076 104,039,950 Net assets at beginning of period 120,922,044 16,882,094 ----------- ---------- Net assets at end of period $300,163,120 $120,922,044 ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Notes to Financial Statements AXP Large Cap Equity Fund (Unaudited as to Jan. 31, 2004) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund invests primarily in equity securities of companies with a market capitalization greater than $5 billion at the time of purchase. 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. Effective March 4, 2004, the Fund will offer an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - -------------------------------------------------------------------------------- 14 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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. Option transactions To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. - -------------------------------------------------------------------------------- 15 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. - -------------------------------------------------------------------------------- 16 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment increased the fee by $10,797 for the six months ended Jan 31, 2004. Under an Administrative Services Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.05% to 0.02% annually. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the board. Under a 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 Fund's 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. 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. - -------------------------------------------------------------------------------- 17 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $1,244,280 for Class A, $25,947 for Class B and $977 for Class C for the six months ended Jan. 31, 2004. For the six months ended Jan. 31, 2004, AEFC and its affiliates waived certain fees and expenses to 1.25% for Class A, 2.01% for Class B, 2.00% for Class C and 1.07% for Class Y. In addition, AEFC and its affiliates have agreed to waive certain fees and expenses until July 31, 2004. Under this agreement, net expenses will not exceed 1.25% for Class A, 2.01% for Class B, 2.01% for Class C and 1.07% for Class Y of the Fund's average daily net assets. During the six months ended Jan. 31, 2004, the Fund's custodian and transfer agency fees were reduced by $679 as a result of earnings credits from overnight cash balances. The Fund also pays custodian fees to American Express Trust Company, an affiliate of AEFC. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $284,375,066 and $122,438,707, respectively, for the six months 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 $2,520 for the six months ended Jan. 31, 2004. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Jan. 31, 2004 Class A Class B Class C Class Y Sold 25,332,347 9,931,924 705,174 6,999 Issued for reinvested distributions 691,839 277,312 17,343 244 Redeemed (2,285,138) (697,705) (65,930) (1,701) ---------- -------- ------- ------ Net increase (decrease) 23,739,048 9,511,531 656,587 5,542 ---------- --------- ------- ----- Year ended July 31, 2003 Class A Class B Class C Class Y Sold 17,273,053 7,641,133 426,869 8,203 Issued for reinvested distributions 6,391 -- -- 3 Redeemed (1,688,951) (977,921) (25,450) (400) ---------- -------- ------- ---- Net increase (decrease) 15,590,493 6,663,212 401,419 7,806 ---------- --------- ------- -----
- -------------------------------------------------------------------------------- 18 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The 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 six months ended Jan. 31, 2004. 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, 2004(k) 2003 2002(b) Net asset value, beginning of period $4.53 $4.11 $5.00 Income from investment operations: Net investment income (loss) .01 .01 -- Net gains (losses) (both realized and unrealized) .53 .41 (.89) Total from investment operations .54 .42 (.89) Less distributions: Dividends from net investment income (.01) -- -- Distributions from realized gains (.09) -- -- Total distributions (.10) -- -- Net asset value, end of period $4.97 $4.53 $4.11 Ratios/supplemental data Net assets, end of period (in millions) $209 $83 $11 Ratio of expenses to average daily net assets(c),(e) 1.25%(d) 1.25% 1.25%(d) Ratio of net investment income (loss) to average daily net assets .36%(d) .24% (.11%)(d) Portfolio turnover rate (excluding short-term securities) 63% 135% 88% Total return(i) 11.85%(j) 10.22% (17.80%)(j)
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 19 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002(b) Net asset value, beginning of period $4.48 $4.10 $5.00 Income from investment operations: Net investment income (loss) (.01) (.01) (.01) Net gains (losses) (both realized and unrealized) .52 .39 (.89) Total from investment operations .51 .38 (.90) Less distributions: Distributions from realized gains (.09) -- -- Net asset value, end of period $4.90 $4.48 $4.10 Ratios/supplemental data Net assets, end of period (in millions) $85 $36 $5 Ratio of expenses to average daily net assets(c),(f) 2.01%(d) 2.01% 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.40%)(d) (.52%) (.86%)(d) Portfolio turnover rate (excluding short-term securities) 63% 135% 88% Total return(i) 11.42%(j) 9.27% (18.00%)(j) Class C Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002(b) Net asset value, beginning of period $4.49 $4.10 $5.00 Income from investment operations: Net investment income (loss) (.01) (.01) (.01) Net gains (losses) (both realized and unrealized) .52 .40 (.89) Total from investment operations .51 .39 (.90) Less distributions: Distributions from realized gains (.09) -- -- Net asset value, end of period $4.91 $4.49 $4.10 Ratios/supplemental data Net assets, end of period (in millions) $5 $2 $-- Ratio of expenses to average daily net assets(c),(g) 2.00%(d) 2.01% 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.38%)(d) (.53%) (.92%)(d) Portfolio turnover rate (excluding short-term securities) 63% 135% 88% Total return(i) 11.39%(j) 9.51% (18.00%)(j)
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 20 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002(b) Net asset value, beginning of period $4.54 $4.11 $5.00 Income from investment operations: Net investment income (loss) .01 .01 -- Net gains (losses) (both realized and unrealized) .53 .42 (.89) Total from investment operations .54 .43 (.89) Less distributions: Dividends from net investment income (.01) -- -- Distributions from realized gains (.09) -- -- Total distributions (.10) -- -- Net asset value, end of period $4.98 $4.54 $4.11 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- Ratio of expenses to average daily net assets(c),(h) 1.07%(d) 1.07% 1.07%(d) Ratio of net investment income (loss) to average daily net assets .53%(d) .45% .09%(d) Portfolio turnover rate (excluding short-term securities) 63% 135% 88% Total return(i) 11.87%(j) 10.46% (17.80%)(j)
Notes to financial highlights (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 28, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 1.35% for the six months ended Jan. 31, 2004 and 1.84% and 5.12% for the periods ended July 31, 2003 and 2002, respectively. (f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 2.12% for the six months ended Jan. 31, 2004 and 2.60% and 5.88% for the periods ended July 31, 2003 and 2002, respectively. (g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 2.11% for the six months ended Jan. 31, 2004 and 2.60% and 5.88% for the periods ended July 31, 2003 and 2002, respectively. (h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class Y would have been 1.18% for the six months ended Jan. 31, 2004 and 1.66% and 4.94% for the periods ended July 31, 2003 and 2002, respectively. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Jan. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 21 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT 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. - -------------------------------------------------------------------------------- 22 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL 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. AXP(R) Large Cap Value Fund Semiannual Report for the Period Ended Jan. 31, 2004 AXP Large Cap Value Fund seeks to provide shareholders with long-term growth of capital. (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 Investments in Securities 8 Financial Statements 12 Notes to Financial Statements 15 Proxy Voting 23 (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- 2 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Fund Snapshot AS OF JAN. 31, 2004 PORTFOLIO MANAGER Portfolio manager Bob Ewing, CFA Since 6/02 Years in industry 16 FUND OBJECTIVE The Fund seeks to provide shareholders with long-term growth of capital. Inception dates A: 6/27/02 B: 6/27/02 C: 6/27/02 Y: 6/27/02 Ticker symbols A: ALVAX B: ALVBX C: -- Y: -- Total net assets $77.6 million Number of holdings 156 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 graph) Financials 33.2% Consumer discretionary 12.0% Energy 9.7% Consumer staples 7.4% Industrials 7.1% Health care 6.9% Materials 5.9% Technology 5.2% Short-term securities 5.1% Telecommunications 5.0% Utilities 2.5% TOP TEN HOLDINGS Percentage of portfolio assets Citigroup (Financial companies) 4.4% Bank of America (Banks and savings & loans) 2.8 Exxon Mobil (Energy) 2.4 Altria Group (Beverages & tobacco) 2.1 J.P. Morgan Chase (Broker dealers) 1.9 U.S. Bancorp (Banks and savings & loans) 1.9 Wells Fargo (Banks and savings & loans) 1.9 American Intl Group (Insurance) 1.8 ChevronTexaco (Energy) 1.7 Disney (Walt) (Media) 1.7 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. - -------------------------------------------------------------------------------- 2 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Bob Ewing discusses the AXP Large Cap Value Fund's positioning and results for first half of fiscal year 2004. Q: How did AXP Large Cap Value Fund perform for the first half of fiscal year 2004? A: AXP Large Cap Value Fund's Class A shares advanced 14.54%, excluding sales charge, for the six months ended Jan. 31, 2004. The Fund underperformed its peers, as represented by the Lipper Large-Cap Value Funds Index, which advanced 15.72% for the period. The Fund's benchmark, the Russell 1000(R) Value Index, gained 16.86%. Q: What factors had a significant effect on performance? A: The Fund benefited from the prolonged stock market rally, yet lagged its benchmark and peers slightly due to its more conservative portfolio and its continued emphasis on higher-quality stocks, during a period when lower-quality stocks and higher-risk sectors generally outperformed. The majority of the Fund's underperformance occurred in August, when the market embraced the idea of a vigorous economic recovery which, in turn, benefited volatile growth stocks significantly more than conservative value stocks. (bar graph) PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2004 20% (bar 1) (bar 2) (bar 3) 15% +14.54% +16.86% +15.72% 10% 5% 0% (bar 1) AXP Large Cap Value Fund Class A (excluding sales charge) (bar 2) Russell 1000(R) Value Index(1) (unmanaged) (bar 3) Lipper Large-Cap Value Funds Index(2) (1) The Russell 1000(R) Value Index, an unmanaged index, measures the performance of the large capitalization value portion of the Russell 1000(R) Index. The Russell 1000(R) Value index consists of companies with lower price-to-book ratios and lower forecasted growth values. (2) The Lipper Large-Cap Value Funds Index, published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 4 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> We intend to maintain our focus on relative value, which has been the Fund's strategy since its launch in June 2002. (end callout quote) There were a number of individual stocks in the portfolio that added significant value during the past six months. These include NTL, a U.K. cable company, which has advanced nicely following its emergence from bankruptcy. We believe the company has fixed its financial structure and is fundamentally well positioned within its market. At the start of our fiscal period, we began building
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class Y (Inception dates) (6/27/02) (6/27/02) (6/27/02) (6/27/02) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) as of Jan. 31, 2004 6 months* +14.54% +7.95% +14.11% +10.11% +14.31% +13.31% +14.83% +14.83% 1 year +33.58% +25.89% +32.60% +28.60% +32.87% +32.87% +34.20% +34.20% Since inception +10.19% +6.18% +9.40% +7.01% +9.42% +9.42% +10.52% +10.52% as of Dec. 31, 2003 6 months* +14.22% +7.66% +13.57% +8.57% +13.76% +12.76% +14.31% +14.31% 1 year +28.01% +20.65% +27.05% +23.05% +27.01% +27.01% +28.37% +28.37% Since inception +9.71% +5.50% +8.87% +6.33% +8.89% +8.89% +9.93% +9.93%
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. * Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 5 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Questions & Answers a position in NTL as it appeared relatively inexpensive and the market appeared to be underestimating its prospects. Another holding that benefited performance was Capital One Financial, a credit card company, whose stock performed well as signs of an improving economy lessened investors' concerns about consumer delinquencies. Integrated oil company ConocoPhillips contributed nicely to performance as well as the company benefited from higher energy prices and the cyclical recovery. Stock selection among consumer discretionary stocks detracted from the Fund's relative performance. At the start of the period, we had expected many consumer discretionary categories to underperform, but as the signs of an improving economy continued to build, the market remained enthusiastic about consumers' continued ability to purchase big-ticket items. Consequently, the Fund's conservative positioning in selected retailers and media companies hurt relative performance. Another source of underperformance was the Fund's lower-than-index positions in a number of stocks that performed well. ExxonMobil, for instance, detracted from relative performance as the stock advanced strongly. Exxon is the largest and one of the most expensive oil stocks in the benchmark. The Fund had a lower-than-index position in Exxon due to our perference to own what we believe are more attractively valued energy stocks. Similarly, the Fund had a lower-than-index position in IBM, which was not one of the strongest technology stocks, but did outpace the Russell 1000 Value Index. Another strong performer in the index was Lucent Technologies, a stock which we avoided due to our concerns on Lucent's balance sheet as well as fundamentals within the telecom equipment sector. The Fund's cash position also detracted from its relative return. Q: What changes did you make to the portfolio during the period? A: As always, we made a number of changes to specific portfolio holdings as selected stocks reached their price targets and others appeared to us more attractively valued. However, we have not meaningfully altered the Fund's thematic orientation, which was implemented last summer. Given the relatively high valuations on many stocks - -------------------------------------------------------------------------------- 6 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Questions & Answers and the strong economic growth currently being discounted by the market, we continue to believe this makes sense. The four themes are: 1) We believe higher-quality companies may outperform in the coming months. While lower-quality stocks performed better in the early stages of the current economic recovery we anticipate that higher-quality stocks could take the lead in 2004. 2) We emphasize sectors and industries in which the market has behaved inconsistently. For example, energy, which has lagged other cyclical sectors, remains a core position in the Fund. We take the view that if the market expects the economy to remain strong, and it apparently does, all economically sensitive sectors should benefit. Up to this point, energy has been largely left behind and has lagged other cyclically sensitive sectors. 3) History suggests current valuations may be extended. Therefore, we believe it is prudent risk management to reduce the Fund's overall price-to-earnings ratio. 4) We have positioned the portfolio to perform well in a flat market since stocks rose dramatically in 2003 and we don't see catalysts for a repeat performance in 2004. Q: How do you plan to manage the Fund in the coming months? A: We intend to maintain our focus on relative value, which has been the Fund's strategy since its launch in June 2002. Our team of analysts will continue to build the portfolio on a stock-by-stock basis, seeking companies with potential for earnings growth that offer good value relative to the overall market, their peers and even to their own histories. Although we expect the economy to continue improving, we have a fair amount of concern that its pace could fall short of current investor expectations. We are also concerned about stock valuations. We believe that if the economic recovery is as vigorous as expected, the Federal Reserve may be forced to raise interest rates, which will likely be a negative for stocks. If economic growth is not as vigorous, there will likely be corporate earnings disappointments, also negative for stocks. It is our opinion that when stocks are expensive, as current valuations suggest they may be, our most prudent course of action is to take some risk out of the portfolio. For this reason, we have chosen to position the Fund a bit more conservatively at this time. - -------------------------------------------------------------------------------- 7 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Investments in Securities AXP Large Cap Value Fund Jan. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (93.8%) Issuer Shares Value(a) Aerospace & defense (3.3%) Boeing 10,211 $426,309 Empresa Brasileira de Aeronautica ADR 6,050(c) 178,294 General Dynamics 2,700 246,861 Lockheed Martin 12,865 625,496 Northrop Grumman 6,266 605,985 United Technologies 4,691 448,178 Total 2,531,123 Automotive & related (0.4%) General Motors 6,815 338,569 Banks and savings & loans (12.2%) Bank of America 26,590 2,166,020 Bank of New York 8,529 270,796 Bank One 12,309 622,958 Commerce Bancorp 4,200 245,910 FleetBoston Financial 24,303 1,083,428 PNC Financial Services Group 11,040 623,870 U.S. Bancorp 52,550 1,485,589 Wachovia 16,198 748,996 Washington Mutual 17,154 759,922 Wells Fargo 24,986 1,434,446 Total 9,441,935 Beverages & tobacco (4.2%) Altria Group 29,137 1,619,725 Coca-Cola 13,490 664,248 Pepsi Bottling Group 6,950 184,245 PepsiCo 13,315 629,267 RJ Reynolds Tobacco Holdings 2,650 156,509 Total 3,253,994 Broker dealers (4.6%) J.P. Morgan Chase 38,217 1,486,259 Merrill Lynch & Co 16,897 993,375 Morgan Stanley 19,156 1,115,071 Total 3,594,705 Building materials & construction (1.1%) American Standard 2,800(b) 297,360 Masco 9,415 251,004 Temple-Inland 5,172 305,407 Total 853,771 Cable (2.4%) Comcast Cl A 13,114(b) 447,450 Comcast Special Cl A 14,941(b) 492,306 EchoStar Communications Cl A 8,475(b) 309,338 NTL 9,542(b) 633,015 Total 1,882,109 Cellular telecommunications (0.3%) Vodafone Group ADR 9,400(c) 240,640 Chemicals (2.4%) Dow Chemical 24,584 1,031,299 Eastman Chemical 4,250 169,533 Hercules 6,600(b) 80,520 Lyondell Chemical 23,152 396,825 RPM Intl 11,600 196,040 Total 1,874,217 Computer hardware (2.2%) Apple Computer 8,258(b) 186,300 Cisco Systems 10,718(b) 274,810 Dell 6,250(b) 209,188 Hewlett-Packard 44,583 1,060,629 Total 1,730,927 Computer software & services (1.5%) Affiliated Computer Services Cl A 4,850(b) 268,933 Cadence Design Systems 16,000(b) 265,120 Microsoft 6,958 192,389 Oracle 12,500(b) 172,625 State Street 5,100 274,634 Total 1,173,701 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 8 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Electronics (1.4%) Intel 11,000 $336,601 Natl Semiconductor 8,332(b) 320,365 Teradyne 8,346(b) 224,507 Texas Instruments 6,104 191,360 Total 1,072,833 Energy (8.0%) Anadarko Petroleum 4,100 204,590 BP ADR 17,500(c) 833,000 ChevronTexaco 15,195 1,312,088 ConocoPhillips 19,540 1,287,295 Devon Energy 5,700 321,822 Exxon Mobil 45,296 1,847,624 Newfield Exploration 8,000(b) 377,520 Total 6,183,939 Energy equipment & services (1.6%) Cooper Cameron 5,600(b) 233,520 Schlumberger 3,795 232,178 Transocean 7,301(b) 196,689 Weatherford Intl 15,300(b) 616,896 Total 1,279,283 Environmental services (0.2%) Allied Waste Inds 13,075(b) 178,474 Finance companies (4.4%) Citigroup 68,491 3,388,935 Financial services (4.4%) Capital One Financial 6,300 447,804 Countrywide Financial 3,183 265,940 Fannie Mae 13,349 1,029,208 Freddie Mac 19,434 1,213,070 MBNA 18,197 490,591 Total 3,446,613 Food (0.5%) Kraft Foods Cl A 6,286 202,472 Sara Lee 7,800 166,296 Total 368,768 Furniture & appliances (0.2%) Leggett & Platt 6,888 169,720 Health care products (4.9%) Amgen 1,250(b) 80,613 Baxter Intl 13,600 396,440 Boston Scientific 1,950(b) 79,541 Bristol-Myers Squibb 7,806 218,958 Gilead Sciences 2,750(b) 150,893 Guidant 1,200 76,656 Medco Health Solutions 7,072(b) 260,603 Merck & Co 23,635 1,125,025 Novartis ADR 4,900(c) 221,235 Pfizer 16,303 597,179 Schering-Plough 12,623 221,407 Wyeth 8,658 354,545 Total 3,783,095 Health care services (2.0%) Aetna 4,950 346,500 HCA 6,008 269,759 Lincare Holdings 4,963(b) 159,709 Select Medical 9,000 155,700 Tenet Healthcare 18,200(b) 225,680 WellPoint Health Networks 3,500(b) 367,501 Total 1,524,849 Household products (2.0%) Clorox 3,650 178,412 Colgate-Palmolive 10,850 556,280 Procter & Gamble 7,946 803,181 Total 1,537,873 Insurance (6.5%) ACE 7,138(c) 309,932 Allstate 20,991 954,251 American Intl Group 20,310 1,410,530 Chubb 9,700 693,453 CIGNA 4,750 294,595 First American 5,700 171,342 Hartford Financial Services Group 5,469 351,875 Prudential Financial 8,128 353,568 Travelers Property Casualty Cl A 13,876 251,988 Travelers Property Casualty Cl B 7,679 138,990 UnumProvident 4,900 76,587 Total 5,007,111 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 9 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Leisure time & entertainment (1.3%) Mattel 15,396 $291,138 Viacom Cl B 18,204 733,622 Total 1,024,760 Machinery (1.2%) Caterpillar 4,117 321,661 Illinois Tool Works 3,500 273,350 SPX 6,600(b) 374,484 Total 969,495 Media (4.8%) Cendant 22,200(b) 502,830 Disney (Walt) 53,820 1,291,680 InterActiveCorp 5,451(b) 176,612 Liberty Media Cl A 46,148(b) 537,163 McGraw-Hill Companies 2,337 175,322 Reader's Digest Assn 9,050 125,433 Scripps (EW) Cl A 1,900 180,709 Time Warner 20,400(b) 358,428 Tribune 7,979 408,445 Total 3,756,622 Metals (0.7%) Alcan 4,252(c) 181,263 Alcoa 10,868 371,468 Total 552,731 Multi-industry (2.3%) Accenture Cl A 10,450(b,c) 247,352 Dover 5,484 226,599 General Electric 19,873 668,328 ITT Inds 2,363 176,138 Tyco Intl 18,416(c) 492,628 Total 1,811,045 Paper & packaging (1.6%) Avery Dennison 5,200 323,231 Bowater 6,893 308,462 Intl Paper 6,343 268,119 Weyerhaeuser 5,250 322,665 Total 1,222,477 Real estate investment trust (0.7%) Apartment Investment & Management Cl A 4,268 150,148 Equity Office Properties Trust 13,656 404,901 Total 555,049 Restaurants (0.9%) Brinker Intl 3,300(b) 116,655 McDonald's 22,599 581,698 Total 698,353 Retail -- general (1.7%) BJ's Wholesale Club 7,085(b) 153,390 Costco Wholesale 7,400(b) 274,392 Home Depot 8,593 304,794 Kohl's 1,400(b) 62,020 Sonic Automotive 9,718 217,489 Target 7,854 298,138 Total 1,310,223 Retail -- grocery (0.6%) Kroger 14,500(b) 268,685 Safeway 9,470(b) 213,927 Total 482,612 Telecom equipment & services (0.6%) Motorola 9,234 153,100 Nokia ADR 15,480(c) 319,817 Total 472,917 Utilities -- electric (2.5%) Dominion Resources 9,810 629,410 Exelon 8,700 582,726 FirstEnergy 9,445 354,376 Pepco Holdings 17,200 346,236 Total 1,912,748 Utilities -- telephone (4.1%) BellSouth 26,488 774,244 KT ADR 17,196(c) 321,221 SBC Communications 39,573 1,009,112 Verizon Communications 28,281 1,042,438 Total 3,147,015 Total common stocks (Cost: $63,966,996) $72,773,231 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Short-term securities (5.0%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies Federal Home Loan Mtge Corp Disc Nts 02-12-04 1.07% $500,000 $499,818 03-04-04 1.08 800,000 799,269 03-11-04 1.06 1,600,000 1,598,274 Federal Natl Mtge Assn Disc Nts 02-04-04 1.08 500,000 499,931 04-21-04 1.00 500,000 498,892 Total short-term securities (Cost: $3,895,969) $3,896,184 Total investments in securities (Cost: $67,862,965)(d) $76,669,415 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) At Jan. 31, 2004, the cost of securities for federal income tax purposes was approximately $67,863,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $9,051,000 Unrealized depreciation (245,000) -------- Net unrealized appreciation $8,806,000 ---------- - -------------------------------------------------------------------------------- 11 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Large Cap Value Fund Jan. 31, 2004 (Unaudited) Assets Investments in securities, at value (Note 1) Total investments in securities (identified cost $67,862,965) $76,669,415 Cash in bank on demand deposit 67,405 Capital shares receivable 289,578 Dividends and accrued interest receivable 99,934 Receivable for investment securities sold 2,037,704 --------- Total assets 79,164,036 ---------- Liabilities Payable for investment securities purchased 1,508,823 Accrued investment management services fee 1,268 Accrued distribution fee 1,024 Accrued transfer agency fee 369 Accrued administrative services fee 106 Other accrued expenses 75,891 ------ Total liabilities 1,587,481 --------- Net assets applicable to outstanding capital stock $77,576,555 =========== Represented by Capital stock -- $.01 par value (Note 1) $ 143,299 Additional paid-in capital 68,288,075 Undistributed net investment income 15,036 Accumulated net realized gain (loss) 323,695 Unrealized appreciation (depreciation) on investments 8,806,450 --------- Total -- representing net assets applicable to outstanding capital stock $77,576,555 =========== Net assets applicable to outstanding shares: Class A $53,233,818 Class B $23,103,965 Class C $ 1,196,866 Class Y $ 41,906 Net asset value per share of outstanding capital stock: Class A shares 9,815,530 $ 5.42 Class B shares 4,284,638 $ 5.39 Class C shares 222,048 $ 5.39 Class Y shares 7,707 $ 5.44 ----- -----------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 12 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Statement of operations AXP Large Cap Value Fund Six months ended Jan. 31, 2004 (Unaudited) Investment income Income: Dividends $ 638,562 Interest 20,669 Less foreign taxes withheld (637) ---- Total income 658,594 ------- Expenses (Note 2): Investment management services fee 181,232 Distribution fee Class A 51,398 Class B 90,830 Class C 4,954 Transfer agency fee 50,750 Incremental transfer agency fee Class A 3,643 Class B 3,023 Class C 177 Service fee -- Class Y 17 Administrative services fees and expenses 14,977 Compensation of board members 4,618 Custodian fees 107,975 Printing and postage 19,715 Registration fees 29,895 Audit fees 8,500 Other 2,484 ----- Total expenses 574,188 Expenses waived/reimbursed by AEFC (Note 2) (124,809) -------- 449,379 Earnings credits on cash balances (Note 2) (907) ---- Total net expenses 448,472 ------- Investment income (loss) -- net 210,122 ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 2,714,492 Net change in unrealized appreciation (depreciation) on investments 5,644,342 --------- Net gain (loss) on investments 8,358,834 --------- Net increase (decrease) in net assets resulting from operations $8,568,956 ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Statements of changes in net assets AXP Large Cap Value Fund Jan. 31, 2004 July 31, 2003 Six months ended Year ended (Unaudited) Operations and distributions Investment income (loss) -- net $ 210,122 $ 177,570 Net realized gain (loss) on investments 2,714,492 673,743 Net change in unrealized appreciation (depreciation) on investments 5,644,342 3,294,759 --------- --------- Net increase (decrease) in net assets resulting from operations 8,568,956 4,146,072 --------- --------- Distributions to shareholders from: Net investment income Class A (291,029) (40,203) Class B (35,772) (7,259) Class C (1,580) (539) Class Y (292) (39) Net realized gain Class A (2,044,838) -- Class B (923,949) -- Class C (49,121) -- Class Y (1,778) -- ---------- ------- Total distributions (3,348,359) (48,040) ---------- ------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 21,376,618 26,344,197 Class B shares 8,660,334 12,297,591 Class C shares 443,785 637,405 Class Y shares 11,836 11,000 Reinvestment of distributions at net asset value Class A shares 2,311,717 34,417 Class B shares 951,079 7,127 Class C shares 49,389 514 Class Y shares 1,511 9 Payments for redemptions Class A shares (4,883,526) (2,271,256) Class B shares (Note 2) (1,485,592) (1,533,475) Class C shares (Note 2) (137,879) (11,095) - -------- ------- Increase (decrease) in net assets from capital share transactions 27,299,272 35,516,434 ---------- ---------- Total increase (decrease) in net assets 32,519,869 39,614,466 Net assets at beginning of period 45,056,686 5,442,220 ---------- --------- Net assets at end of period $77,576,555 $45,056,686 =========== =========== Undistributed net investment income $ 15,036 $ 133,587 ----------- -----------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Notes to Financial Statements AXP Large Cap Value Fund (Unaudited as to Jan. 31, 2004) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund invests primarily in equity securities of companies with a market capitalization greater than $5 billion. 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. Effective March 4, 2004, the Fund will offer an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. 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. - -------------------------------------------------------------------------------- 15 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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. Option transactions To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. - -------------------------------------------------------------------------------- 16 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. - -------------------------------------------------------------------------------- 17 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Value Funds Index. 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 $303 for the six months ended Jan. 31, 2004. Under an Administrative Services Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.05% to 0.02% annually. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the board. Under a 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 Fund's 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. 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. - -------------------------------------------------------------------------------- 18 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT Sales charges received by the Distributor for distributing Fund shares were $217,865 for Class A, $8,128 for Class B and $374 for Class C for the six months ended Jan. 31, 2004. For the six months ended Jan. 31, 2004, AEFC and its affiliates waived certain fees and expenses to 1.25% for Class A, 2.01% for Class B, 2.00% for Class C and 1.07% for Class Y. In addition, AEFC and its affiliates have agreed to waive certain fees and expenses until July 31, 2004. Under this agreement, net expenses will not exceed 1.25% for Class A, 2.01% for Class B, 2.01% for Class C and 1.07% for Class Y of the Fund's average daily net assets. During the six months ended Jan. 31, 2004, the Fund's custodian and transfer agency fees were reduced by $907 as a result of earnings credits from overnight cash balances. The Fund also pays custodian fees to American Express Trust Company, an affiliate of AEFC. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $42,891,498 and $21,004,254, respectively, for the six months 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 $595 for the six months ended Jan. 31, 2004. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Jan. 31, 2004 Class A Class B Class C Class Y Sold 4,102,852 1,678,878 85,985 2,289 Issued for reinvested distributions 442,858 182,900 9,516 289 Redeemed (934,374) (285,826) (26,069) -- --------- --------- ------ ----- Net increase (decrease) 3,611,336 1,575,952 69,432 2,578 --------- --------- ------ ----- Year ended July 31, 2003 Class A Class B Class C Class Y Sold 5,828,574 2,731,482 142,666 2,495 Issued for reinvested distributions 7,804 1,620 117 2 Redeemed (509,520) (335,784) (2,292) -- --------- --------- ------- ----- Net increase (decrease) 5,326,858 2,397,318 140,491 2,497 --------- --------- ------- -----
- -------------------------------------------------------------------------------- 19 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The 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 six months ended Jan. 31, 2004. 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, 2004(k) 2003 2002(b) Net asset value, beginning of period $4.98 $4.52 $4.90 Income from investment operations: Net investment income (loss) .02 .03 -- Net gains (losses) (both realized and unrealized) .69 .44 (.38) Total from investment operations .71 .47 (.38) Less distributions: Dividends from net investment income (.03) (.01) -- Distributions from realized gains (.24) -- -- Total distributions (.27) (.01) -- Net asset value, end of period $5.42 $4.98 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $53 $31 $4 Ratio of expenses to average daily net assets(c),(e) 1.25%(d) 1.25% 1.19%(d) Ratio of net investment income (loss) to average daily net assets .95%(d) 1.01% .23%(d) Portfolio turnover rate (excluding short-term securities) 37% 77% 9% Total return(l) 14.54%(j) 10.52% (7.75%)(j)
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 20 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002(b) Net asset value, beginning of period $4.95 $4.52 $4.90 Income from investment operations: Net investment income (loss) .01 .01 -- Net gains (losses) (both realized and unrealized) .68 .43 (.38) Total from investment operations .69 .44 (.38) Less distributions: Dividends from net investment income (.01) (.01) -- Distributions from realized gains (.24) -- -- Total distributions (.25) (.01) -- Net asset value, end of period $5.39 $4.95 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $23 $13 $1 Ratio of expenses to average daily net assets(c),(f) 2.01%(d) 2.00% 1.95%(d) Ratio of net investment income (loss) to average daily net assets .15%(d) .25% (.49%)(d) Portfolio turnover rate (excluding short-term securities) 37% 77% 9% Total return(l) 14.11%(j) 9.66% (7.75%)(j) Class C Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002(b) Net asset value, beginning of period $4.94 $4.52 $4.90 Income from investment operations: Net investment income (loss) .01 .01 -- Net gains (losses) (both realized and unrealized) .69 .42 (.38) Total from investment operations .70 .43 (.38) Less distributions: Dividends from net investment income (.01) (.01) -- Distributions from realized gains (.24) -- -- Total distributions (.25) (.01) -- Net asset value, end of period $5.39 $4.94 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $1 $1 $-- Ratio of expenses to average daily net assets(c),(g) 2.00%(d) 2.00% 1.95%(d) Ratio of net investment income (loss) to average daily net assets .19%(d) .26% (.45%)(d) Portfolio turnover rate (excluding short-term securities) 37% 77% 9% Total return(l) 14.31%(j) 9.50% (7.75%)(j)
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 21 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002(b) Net asset value, beginning of period $4.99 $4.52 $4.90 Income from investment operations: Net investment income (loss) .04 .03 -- Net gains (losses) (both realized and unrealized) .69 .45 (.38) Total from investment operations .73 .48 (.38) Less distributions: Dividends from net investment income (.04) (.01) -- Distributions from realized gains (.24) -- -- Total distributions (.28) (.01) -- Net asset value, end of period $5.44 $4.99 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- Ratio of expenses to average daily net assets(c),(h) 1.07%(d) .95% 1.01%(d) Ratio of net investment income (loss) to average daily net assets 1.13%(d) 1.30% .31%(d) Portfolio turnover rate (excluding short-term securities) 37% 77% 9% Total return(l) 14.83%(j) 10.76% (7.75%)(j)
Notes to financial highlights (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 1.66% for the six months ended Jan. 31, 2004 and 2.64% and 20.50% for the periods ended July 31, 2003 and 2002, respectively. (f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 2.42% for the six months ended Jan. 31, 2004 and 3.40% and 21.26% for the periods ended July 31, 2003 and 2002, respectively. (g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 2.43% for the six months ended Jan. 31, 2004 and 3.40% and 21.26% for the periods ended July 31, 2003 and 2002, respectively. (h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class Y would have been 1.49% for the six months ended Jan. 31, 2004 and 2.46% and 20.32% for the periods ended July 31, 2003 and 2002, respectively. (l) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Jan. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 22 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT 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. - -------------------------------------------------------------------------------- 23 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL 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. AXP(R) Quantitative Large Cap Equity Fund Semiannual Report for the Period Ended Jan. 31, 2004 AXP Quantitative Large Cap Equity Fund seeks to provide shareholders with long-term capital growth. (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 Investments in Securities 7 Financial Statements 11 Notes to Financial Statements 14 Proxy Voting 22 - -------------------------------------------------------------------------------- 2 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Fund Snapshot AS OF JAN. 31, 2004 PORTFOLIO MANAGERS Portfolio manager Dimitris J. Bertsimas Since 4/03 Years in industry 11 Portfolio manager Gina K. Mourtzinou Since 4/03 Years in industry 7 FUND OBJECTIVE This Fund seeks to provide shareholders with long-term capital growth. Inception dates A: 4/24/03 B: 4/24/03 C: 4/24/03 Y: 4/24/03 Ticker symbols A: -- B: -- C: -- Y: -- Total net assets $13.7 million Number of holdings 200 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 graph) Consumer discretionary 19.5% Technology 17.0% Financials 15.3% Health care 14.6% Consumer staples 8.9% Telecommunications 8.4% Utilities 7.0% Industrials 4.5% Energy 3.2% Materials 1.6% TOP TEN HOLDINGS Percentage of portfolio assets Intel (Electronics) 5.9% Altria Group (Beverages & tobacco) 5.6 Merck & Co (Health care products) 3.6 Amgen (Health care products) 3.2 General Motors (Automotive & related) 2.5 Fannie Mae (Financial services) 2.4 eBay (Media) 2.2 J.P. Morgan Chase (Broker dealers) 1.9 Yahoo! (Media) 1.7 Sears, Roebuck & Co (Retail -- general) 1.6 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Stock prices of established companies that pay dividends may be less volatile than the stock market as a whole. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 3 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, portfolio managers Dimitris Bertsimas and Gina Mourtzinou discuss semiannual performance for AXP Quantitative Large Cap Equity Fund. Q: How did AXP Quantitative Large Cap Equity Fund perform for the six-month period ended Jan. 31, 2004? A: AXP Quantitative Large Cap Equity Fund's Class A shares rose 15.94%, excluding sales charge. The Fund outperformed its benchmark, the S&P 500 Index, which gained 15.23%, and the Lipper Large-Cap Core Funds Index, which rose 13.12%. Q: What factors most significantly affected performance? A: Stocks selected using the Fund's three quantitative models (value, momentum and quality) drove performance in the six-month period. We do not make sector or industry bets based on our outlook for the economy or the equity markets. At the beginning of the period, the Fund invested 60% of its holdings in the momentum model, 20% in the value model and 20% in the quality model. The current allocation invests 50% in the momentum model, 30% in the value model and 20% in the quality model. The value model outperformed the S&P 500 Index for the period while both the momentum and factor models fell short. (bar graph) PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2004 20% (bar 1) (bar 2) 15% +15.94% +15.23% (bar 3) 10% +13.12% 5% 0% (bar 1) AXP Quantitative Large Cap Equity Fund Class A (excluding sales charge) (bar 2) S&P 500 Index(1) (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index(2) (1) Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the S&P 500 companies may be generally larger than those in which the Fund invests. (2) Lipper Large-Cap Core Funds Index, published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 4 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> We have made a gradual move to increase the value model to take advantage of strong performance of the model.(end callout quote) At the start of the period, lower-quality, lower-priced stocks continued their outperformance. However, the market environment began to move away from this trend later in the period. Our well-diversified portfolio has no bias for or against these lower-quality stocks.
TOTAL RETURNS Class A Class B Class C Class Y (Inception dates) (4/24/03) (4/24/03) (4/24/03) (4/24/03) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) as of Jan. 31, 2004 6 months* +15.94% +9.27% +15.46% +11.46% +15.66% +14.66% +16.00% +16.00% Since inception* +26.14% +18.89% +25.39% +21.39% +25.61% +24.61% +26.44% +26.44% as of Dec. 31, 2003 6 months* +13.26% +6.75% +12.79% +7.79% +12.80% +11.80% +13.35% +13.35% Since inception* +23.68% +16.57% +22.94% +17.94% +22.96% +21.96% +23.78% +23.78%
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. * Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 5 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Questions & Answers In relation to the benchmark, the Fund held higher-than-Index positions in autos, electronics, semiconductors and electrical utilities. The Fund held lower-than-Index positions in banks, beverages and manufacturing. Currently, our largest positions are Intel, Merck, Altria Group, Amgen and General Motors. Q: What changes did you make during the period? A: The Fund grew in size during the period. We usually rebalance the portfolio once a month, however, the influx of cash caused us to rebalance more often during the period. We have made a gradual move to increase the weighting of the value model to take advantage of strong performance of the model. Other than this move, we have not made any significant changes to the Fund. Q: How will you manage the Fund in the coming months? A: Overall, we are bullish on equities. The Fund's goal is to outpace the performance of the S&P 500 Index over time with less risk with lower than average portfolio turnover. Our focus for the coming months is to keep using our well-tested models to find the best-performing stocks regardless of market conditions. Also, we will continue our strategy of monitoring weightings as a risk control, so that no individual security, industry or sector becomes too large within the Fund's portfolio. We believe the Fund's consistent, disciplined approach will benefit performance over the long term. - -------------------------------------------------------------------------------- 6 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Investments in Securities AXP Quantitative Large Cap Equity Fund Jan. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (98.2%) Issuer Shares Value(a) Aerospace & defense (1.2%) Boeing 1,438 $60,037 General Dynamics 448 40,961 Goodrich 831 25,636 Honeywell Intl 320 11,558 Rockwell Automation 416 13,549 Rockwell Collins 322 10,526 Total 162,267 Automotive & related (3.8%) Dana 502 10,442 Delphi 5,201 55,027 General Motors 6,909 343,238 Navistar Intl 469(b) 22,301 PACCAR 1,058 83,191 Visteon 973 10,411 Total 524,610 Banks and savings & loans (3.2%) Bank of America 2,028 165,201 Charter One Financial 401 14,520 Comerica 138 7,881 First Tennessee Natl 649 28,829 FleetBoston Financial 628 27,996 Natl City 889 30,688 Union Planters 250 7,568 Washington Mutual 3,446 152,658 Total 435,341 Beverages & tobacco (6.2%) Altria Group 13,642 758,359 Coca-Cola Enterprises 901 20,633 RJ Reynolds Tobacco Holdings 1,098 64,848 Total 843,840 Broker dealers (2.8%) Bear Stearns Companies 237 19,517 J.P. Morgan Chase 6,411 249,324 Lehman Brothers Holdings 267 21,921 Merrill Lynch & Co 966 56,791 Schwab (Charles) 2,639 33,225 Total 380,778 Building materials & construction (0.1%) Louisiana-Pacific 425(b) 9,040 Cable (1.4%) Comcast Cl A 5,630(b) 192,096 Cellular telecommunications (1.7%) AT&T Wireless Services 10,184(b,d) 112,533 Nextel Communications Cl A 4,419(b) 116,618 Total 229,151 Computer hardware (1.0%) EMC 712(b) 9,996 Hewlett-Packard 1,286 30,594 Lexmark Intl Cl A 296(b) 24,535 Network Appliance 2,325(b) 51,988 NVIDIA 668(b) 14,863 Total 131,976 Computer software & services (4.9%) Adobe Systems 1,065 40,960 Citrix Systems 936(b) 18,823 Computer Associates Intl 5,171 135,171 Comverse Technology 1,288(b) 22,669 Convergys 584(b) 9,764 Electronic Arts 1,198(b) 56,138 Electronic Data Systems 3,988 95,552 Novell 723(b) 9,182 Oracle 7,604(b) 105,011 QLogic 251(b) 11,285 Siebel Systems 1,197(b) 15,956 SunGard Data Systems 625(b) 19,456 VERITAS Software 4,082(b) 134,135 Total 674,102 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 7 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Electronics (10.8%) Advanced Micro Devices 805(b) $11,962 Agilent Technologies 925(b) 34,096 Altera 2,411(b) 53,982 American Power Conversion 497 12,321 Analog Devices 1,583 75,747 Applied Materials 5,763(b) 125,402 Broadcom Cl A 307(b) 12,461 Intel 25,939 793,732 Jabil Circuit 396(b) 11,722 KLA-Tencor 1,181(b) 67,400 Linear Technology 842 33,680 LSI Logic 2,592(b) 26,672 Natl Semiconductor 746(b) 28,684 PMC-Sierra 2,297(b) 50,327 Sanmina-SCI 3,516(b) 46,095 Xerox 3,075(b) 45,018 Xilinx 1,191(b) 49,915 Total 1,479,216 Energy (3.0%) Amerada Hess 949 53,514 Anadarko Petroleum 596 29,740 Apache 504 19,394 Ashland 391 18,107 Burlington Resources 1,072 58,681 ConocoPhillips 488 32,149 Devon Energy 841 47,483 Kerr-McGee 205 9,988 Marathon Oil 1,837 59,666 Occidental Petroleum 1,907 84,004 Total 412,726 Energy equipment & services (0.1%) Halliburton 457 13,779 Finance companies (0.6%) MGIC Investment 1,148 79,143 Financial services (4.5%) Capital One Financial 482 34,261 Countrywide Financial 765 63,916 Fannie Mae 4,211 324,667 Freddie Mac 756 47,190 Janus Capital Group 1,384 23,224 MBNA 1,320 35,587 Providian Financial 3,505(b) 47,983 SLM 542 20,813 T. Rowe Price Group 388 20,226 Total 617,867 Food (0.6%) Sara Lee 4,107 87,561 Furniture & appliances (0.3%) Black & Decker 212 10,865 Maytag 390 11,170 Whirlpool 267 20,278 Total 42,313 Health care products (13.1%) Abbott Laboratories 1,137 48,982 Allergan 149 12,345 Amgen 6,774(b) 436,854 Baxter Intl 1,540 44,891 Biomet 302 11,675 Boston Scientific 3,362(b) 137,136 Bristol-Myers Squibb 1,863 52,257 Chiron 322(b) 16,647 Forest Laboratories 422(b) 31,435 Genzyme 1,201(b) 65,875 Guidant 1,943 124,119 King Pharmaceuticals 538(b) 8,974 MedImmune 1,347(b) 31,655 Merck & Co 10,222 486,566 PerkinElmer 1,422 29,364 Pfizer 3,247 118,938 Schering-Plough 2,124 37,255 St. Jude Medical 672(b) 48,283 Stryker 230 20,410 Waters 258(b) 9,781 Zimmer Holdings 245(b) 18,743 Total 1,792,185 Health care services (1.2%) Aetna 496 34,720 Cardinal Health 383 24,554 Humana 949(b) 22,140 Manor Care 360 12,852 Tenet Healthcare 4,052(b) 50,245 WellPoint Health Networks 237(b) 24,885 Total 169,396 Home building (1.3%) Centex 816 86,414 KB HOME 696 47,008 Pulte Homes 987 42,579 Total 176,001 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 8 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Household products (0.4%) Kimberly-Clark 875 $51,678 Insurance (3.8%) Allstate 1,153 52,415 Aon 1,510 37,101 CIGNA 1,455 90,239 Jefferson-Pilot 350 17,969 Lincoln Natl 652 28,786 Loews 1,903 102,115 MBIA 195 12,285 MetLife 3,045 102,159 SAFECO 382 16,628 UnumProvident 3,436 53,705 XL Capital Cl A 143(c) 11,369 Total 524,771 Leisure time & entertainment (0.2%) Hasbro 1,062 20,975 Lodging & gaming (0.3%) Intl Game Technology 1,256 47,050 Machinery (0.2%) Deere & Co 466 29,171 Thermo Electron 132(b) 3,679 Total 32,850 Media (5.5%) Cendant 8,839(b) 200,203 eBay 4,326(b) 289,972 Monster Worldwide 523(b) 12,803 Univision Communications Cl A 535(b) 18,923 Yahoo! 4,999(b) 234,203 Total 756,104 Metals (0.4%) Alcoa 877 29,976 Phelps Dodge 306(b) 23,155 United States Steel 200 6,810 Total 59,941 Multi-industry (3.1%) Eastman Kodak 2,159 61,337 General Electric 3,834 128,937 Monsanto 442 13,521 Textron 137 7,299 Tyco Intl 7,789(c) 208,357 Total 419,451 Paper & packaging (0.4%) Georgia-Pacific 1,027 28,858 Sealed Air 492(b) 24,497 Total 53,355 Precious metals (0.7%) Freeport McMoRan Cooper & Gold Cl B 975 35,939 Newmont Mining 1,320 54,991 Total 90,930 Real estate investment trust (0.2%) Equity Office Properties Trust 398 11,800 Starwood Hotels & Resorts Worldwide 299 10,567 Total 22,367 Restaurants (1.6%) McDonald's 7,079(d) 182,214 Starbucks 824(b) 30,290 Total 212,504 Retail -- drugstores (0.2%) CVS 769 27,469 Retail -- general (4.8%) Best Buy 3,526 177,674 Dollar General 1,016 22,576 Federated Dept Stores 741 35,183 Home Depot 2,685 95,237 Lowe's Companies 803 43,001 Nordstrom 266 10,454 Sears, Roebuck & Co 4,995 221,028 Tiffany 700 27,748 Toys "R" Us 2,055(b) 29,017 Total 661,918 Retail -- grocery (1.3%) Albertson's 1,602 37,423 Kroger 2,256(b) 41,804 Safeway 3,452(b) 77,980 SUPERVALU 922 26,646 Total 183,853 Telecom equipment & services (2.7%) ADC Telecommunications 3,218(b) 11,263 Avaya 1,273(b) 22,125 JDS Uniphase 5,753(b) 29,340 Motorola 7,128 118,182 QUALCOMM 2,672 156,099 Scientific-Atlanta 1,061 35,904 Total 372,913 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 9 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Utilities -- electric (6.5%) American Electric Power 971 $31,703 CenterPoint Energy 19,675 206,588 Constellation Energy Group 646 25,989 Duke Energy 3,318 72,100 Edison Intl 3,777 83,094 Exelon 466 31,213 PG&E 8,116(b) 217,914 PPL 357 16,322 Public Service Enterprise Group 1,311 59,572 TECO Energy 2,604 37,159 TXU 1,695 40,680 Xcel Energy 3,995 69,193 Total 891,527 Utilities -- natural gas (0.4%) Kinder Morgan 540 31,860 Sempra Energy 660 20,552 Total 52,412 Utilities -- telephone (3.9%) AT&T 6,645 129,312 BellSouth 1,568 45,833 Citizens Communications 1,302(b) 15,272 SBC Communications 6,514 166,106 Sprint (FON Group) 6,569 114,366 Sprint (PCS Group) 2,568(b) 20,878 Verizon Communications 975 35,939 Total 527,706 Total common stocks (Cost: $11,757,711) $13,463,162 Total investments in securities (Cost: $11,757,711)(e) $13,463,162 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 1.6% of net assets. (d) Partially pledged as initial margin deposit on the following open stock index futures contracts (see Note 5 to the financial statements): Type of security Contracts Purchase contracts E-Mini S&P 500 Index, March 2004 2 (e) At Jan. 31, 2004, the cost of securities for federal income tax purposes was approximately $11,758,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,861,000 Unrealized depreciation (156,000) -------- Net unrealized appreciation $1,705,000 ---------- - -------------------------------------------------------------------------------- 10 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Quantitative Large Cap Equity Fund Jan. 31, 2004 (Unaudited) Assets Investments in securities, at value (Note 1) (identified cost $11,757,711) $13,463,162 Cash in bank on demand deposit 264,241 Capital shares receivable 9,219 Dividends and accrued interest receivable 14,123 Receivable for investment securities sold 687,700 ------- Total assets 14,438,445 ---------- Liabilities Payable for investment securities purchased 685,466 Accrued investment management services fee 224 Accrued distribution fee 141 Accrued transfer agency fee 36 Accrued administrative services fee 19 Other accrued expenses 46,424 ------ Total liabilities 732,310 ------- Net assets applicable to outstanding capital stock $13,706,135 =========== Represented by Capital stock -- $.01 par value (Note 1) $ 22,248 Additional paid-in capital 11,803,364 Excess of distributions over net investment income (4,281) Accumulated net realized gain (loss) 180,971 Unrealized appreciation (depreciation) on investments 1,703,833 --------- Total -- representing net assets applicable to outstanding capital stock $13,706,135 =========== Net assets applicable to outstanding shares: Class A $11,379,681 Class B $ 2,151,794 Class C $ 150,730 Class Y $ 23,930 Net asset value per share of outstanding capital stock: Class A shares 1,846,206 $ 6.16 Class B shares 350,192 $ 6.14 Class C shares 24,527 $ 6.15 Class Y shares 3,879 $ 6.17 ----- -----------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 11 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Statement of operations AXP Quantitative Large Cap Equity Fund Six months ended Jan. 31, 2004 (Unaudited) Investment income Income: Dividends $ 90,717 Interest 605 --- Total income 91,322 ------ Expenses (Note 2): Investment management services fee 34,568 Distribution fee Class A 11,672 Class B 7,810 Class C 581 Transfer agency fee 5,455 Incremental transfer agency fee Class A 413 Class B 283 Class C 22 Service fee -- Class Y 11 Administrative services fees and expenses 2,760 Custodian fees 18,142 Printing and postage 15,685 Registration fees 29,381 Audit fees 7,750 ----- Total expenses 134,533 Expenses waived/reimbursed by AEFC (Note 2) (58,921) ------- 75,612 Earnings credits on cash balances (Note 2) (654) ---- Total net expenses 74,958 ------ Investment income (loss) -- net 16,364 ------ Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 318,699 Futures contracts 88 -- Net realized gain (loss) on investments 318,787 Net change in unrealized appreciation (depreciation) on investments 1,335,397 --------- Net gain (loss) on investments 1,654,184 --------- Net increase (decrease) in net assets resulting from operations $1,670,548 ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 12 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Statements of changes in net assets AXP Quantitative Large Cap Equity Fund Jan. 31, 2004 For the period from Six months ended April 24, 2003* to (Unaudited) July 31, 2003 Operations and distributions Investment income (loss) -- net $ 16,364 $ 14,024 Net realized gain (loss) on investments 318,787 105,405 Net change in unrealized appreciation (depreciation) on investments 1,335,397 368,601 --------- ------- Net increase (decrease) in net assets resulting from operations 1,670,548 488,030 --------- ------- Distributions to shareholders from: Net investment income Class A (34,930) -- Class B (921) -- Class C (88) -- Class Y (94) -- Net realized gain Class A (204,760) -- Class B (35,467) -- Class C (2,669) -- Class Y (461) -- --------- ------- Total distributions (279,390) -- --------- ------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 2,720,043 2,122,213 Class B shares 1,125,171 985,940 Class C shares 74,758 49,247 Class Y shares -- 10,000 Reinvestment of distributions at net asset value Class A shares 99,015 -- Class B shares 34,783 -- Class C shares 2,508 -- Class Y shares 257 -- Payments for redemptions Class A shares (153,504) (18,491) Class B shares (Note 2) (168,467) (53,851) Class C shares (Note 2) (2,275) -- Class Y shares -- -- --------- ------- Increase (decrease) in net assets from capital share transactions 3,732,289 3,095,058 --------- ------- Total increase (decrease) in net assets 5,123,447 3,583,088 Net assets at beginning of period 8,582,688 4,999,600** --------- --------- Net assets at end of period $13,706,135 $8,582,688 =========== ========== Undistributed (excess of distributions over) net investment income $ (4,281) $ 15,388 ----------- ----------
* When shares became publicly available. ** Initial capital of $5,000,000 was contributed on April 17, 2003. The Fund had a decrease in net assets resulting from operations of $400 during the period from April 17, 2003 to April 24, 2003 (when shares became publicly available). See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Notes to Financial Statements AXP Quantitative Large Cap Equity Fund (Unaudited as to Jan. 31, 2004) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund invests primarily in equity securities of companies listed on U.S. exchanges with market capitalizations greater than $5 billion at the time of purchase. On April 17, 2003, American Express Financial Corporation (AEFC) invested $5,000,000 in the Fund which represented 994,000 shares for Class A, 2,000 shares for Class B, Class C and Class Y, respectively, which represented the initial capital for each class at $5 per share. Shares of the Fund were first offered to the public on April 24, 2003. As of Jan. 31, 2004, AEFC owned approximately 45% of the Fund. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth calendar year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - -------------------------------------------------------------------------------- 14 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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. Option transactions To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. - -------------------------------------------------------------------------------- 15 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. - -------------------------------------------------------------------------------- 16 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment increased the fee by $1,454 for the six months ended Jan. 31, 2004. Under an Administrative Services Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.05% to 0.02% annually. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the board. Under a 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 Fund's 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. 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. - -------------------------------------------------------------------------------- 17 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $33,047 for Class A and $260 for Class B for the six months ended Jan. 31, 2004. For the six months ended Jan. 31, 2004, AEFC and its affiliates waived certain fees and expenses to 1.25% for Class A, 2.03% for Class B, 2.03% for Class C and 1.05% for Class Y. In addition, AEFC and its affiliates have agreed to waive certain fees and expenses until July 31, 2004. Under this agreement, net expenses will not exceed 1.25% for Class A, 2.04% for Class B, 2.06% for Class C and 1.06% for Class Y of the Fund's average daily net assets. During the six months ended Jan. 31, 2004, the Fund's custodian and transfer agency fees were reduced by $654 as a result of earnings credits from overnight cash balances. The Fund also pays custodian fees to American Express Trust Company, an affiliate of AEFC. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $6,895,194 and $3,614,269, respectively, for the six months ended Jan. 31, 2004. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows: Six months ended Jan. 31, 2004 Class A Class B Class C Class Y Sold 469,759 196,782 13,274 -- Issued for reinvested distributions 16,868 5,946 429 45 Redeemed (26,768) (29,689) (390) -- ------- ------- ------ ---- Net increase (decrease) 459,859 173,039 13,313 45 ------- ------- ------ ---- April 24, 2003* to July 31, 2003 Class A Class B Class C Class Y Sold 395,711 184,979 9,214 1,834 Issued for reinvested distributions -- -- -- -- Redeemed (3,364) (9,826) -- -- ------- ------- ----- ----- Net increase (decrease) 392,347 175,153 9,214 1,834 ------- ------- ----- ----- * When shares became publicly available. 5. STOCK INDEX FUTURES CONTRACTS As of Jan. 31, 2004, investments in securities included securities valued at $92,794 that were pledged as collateral to cover initial margin deposits on two open purchase contracts. The notional market value of the open purchase contracts as of Jan. 31, 2004 was $112,990 with a net unrealized loss of $1,618. See " Summary of significant accounting policies" and "Notes to investments in securities." - -------------------------------------------------------------------------------- 18 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL 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 six months ended Jan. 31, 2004. 7. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
Class A Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003(b) Net asset value, beginning of period $5.44 $5.00 Income from investment operations: Net investment income (loss) .01 .01 Net gains (losses) (both realized and unrealized) .85 .43 Total from investment operations .86 .44 Less distributions: Dividends from net investment income (.02) -- Distributions from realized gains (.12) -- Total distributions (.14) -- Net asset value, end of period $6.16 $5.44 Ratios/supplemental data Net assets, end of period (in millions) $11 $8 Ratio of expenses to average daily net assets(c),(e) 1.25%(d) 1.22%(d) Ratio of net investment income (loss) to average daily net assets .42%(d) .81%(d) Portfolio turnover rate (excluding short-term securities) 34% 17% Total return(i) 15.94%(j) 8.80%(j)
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 19 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003(b) Net asset value, beginning of period $5.43 $5.00 Income from investment operations: Net investment income (loss) (.01) -- Net gains (losses) (both realized and unrealized) .84 .43 Total from investment operations .83 .43 Less distributions: Dividends from net investment income -- -- Distributions from realized gains (.12) -- Total distributions (.12) -- Net asset value, end of period $6.14 $5.43 Ratios/supplemental data Net assets, end of period (in millions) $2 $1 Ratio of expenses to average daily net assets(c),(f) 2.03%(d) 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.38%)(d) (.08%)(d) Portfolio turnover rate (excluding short-term securities) 34% 17% Total return(i) 15.46%(j) 8.60%(j) Class C Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003(b) Net asset value, beginning of period $5.43 $5.00 Income from investment operations: Net investment income (loss) (.01) -- Net gains (losses) (both realized and unrealized) .85 .43 Total from investment operations .84 .43 Less distributions: Dividends from net investment income -- -- Distributions from realized gains (.12) -- Total distributions (.12) -- Net asset value, end of period $6.15 $5.43 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- Ratio of expenses to average daily net assets(c),(g) 2.03%(d) 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.34%)(d) (.05%)(d) Portfolio turnover rate (excluding short-term securities) 34% 17% Total return(i) 15.66%(j) 8.60%(j)
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 20 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003(b) Net asset value, beginning of period $5.45 $5.00 Income from investment operations: Net investment income (loss) .01 .01 Net gains (losses) (both realized and unrealized) .85 .44 Total from investment operations .86 .45 Less distributions: Dividends from net investment income (.02) -- Distributions from realized gains (.12) -- Total distributions (.14) -- Net asset value, end of period $6.17 $5.45 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- Ratio of expenses to average daily net assets(c),(h) 1.05%(d) 1.01%(d) Ratio of net investment income (loss) to average daily net assets .61%(d) .90%(d) Portfolio turnover rate (excluding short-term securities) 34% 17% Total return(i) 16.00%(j) 9.00%(j)
Notes to financial highlights (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 2.32% for the six months ended Jan. 31, 2004 and 7.39% for the period ended July 31, 2003. (f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 3.08% for the six months ended Jan. 31, 2004 and 8.18% for the period ended July 31, 2003. (g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 3.09% for the six months ended Jan. 31, 2004 and 8.20% for the period ended July 31, 2003. (h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class Y would have been 2.17% for the six months ended Jan. 31, 2004 and 7.20% for the period ended July 31, 2003. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Jan. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 21 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT 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. - -------------------------------------------------------------------------------- 22 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL 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. AXP(R) Research Opportunities Fund Semiannual Report for the Period Ended Jan. 31, 2004 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 Investments in Securities 8 Financial Statements (Portfolio) 11 Notes to Financial Statements (Portfolio) 14 Financial Statements (Fund) 18 Notes to Financial Statements (Fund) 21 Proxy Voting 28 (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 -- 2004 SEMIANNUAL REPORT Fund Snapshot AS OF JAN. 31, 2004 PORTFOLIO MANAGER Portfolio manager Doug Chase Since 11/03 Years in industry 12 FUND OBJECTIVE For investors seeking long-term growth of capital. Inception dates A: 8/19/96 B: 8/19/96 C: 6/26/00 Y: 8/19/96 Ticker symbols A: IRDAX B: IROBX C: -- Y: -- Total net assets $233.2 million Number of holdings 96 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 22.9% Financials 20.7% Consumer discretionary 13.8% Technology 13.6% Consumer staples 10.5% Industrials 7.4% Energy 6.6% Materials 3.5% Telecommunications 0.5% Utilities 0.5% TOP TEN HOLDINGS Percentage of portfolio assets Pfizer (Health care products) 6.8% Citigroup (Finance companies) 5.2 Cendant (Media) 3.4 Viacom Cl B (Leisure time & entertainment) 3.3 PepsiCo (Beverages & tobacco) 2.9 Microsoft (Computer software & services) 2.9 Colgate-Palmolive (Household products) 2.8 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." 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 -- 2004 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Doug Chase began managing AXP Research Opportunities Fund in November 2003. Below, he discusses the Fund's repositioning and results for the six 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 Research Opportunities Fund perform in the six months ended Jan. 31, 2004? A: AXP Research Opportunities Fund's Class A shares, excluding sales charge, gained 12.07% for the six months ended Jan. 31, 2004. This was less than the Standard & Poor's 500 Index, which rose 15.23% for the period. The Lipper Large-Cap Core Funds Index, the Fund's peer group, rose 13.12% over the same time frame. Q: What factors most significantly affected Fund performance during the semiannual period? A: The Fund benefited from the U.S. equity market's strong rally, which has been fueled by the improving economic environment and strong corporate earnings results. Stock selection for most (bar chart) PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2004 20% (bar 2) 15% (bar 1) +15.23% (bar 3) +12.07% +13.12% 10% 5% 0% (bar 1) AXP Research Opportunities Fund Class A (excluding sales charge) (bar 2) S&P 500 Index Fund(1) (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index(2) (1) Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the S&P 500 companies may be generally larger than those in which the Fund invests. (2) 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. 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 -- 2004 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> Currently, we believe the best market opportunities are in growth stocks that have a high degree of stability to their growth. (end callout quote) of the fiscal period and a conservative positioning relative to the S&P 500 Index and its peer group since November were the primary reasons why the Fund's return fell short of the Index and peer group for the six months ended Jan. 31, 2004. Early in the period, good stock selection in the health care, industrial and technology sectors added to relative performance. However, stock selection
AVERAGE ANNUAL TOTAL RETURNS 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) as of Jan. 31, 2004 6 months* +12.07% +5.63% +11.54% +7.54% +11.25% +10.25% +11.81% +11.81% 1 year +29.19% +21.75% +28.32% +24.32% +27.94% +27.94% +29.37% +29.37% 5 years -4.61% -5.73% -5.35% -5.50% N/A N/A -4.47% -4.47% Since inception +4.61% +3.78% +3.80% +3.80% -10.07% -10.07% +4.76% +4.76% as of Dec. 31, 2003 6 months* +12.46% +6.00% +11.92% +6.92% +11.92% +10.92% +12.46% +12.46% 1 year +23.95% +16.82% +23.08% +19.08% +23.08% +23.08% +24.16% +24.16% 5 years -3.86% -4.99% -4.59% -4.74% N/A N/A -3.72% -3.72% Since inception +4.54% +3.70% +3.75% +3.75% -10.48% -10.48% +4.69% +4.69%
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. * Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 5 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Questions & Answers within the consumer cyclical, financial and energy sectors hindered the Fund's results. One strong market trend working against the Fund's investment strategy was the continued outperformance of small-cap stocks relative to large-cap stocks, which are the focus of the Fund. Even within the S&P 500 Index, the smaller the market capitalization, the stronger the stock's performance generally was. In mid-November, we made substantial changes to sector allocations and individual holdings within the portfolio. Toward the end of the semiannual period, we began to see some positive results from this repositioning. For example, energy stocks that we added to the portfolio in mid-November benefited performance in December when the energy sector rallied. However, since the overall equity market generally favored smaller and lower quality stocks, our restructuring of the portfolio toward high quality, large-cap stocks was not fully rewarded. Q: What changes did you make to the portfolio and how is it currently positioned? A: Early in the period, the portfolio's cyclical exposure was increased in an effort to take advantage of the strengthening U.S. economy. In addition, holdings of brokerage firms, biotechnology companies and home improvement retail stores were increased. The Fund's exposure to big pharmaceutical companies was reduced. The most significant changes came in November. 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. Late in the period, we broadened our ownership of pharmaceutical firms, trimming holdings of Wyeth, which had appreciated significantly, and adding Johnson & Johnson, Eli Lilly and Novartis to the Fund's holdings. Despite last year's weakness, we maintain a higher-than-index weighting in health care because we believe, long term, health care earnings will grow at rates faster than the market overall due to demographic shifts, primarily the aging of the U.S. population. In addition to pharmaceuticals, the Fund's holdings within the health care sector are well diversified among biotechnology companies, hospitals, medical device providers and drug distributors. Our primary concern about health care is the forthcoming November 2004 general election, and the potential for negative political discourse about the industry. Therefore, we will probably be a bit cautious in adding further to the health care sector. We may take advantage of - -------------------------------------------------------------------------------- 6 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Questions & Answers election-related uncertainties to add to some existing positions. The Fund's weighting in the technology sector is smaller than the index. We believe these stocks, as a group, are expensive. In our opinion, the only way to justify current valuations is to assume exceptional economic growth for several quarters to come. We believe that if growth is indeed that strong, it will also 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 do you intend to manage the Fund in 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 do not 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 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 Index. 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 RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Investments in Securities Aggressive Growth Portfolio Jan. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (99.4%) Issuer Shares Value(a) Aerospace & defense (2.6%) Empresa Brasileira de Aeronautica ADR 16,800(c) $495,096 Lockheed Martin 44,800 2,178,176 Northrop Grumman 12,700 1,228,217 United Technologies 23,100 2,206,974 Total 6,108,463 Banks and savings & loans (3.5%) Bank of America 44,400 3,616,824 U.S. Bancorp 47,500 1,342,825 Washington Mutual 18,500 819,550 Wells Fargo 43,600 2,503,076 Total 8,282,275 Beverages & tobacco (5.3%) Altria Group 69,800 3,880,182 Anheuser-Busch Companies 10,800 547,776 Coca-Cola 24,100 1,186,684 PepsiCo 144,600 6,833,796 Total 12,448,438 Broker dealers (1.8%) Merrill Lynch & Co 34,600 2,034,134 Morgan Stanley 38,600 2,246,906 Total 4,281,040 Building materials & construction (0.5%) American Standard 10,900(b) 1,157,580 Cable (0.7%) EchoStar Communications Cl A 19,800(b) 722,700 NTL 12,000(b) 796,080 Total 1,518,780 Cellular telecommunications (0.5%) Nextel Communications Cl A 45,000(b) 1,187,550 Chemicals (1.5%) Dow Chemical 42,700 1,791,265 Lyondell Chemical 96,200 1,648,868 Total 3,440,133 Computer hardware (4.8%) Cisco Systems 170,200(b) 4,363,928 Dell 89,100(b) 2,982,177 Hewlett-Packard 140,400 3,340,116 NVIDIA 23,600(b) 525,100 Total 11,211,321 Computer software & services (4.4%) Affiliated Computer Services Cl A 9,500(b) 526,775 BMC Software 29,800(b) 593,020 Investors Financial Services 9,500 393,680 Microsoft 246,900 6,826,785 Oracle 94,700(b) 1,307,807 VERITAS Software 18,500(b) 607,910 Total 10,255,977 Electronics (4.3%) Analog Devices 30,600 1,464,210 Applied Materials 31,900(b) 694,144 Intel 148,000 4,528,800 Jabil Circuit 14,000(b) 414,400 KLA-Tencor 20,600(b) 1,175,642 STMicroelectronics 41,500(c) 1,113,860 Taiwan Semiconductor Mfg ADR 53,100(c) 593,658 Total 9,984,714 Energy (5.3%) ChevronTexaco 38,400 3,315,840 ConocoPhillips 32,800 2,160,864 Devon Energy 20,000 1,129,200 Exxon Mobil 124,400 5,074,276 Newfield Exploration 13,100(b) 618,189 Total 12,298,369 Energy equipment & services (1.3%) Halliburton 42,500 1,281,375 Noble 31,700(b) 1,176,070 Weatherford Intl 15,200(b) 612,864 Total 3,070,309 Finance companies (5.2%) Citigroup 243,000 12,023,640 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 8 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Financial services (4.9%) Capital One Financial 14,500 $1,030,660 Countrywide Financial 25,100 2,097,105 Fannie Mae 75,800 5,844,180 MBNA 91,600 2,469,536 Total 11,441,481 Health care products (16.2%) Amgen 50,800(b) 3,276,092 Baxter Intl 58,100 1,693,615 Boston Scientific 32,900(b) 1,341,991 Forest Laboratories 36,900(b) 2,748,681 Gilead Sciences 9,500(b) 521,265 Johnson & Johnson 99,700 5,325,974 Medtronic 31,900 1,570,118 Merck & Co 25,600 1,218,560 Novartis ADR 55,800(c) 2,519,370 Pfizer 432,300 15,835,149 Teva Pharmaceutical Inds ADR 9,600(c) 600,864 Wyeth 26,800 1,097,460 Total 37,749,139 Health care services (6.6%) AmerisourceBergen 62,400 3,435,120 Anthem 15,500(b) 1,267,590 Cardinal Health 44,200 2,833,662 Caremark Rx 23,600(b) 631,300 HCA 29,000 1,302,100 McKesson 190,100 5,585,138 Tenet Healthcare 19,000(b) 235,600 Total 15,290,510 Household products (5.1%) Colgate-Palmolive 124,900 6,403,623 Procter & Gamble 55,400 5,599,832 Total 12,003,455 Insurance (5.1%) ACE 27,400(c) 1,189,708 Allstate 58,600 2,663,956 American Intl Group 42,700 2,965,515 Chubb 51,400 3,674,586 Hartford Financial Services Group 14,400 926,496 MBIA 9,400 592,200 Total 12,012,461 Leisure time & entertainment (4.3%) Mattel 134,800 2,549,068 Viacom Cl B 187,400 7,552,220 Total 10,101,288 Machinery (0.8%) Caterpillar 23,600 1,843,868 Media (6.9%) Cendant 348,200(b) 7,886,730 Disney (Walt) 194,500 4,668,000 InterActiveCorp 37,700(b) 1,221,480 Liberty Media Cl A 106,000(b) 1,233,840 Tribune 23,100 1,182,489 Total 16,192,539 Multi-industry (3.9%) Accenture Cl A 25,400(b,c) 601,218 General Electric 146,400 4,923,432 ITT Inds 7,700 573,958 Tyco Intl 112,000(c) 2,996,000 Total 9,094,608 Paper & packaging (0.9%) Avery Dennison 24,000 1,491,840 Weyerhaeuser 9,000 553,140 Total 2,044,980 Precious metals (0.7%) Freeport McMoRan Cooper & Gold Cl B 42,600 1,570,236 Retail -- general (1.8%) Best Buy 49,250 2,481,708 Wal-Mart Stores 32,200 1,733,970 Total 4,215,678 Utilities -- electric (0.5%) Exelon 8,700 582,726 FirstEnergy 16,000 600,320 Total 1,183,046 Total common stocks (Cost: $216,769,389) $232,011,878 Total investments in securities (Cost: $216,769,389)(d) $232,011,878 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 9 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. As of Jan. 31, 2004, the value of foreign securities represented 4.3% of net assets. (d) At Jan. 31, 2004, the cost of securities for federal income tax purposes was approximately $216,769,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $18,350,000 Unrealized depreciation (3,107,000) ---------- Net unrealized appreciation $15,243,000 ----------- - -------------------------------------------------------------------------------- 10 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities Aggressive Growth Portfolio Jan. 31, 2004 (Unaudited) Assets Investments in securities, at value (Note 1) (identified cost $216,769,389) $232,011,878 Cash in bank on demand deposit 783,598 Dividends and accrued interest receivable 219,470 Receivable for investment securities sold 5,918,498 --------- Total assets 238,933,444 ----------- Liabilities Payable for investment securities purchased 5,565,617 Accrued investment management services fee 4,162 Other accrued expenses 13,678 ------ Total liabilities 5,583,457 --------- Net assets $233,349,987 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 11 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Statement of operations Aggressive Growth Portfolio Six months ended Jan. 31, 2004 (Unaudited) Investment income Income: Dividends $ 2,053,380 Interest 28,015 Less foreign taxes withheld (10,066) ------- Total income 2,071,329 --------- Expenses (Note 2): Investment management services fee 747,615 Compensation of board members 4,618 Custodian fees 17,300 Audit fees 10,500 Other 2,344 ----- Total expenses 782,377 Earnings credits on cash balances (Note 2) (592) ---- Total net expenses 781,785 ------- Investment income (loss) -- net 1,289,544 --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 9,989,087 Options contracts written (Note 4) 43,301 ------ Net realized gain (loss) on investments 10,032,388 Net change in unrealized appreciation (depreciation) on investments 16,000,429 ---------- Net gain (loss) on investments 26,032,817 ---------- Net increase (decrease) in net assets resulting from operations $27,322,361 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 12 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets Aggressive Growth Portfolio Jan. 31, 2004 July 31, 2003 Six months ended Year ended (Unaudited) Operations Investment income (loss) -- net $ 1,289,544 $ 3,016,145 Net realized gain (loss) on investments 10,032,388 (54,088,180) Net change in unrealized appreciation (depreciation) on investments 16,000,429 65,040,858 ---------- ---------- Net increase (decrease) in net assets resulting from operations 27,322,361 13,968,823 ---------- ---------- Proceeds from contributions -- 280,192 Fair value of withdrawals (34,841,103) (82,264,696) ----------- ----------- Net contributions (withdrawals) from partners (34,841,103) (81,984,504) ----------- ----------- Total increase (decrease) in net assets (7,518,742) (68,015,681) Net assets at beginning of period 240,868,729 308,884,410 ----------- ----------- Net assets at end of period $233,349,987 $240,868,729 ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Notes to Financial Statements Aggressive Growth Portfolio (Unaudited as to Jan. 31, 2004) 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. 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 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 Portfolio and board of trustees 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. 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. - -------------------------------------------------------------------------------- 14 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Portfolio will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Portfolio may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. - -------------------------------------------------------------------------------- 15 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue 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 AEFC to manage its portfolio. Under this Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Portfolio's average daily net assets in reducing percentages from 0.65% to 0.50% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of AXP Research Opportunities Fund to the Lipper Large-Cap Core Funds Index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment decreased the fee by $25,550 for the six months ended Jan. 31, 2004. 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. Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the underlying Fund or other American Express mutual funds. The Portfolio's liability for these amounts is adjusted for market changes and remains in the Portfolio until distributed in accordance with the Plan. During the six months ended Jan. 31, 2004, the Portfolio's custodian fees were reduced by $592 as a result of earnings credits from overnight cash balances. The Portfolio also pays custodian fees to American Express Trust Company, an affiliate of AEFC. According to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the Trust's units. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $239,217,887 and $266,572,558, respectively, for the six months 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 $14,068 for the six months ended Jan. 31, 2004. - -------------------------------------------------------------------------------- 16 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT 4. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows: Six months ended Jan. 31, 2004 Calls Contracts Premiums Balance July 31, 2003 270 $ 25,579 Opened 857 75,390 Closed (767) (76,750) Exercised (170) (10,880) Expired (190) (13,339) ---- ------- Balance Jan. 31, 2004 -- $ -- ---- -------- See "Summary of significant accounting policies." 5. FINANCIAL HIGHLIGHTS The table below shows certain important financial information for evaluating the Portfolio's results.
Ratios/supplemental data Fiscal period ended July 31, 2004(e) 2003 2002 2001 2000 Ratio of expenses to average daily net assets(a) .66%(c) .60% .60% .61% .63% Ratio of net investment income (loss) to average daily net assets 1.08%(c) 1.18% .76% .91% .53% Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160% Total return(b) 12.25%(d) 7.40% (26.92%) (17.05%) 8.43%
Notes to financial highlights (a) Expense ratio is based on total expenses of the Portfolio before reduction of earnings credits on cash balances. The ratio does not include feeder fund expenses. (b) Total return is based on a calculated Portfolio NAV and does not reflect payment of a sales charge. (c) Adjusted to an annual basis. (d) Not annualized. (e) Six months ended Jan. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 17 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Research Opportunities Fund Jan. 31, 2004 (Unaudited) Assets Investment in Portfolio (Note 1) $ 233,281,106 Capital shares receivable 933 --- Total assets 233,282,039 ----------- Liabilities Capital shares payable 3,354 Accrued distribution fee 3,442 Accrued transfer agency fee 1,711 Accrued administrative services fee 384 Other accrued expenses 76,769 ------ Total liabilities 85,660 ------ Net assets applicable to outstanding capital stock $ 233,196,379 ============= Represented by Capital stock -- $.01 par value (Note 1) $ 515,748 Additional paid-in capital 480,830,274 Undistributed net investment income 124,415 Accumulated net realized gain (loss) (Note 5) (263,512,214) Unrealized appreciation (depreciation) on investments 15,238,156 ---------- Total -- representing net assets applicable to outstanding capital stock $ 233,196,379 ============= Net assets applicable to outstanding shares: Class A $ 143,595,618 Class B $ 89,301,137 Class C $ 298,219 Class Y $ 1,405 Net asset value per share of outstanding capital stock: Class A shares 30,978,884 $ 4.64 Class B shares 20,527,086 $ 4.35 Class C shares 68,489 $ 4.35 Class Y shares 300 $ 4.68 --- -------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 18 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Statement of operations AXP Research Opportunities Fund Six months ended Jan. 31, 2004 (Unaudited) Investment income Income: Dividends $ 2,052,818 Interest 28,008 Less foreign taxes withheld (10,063) ------- Total income 2,070,763 --------- Expenses (Note 2): Expenses allocated from Portfolio 781,570 Distribution fee Class A 183,538 Class B 452,606 Class C 1,421 Transfer agency fee 327,159 Incremental transfer agency fee Class A 22,314 Class B 22,776 Class C 66 Administrative services fees and expenses 71,661 Compensation of board members 4,250 Printing and postage 71,885 Registration fees 20,465 Audit fees 3,500 Other 5,908 ----- Total expenses 1,969,119 Expenses waived/reimbursed by AEFC (Note 2) (21,747) ------- 1,947,372 Earnings credits on cash balances (Note 2) (1,277) ------ Total net expenses 1,946,095 --------- Investment income (loss) -- net 124,668 ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 9,986,498 Options contracts written 43,301 ------ Net realized gain (loss) on investments 10,029,799 Net change in unrealized appreciation (depreciation) on investments 15,995,872 ---------- Net gain (loss) on investments 26,025,671 ---------- Net increase (decrease) in net assets resulting from operations $26,150,339 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 19 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets AXP Research Opportunities Fund Jan. 31, 2004 July 31, 2003 Six months ended Year ended (Unaudited) Operations and distributions Investment income (loss) -- net $ 124,668 $ 338,450 Net realized gain (loss) on investments 10,029,799 (54,080,938) Net change in unrealized appreciation (depreciation) on investments 15,995,872 65,030,053 ---------- ---------- Net increase (decrease) in net assets resulting from operations 26,150,339 11,287,565 ---------- ---------- Distributions to shareholders from: Net investment income Class A (338,698) -- Class Y (5) -- ---------- ---------- Total distributions (338,703) -- ---------- ---------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 2,482,756 10,144,239 Class B shares 1,450,155 4,732,632 Class C shares 17,565 67,130 Class Y shares -- 4,652 Reinvestment of distributions at net asset value Class A shares 333,621 -- Payments for redemptions Class A shares (24,353,913) (57,637,339) Class B shares (Note 2) (13,223,406) (36,351,756) Class C shares (Note 2) (25,103) (91,096) Class Y shares -- (198,402) ---------- ---------- Increase (decrease) in net assets from capital share transactions (33,318,325) (79,329,940) ----------- ----------- Total increase (decrease) in net assets (7,506,689) (68,042,375) Net assets at beginning of period 240,703,068 308,745,443 ----------- ----------- Net assets at end of period $233,196,379 $240,703,068 ============ ============ Undistributed net investment income $ 124,415 $ 338,450 ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 20 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT Notes to Financial Statements AXP Research Opportunities Fund (Unaudited as to Jan. 31, 2004) 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 Jan. 31, 2004, 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 -- 2004 SEMIANNUAL 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. Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with AEFC to provide administrative services. Under an Administrative Services Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.06% 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 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 Fund's 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. - -------------------------------------------------------------------------------- 22 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT 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. 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 $76,055 for Class A, $33,286 for Class B and $22 for Class C for the six months ended Jan. 31, 2004. For the six months ended Jan. 31, 2004, AEFC and its affiliates waived certain fees and expenses to 1.35% for Class A, 2.11% for Class B, 2.11% for Class C and 1.11% for Class Y. In addition, AEFC and its affiliates have agreed to waive certain fees and expenses until July 31, 2004. Under this agreement, net 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 six months ended Jan. 31, 2004, the Fund's transfer agency fees were reduced by $1,277 as a result of earnings credits from overnight cash balances. 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Jan. 31, 2004 Class A Class B Class C Class Y Sold 564,967 351,796 4,271 -- Issued for reinvested distributions 73,810 -- -- -- Redeemed (5,549,852) (3,212,455) (6,195) -- ----------- ----------- ------- ------- Net increase (decrease) (4,911,075) (2,860,659) (1,924) -- ----------- ----------- ------- ------- 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) ----------- ---------- ------ -------
- -------------------------------------------------------------------------------- 23 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT 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 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 six months ended Jan. 31, 2004. 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. 6. 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. - -------------------------------------------------------------------------------- 24 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT 7. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
Class A Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002 2001 2000 Net asset value, beginning of period $4.15 $3.90 $ 5.37 $ 7.61 $7.94 Income from investment operations: Net investment income (loss) .01 .02 -- .02 -- Net gains (losses) (both realized and unrealized) .49 .23 (1.46) (1.27) .66 Total from investment operations .50 .25 (1.46) (1.25) .66 Less distributions: Dividends from net investment income (.01) -- (.01) -- -- Distributions from realized gains -- -- -- (.99) (.99) Total distributions (.01) -- (.01) (.99) (.99) Net asset value, end of period $4.64 $4.15 $ 3.90 $ 5.37 $7.61 Ratios/supplemental data Net assets, end of period (in millions) $144 $149 $189 $365 $540 Ratio of expenses to average daily net assets(c) 1.35%(d),(e) 1.35% 1.22% 1.16% 1.14% Ratio of net investment income (loss) to average daily net assets .40%(d) .43% .15% .37% .02% Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160% Total return(i) 12.07%(j) 6.41% (27.24%) (17.54%) 7.73% Class B Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002 2001 2000 Net asset value, beginning of period $3.90 $3.69 $ 5.12 $ 7.36 $7.76 Income from investment operations: Net investment income (loss) (.01) (.02) (.01) (.02) (.05) Net gains (losses) (both realized and unrealized) .46 .23 (1.42) (1.23) .64 Total from investment operations .45 .21 (1.43) (1.25) .59 Less distributions: Distributions from realized gains -- -- -- (.99) (.99) Net asset value, end of period $4.35 $3.90 $ 3.69 $ 5.12 $7.36 Ratios/supplemental data Net assets, end of period (in millions) $89 $91 $119 $235 $336 Ratio of expenses to average daily net assets(c) 2.11%(d),(f) 2.11% 1.98% 1.92% 1.91% Ratio of net investment income (loss) to average daily net assets (.37%)(d) (.33%) (.62%) (.39%) (.73%) Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160% Total return(i) 11.54%(j) 5.69% (27.93%) (18.19%) 7.03%
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 25 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002 2001 2000(b) Net asset value, beginning of period $3.91 $3.69 $ 5.13 $ 7.36 $7.50 Income from investment operations: Net investment income (loss) (.02) (.01) (.02) (.02) .02 Net gains (losses) (both realized and unrealized) .46 .23 (1.42) (1.22) (.16) Total from investment operations .44 .22 (1.44) (1.24) (.14) Less distributions: Distributions from realized gains -- -- -- (.99) -- Net asset value, end of period $4.35 $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%(d),(g) 2.11% 1.99% 1.92% 1.91%(d) Ratio of net investment income (loss) to average daily net assets (.36%)(d) (.34%) (.61%) (.36%) (.50%)(d) Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160% Total return(i) 11.25%(j) 5.96% (28.05%) (18.03%) (1.87%)(j) Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2004(k) 2003 2002 2001 2000 Net asset value, beginning of period $4.20 $3.93 $ 5.42 $ 7.65 $7.96 Income from investment operations: Net investment income (loss) .01 .04 -- .04 .01 Net gains (losses) (both realized and unrealized) .49 .23 (1.48) (1.28) .67 Total from investment operations .50 .27 (1.48) (1.24) .68 Less distributions: Dividends from net investment income (.02) -- (.01) -- -- Distributions from realized gains -- -- -- (.99) (.99) Total distributions (.02) -- (.01) (.99) (.99) Net asset value, end of period $4.68 $4.20 $ 3.93 $ 5.42 $7.65 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- $-- $-- Ratio of expenses to average daily net assets(c) 1.13%(d),(h) 1.13% 1.04% 1.00% .97% Ratio of net investment income (loss) to average daily net assets .61%(d) .64% .33% .54% .17% Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160% Total return(i) 11.81%(j) 6.87% (27.30%) (17.29%) 7.99%
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 26 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses for Class A would have been 1.36% for the six months ended Jan. 31, 2004. (f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses for Class B would have been 2.13% for the six months ended Jan. 31, 2004. (g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses for Class C would have been 2.13% for the six months ended Jan. 31, 2004. (h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses for Class Y would have been 1.15% for the six months ended Jan. 31, 2004. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Jan. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 27 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT 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. - -------------------------------------------------------------------------------- 28 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL 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. Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 9. Submission of matters to a vote of security holders. Not applicable. Item 10. Controls and Procedures. (a) The registrant's Principal Executive Officer and Principal Financial Officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) At the date of filing this Form N-CSR, the registrant's Principal Executive Officer and Principal Financial Officer are aware of no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 11. Exhibits. (a)(1) Not applicable for semi-annual reports. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) AXP Growth Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date April 6, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date April 6, 2004 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date April 6, 2004 EX-99.CERT 3 ex99-906cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 CERTIFICATION AXP Growth Series, Inc. (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: March 19, 2004 /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Chief Executive Officer Date: March 19, 2004 /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. EX-99.906 CERT 4 ex99-cert.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Paula Meyer, certify that: 1. I have reviewed this report on Form N-CSR of AXP Growth Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation and disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 19, 2004 /s/ Paula R. Meyer -------------------------------- Name: Paula R. Meyer Title: President and Chief Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey Fox, certify that: 1. I have reviewed this report on Form N-CSR of AXP Growth Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation and disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 19, 2004 /s/ Jeffrey P. Fox -------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----