-----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, D35xXSL0VO//7o6+hr3pqHwq27UorwU+c6ySA0F2FPK6qsich6FlI3iKyP38p05W n10eI1sfVhasGSvEeK7ieQ== 0000820027-04-000848.txt : 20041001 0000820027-04-000848.hdr.sgml : 20041001 20041001091431 ACCESSION NUMBER: 0000820027-04-000848 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040731 FILED AS OF DATE: 20041001 DATE AS OF CHANGE: 20041001 EFFECTIVENESS DATE: 20041001 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-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02111 FILM NUMBER: 041056636 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-CSR 1 growth-ncsr.txt AXP GROWTH SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-2111 ------------ AXP GROWTH SERIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 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: 7/31 -------------- AXP(R) Growth Fund Annual Report for the Period Ended July 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 The Fund's Long-term Performance 8 Investments in Securities 10 Financial Statements (Portfolio) 14 Notes to Financial Statements (Portfolio) 17 Report of Independent Registered Public Accounting Firm (Portfolio) 21 Financial Statements (Fund) 22 Notes to Financial Statements (Fund) 25 Report of Independent Registered Public Accounting Firm (Fund) 34 Fund Expenses Example 35 Board Members and Officers 37 Proxy Voting 39 (Dalbar logo) 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 ANNUAL REPORT Fund Snapshot AS OF JULY 31, 2004 PORTFOLIO MANAGER Portfolio manager Since Years in industry Nick Thakore 4/02 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 $3.095 billion Number of holdings 121 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Health Care 25.7% Telecommunications 16.4% Consumer discretionary 13.4% Consumer staples 11.7% Technology 8.6% Financials 7.0% Energy 5.9% Short-term securities* 5.4% Materials 3.0% Industrials 2.1% Other 0.8% * 2.9% of the securities in this category is due to security lending activity. 2.5% of the short-term securities is the Portfolio's cash equivalent position. TOP TEN HOLDINGS Percentage of portfolio assets NTL (Cable) 7.1% Nextel Communications Cl A (Cellular telecommunications) 4.8 Pfizer (Health care products) 3.2 Disney (Walt) (Media) 3.0 Johnson & Johnson (Health care products) 2.8 Vodafone Group ADR (Cellular telecommunications) 2.6 Biogen Idec (Health care products) 2.5 AT&T Wireless Services (Cellular telecommunications) 2.2 Halliburton (Energy equipment & services) 1.9 Healthsouth (Health care services) 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. 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 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Nick Thakore discusses the Fund's positioning and results for the 2004 fiscal year. Q: How did AXP Growth Fund perform for the 12-month period ended July 31, 2004? A: AXP Growth Fund's Class A shares rose 4.08%, excluding sales charge, for the 12-month period ended July 31, 2004. The Fund lagged the 6.14% return of its peer group as represented by the Lipper Large-Cap Growth Funds Index. The Fund's benchmark, the Russell 1000(R) Growth Index, advanced 8.51% for the same period. Q: What factors influenced performance during the period? A: Our sector positioning and stock selection did not work as we expected in fiscal year 2004, resulting in lower returns than most of the Fund's peers as well as the Fund's benchmark. Most of the Fund's underperformance came in the first half of the fiscal year as cyclical growth stocks outperformed stable growth stocks. Lower quality stocks outperformed higher quality stocks. We recovered some ground against the Fund's peer group during the second half of the fiscal year as some of the more cyclical stocks in which the Fund had a lower-than-index position, such as technology, underperformed. Through most of the fiscal year, we limited the Fund's exposure to certain cyclical market sectors because we were concerned that these companies would not be able to achieve the historically high levels of earnings growth expected by the market. We also thought that even if expectations were met, the stocks would not necessarily advance further since the earnings were already reflected in stock prices. Due to these concerns, the Fund had lower-than-index weightings in the technology, industrials and consumer discretionary sectors, all pro-cyclical (bar graph) PERFORMANCE COMPARISON For the year ended July 31, 2004 10% (bar 2) 8% +8.51% (bar 3) 6% (bar 1) +6.14% 4% +4.08% 2% 0% (bar 1) AXP Growth Fund Class A (excluding sales charge) (bar 2) Russell 1000(R) Growth Index (unmanaged) (bar 3) Lipper Large-Cap Growth Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 4 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Questions & Answers (begin callout quote)> It was not until the final months of the period that we saw more balanced performance between cyclical and stable growth companies. (end callout quote) sectors. Instead, the Fund had significant exposure to more stable growth sectors of the economy. This positioning had a negative effect on relative performance. As the market's expectations for a vigorous economic recovery persisted, stable growth stocks underperformed cyclical growth stocks, particularly in the
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 July 31, 2004 1 year +4.08% -1.90% +3.29% -0.71% +3.29% +3.29% +4.24% +4.24% 3 years -7.16% -8.98% -7.89% -8.82% -7.90% -7.90% -7.01% -7.01% 5 years -9.51% -10.58% -10.21% -10.38% N/A N/A -9.37% -9.37% 10 years +6.45% +5.82% N/A N/A N/A N/A N/A N/A Since inception +11.84% +11.64% +4.77% +4.77% -18.01% -18.01% +5.73% +5.73% as of June 30, 2004 1 year +7.90% +1.69% +7.07% +3.07% +7.07% +7.07% +8.10% +8.10% 3 years -7.79% -9.60% -8.51% -9.44% -8.52% -8.52% -7.63% -7.63% 5 years -9.62% -10.69% -10.32% -10.49% N/A N/A -9.47% -9.47% 10 years +7.40% +6.77% N/A N/A N/A N/A N/A N/A Since inception +12.04% +11.83% +5.36% +5.36% -17.38% -17.38% +6.33% +6.33%
The performance information shown represents the past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 5 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Questions & Answers first half of the fiscal year. It was not until the final months of the period, that we saw more balanced performance between cyclical and stable growth companies. In addition to the unfavorable effect of our emphasis on stable growth sectors, the Fund had lower-than-index positions in a number of stocks that performed quite well. During the first half of the period, these included industrial firm 3M and technology stocks Cisco, Intel and Texas Instruments. In the latter half of the period, we had lower-than-benchmark positions in strong performers Microsoft and General Electric, and this detracted from the Fund's relative results. On the positive side, the Fund's relative performance benefited from a larger-than-index position in the energy sector, which performed quite well, especially in the second half of the period. Energy stocks had been trading as if oil prices would come down substantially and when prices did not come down, energy stocks began to catch up with the cyclical rally, which they had previously lagged. The Fund's positioning in telecommunications services, where we have generally preferred wireless services over wireline companies, also had a favorable impact. We think the growth rates on wireless service companies are much better than investors acknowledge and the valuations are attractive to us as well. A number of individual stocks added to relative return. In the first half of the year NTL, a U.K. cable company, advanced strongly following its emergence from bankruptcy. The company subsequently gave back some of those gains, but we took advantage of the sell-off to increase our holdings because we believe there could still be pent-up performance in the stock. In the second half of the year, we added a position in health care holding Biogen Idec, a biotechnology stock that subsequently aided the Fund's performance. Biogen Idec's stock price advanced due to optimism surrounding its new multiple sclerosis treatment. We think this drug could have a strong favorable effect on the company's future earnings. Q: What changes did you make during the 12-month period? A: During the first half of the fiscal period, we substantially increased the Fund's weighting of cable companies and telecommunications services stocks, particularly the wireless service providers. When stocks pulled back a bit in the first calendar quarter of 2004, we modestly increased the portfolio's cyclical exposure, but as the market quickly recovered, we again reduced the cyclical allocations. - -------------------------------------------------------------------------------- 6 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Questions & Answers Disney became a significant portfolio position in the second half of the year. We increased our Disney holdings after the Comcast takeover bid because we believed the Comcast offer improved Disney's risk/reward profile. Even though the takeover did not succeed, in our view, it increased the likelihood that Disney's current management would take steps to raise the stock price. Within the health care sector, in addition to Biogen Idec, we increased the Fund's weighting in HealthSouth, a provider of inpatient and outpatient health care services. We also increased the Fund's weighting in HMOs through purchases of UnitedHealthcare and Aetna. In general, we believe the sectors we focused on had more attractive growth rates and valuations relative to the areas we de-emphasized. To summarize, we had a lower-than-index position in technology, but maintained higher-than-index weightings in wireless and cable companies as a substitute. Likewise, we traded a lower-than-index weighting in industrials for a larger-than-index weighting in energy and energy services. We also emphasized the health care and consumer staples sectors. Q: How do you plan to manage the Fund in the coming months given current market conditions? A: We continue to believe that higher-quality, stable growth stocks currently offer more attractive opportunities than stocks in cyclical growth sectors. Because earnings growth rates appear to be decelerating, we doubt the market will be completely one-sided in favor of cyclical stocks going forward. The Fund's portfolio will continue to emphasize industries that are not largely dependent on the economy, where growth is very strong and valuations are compelling. No matter what type of environment we encounter in the near term, we will stick to our long-term investment discipline. Our goal is to find companies with above average growth at attractive valuations. - -------------------------------------------------------------------------------- 7 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP Growth Fund Class A shares (from 8/1/94 to 7/31/04) as compared to the performance of two widely cited performance indices, the Russell 1000(R) Growth Index and the Lipper Large-Cap Growth Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents the past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current prospectus. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements. Class A Short-term Long-term Fiscal year ended Income capital gains capital gains Total July 31, 2004 $-- $-- $ -- $0.00 July 31, 2003 -- -- -- 0.00 July 31, 2002 -- -- 0.02 0.02 July 31, 2001 -- -- 2.20 2.20 July 31, 2000 -- -- 0.78 0.78 - -------------------------------------------------------------------------------- 8 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP GROWTH FUND AXP Growth Fund Class A (includes sales charge) $ 9,425 $12,738 $14,431 $22,657 $24,089 $29,025 $38,026 $22,002 $15,507 $16,909 $17,606 Russell 1000(R) Growth Index(1) $10,000 $13,142 $15,182 $23,054 $27,646 $34,292 $42,652 $27,698 $19,735 $22,032 $23,907 Lipper Large-Cap Growth Funds Index(2) $10,000 $12,881 $14,348 $21,245 $25,528 $31,382 $38,305 $25,128 $18,097 $19,720 $20,931 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
COMPARATIVE RESULTS
Results as of July 31, 2004 Since 1 year 3 years 5 years 10 years inception(3) AXP Growth Fund (includes sales charge) Class A Cumulative value of $10,000 $9,810 $7,541 $5,717 $17,606 $353,866 Average annual total return -1.90% -8.98% -10.58% +5.82% +11.64% Russell 1000(R) Growth Index(1) Cumulative value of $10,000 $10,851 $8,631 $6,972 $23,907 N/A(4) Average annual total return +8.51% -4.79% -6.96% +9.11% N/A(4) Lipper Large-Cap Growth Funds Index(2) Cumulative value of $10,000 $10,614 $8,330 $6,670 $20,931 N/A(4) Average annual total return +6.14% -5.91% -7.78% +7.67% N/A(4)
Results for other share classes can be found on page 5. (1) Russell 1000(R) Growth Index, an unmanaged index, measures the performance of those Russell 1000 companies 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. (3) Fund data is from March 1, 1972. (4) The Fund began operating before inception of its benchmark and Lipper peer group. - -------------------------------------------------------------------------------- 9 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Investments in Securities Growth Portfolio July 31, 2004 (Percentages represent value of investments compared to net assets) Common stocks (97.2%) Issuer Shares Value(a) Aerospace & defense (1.6%) Lockheed Martin 936,000 $49,598,640 Banks and savings & loans (1.7%) Bank of America 120,500 10,243,705 Commerce Bancorp 414,000(d) 20,840,760 Investors Financial Services 174,500 7,971,160 U.S. Bancorp 492,500 13,937,750 Total 52,993,375 Beverages & tobacco (4.6%) Altria Group 1,037,000 49,361,200 Coca-Cola 1,075,500 47,171,430 PepsiCo 910,000 45,500,000 Total 142,032,630 Building materials & construction (0.2%) American Standard 196,500(b) 7,445,385 Cable (7.5%) Comcast Special Cl A 227,500(b) 6,097,000 NTL 4,360,600(b) 227,274,472 Total 233,371,472 Cellular telecommunications (12.2%) AT&T Wireless Services 4,873,500(b) 70,373,340 Nextel Communications Cl A 6,776,500(b) 154,233,140 Telesystem Intl Wireless 3,194,811(b,c) 34,024,737 Vodafone Group ADR 3,848,500(c) 83,627,905 Western Wireless Cl A 1,355,000(b) 35,758,450 Total 378,017,572 Computer hardware (3.2%) Cisco Systems 2,290,500(b) 47,779,830 Dell 1,116,500(b) 39,602,255 Gateway 2,293,500(b) 10,320,750 Total 97,702,835 Computer software & services (1.8%) Check Point Software Technologies 144,500(b,c) 2,874,105 Juniper Networks 277,500(b) 6,371,400 Microsoft 1,313,500 37,382,210 Oracle 992,000(b) 10,425,920 Total 57,053,635 Electronics (3.9%) Analog Devices 438,000 17,388,600 Broadcom Cl A 308,000(b) 10,890,880 Intel 1,730,000 42,177,400 KLA-Tencor 70,000(b) 2,884,700 Linear Technology 183,000 7,155,300 Marvell Technology Group 912,500(b,c) 21,188,250 Maxim Integrated Products 212,000 10,197,200 Taiwan Semiconductor Mfg ADR 850,000(c) 6,052,000 United Microelectronics ADR 884,500(c) 3,272,650 Total 121,206,980 Energy (2.0%) Amerada Hess 142,000 11,835,700 ChevronTexaco 257,500 24,629,875 ConocoPhillips 304,000 23,946,080 Total 60,411,655 Energy equipment & services (4.2%) Diamond Offshore Drilling 467,100(d) 11,415,924 Halliburton 1,948,000 61,849,000 Schlumberger 282,000 18,138,240 Transocean 413,000(b) 11,729,200 Weatherford Intl 559,300(b) 26,164,054 Total 129,296,418 Finance companies (0.8%) Citigroup 558,000 24,602,220 Financial services (2.8%) Capital One Financial 139,000 9,635,480 Fannie Mae 516,000 36,615,360 Freddie Mac 615,000 39,550,650 Total 85,801,490 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Food (1.5%) Heinz (HJ) 657,000 $24,236,730 Kellogg 555,500 23,142,130 Total 47,378,860 Health care products (19.5%) Baxter Intl 1,280,800 38,513,656 Biogen Idec 1,317,900(b) 79,074,000 Boston Scientific 1,410,000(b) 53,946,600 Bristol-Myers Squibb 263,000 6,022,700 Elan ADR 1,537,000(b,c,d) 31,585,350 Forest Laboratories 150,000(b) 7,543,500 Genentech 192,000(b) 9,346,560 Gilead Sciences 211,500(b) 13,671,360 GlaxoSmithKline ADR 247,500(c,d) 10,135,125 Guidant 58,000 3,208,560 Johnson & Johnson 1,638,500 90,559,895 Medco Health Solutions 1,417,500(b) 42,950,250 Medtronic 76,000 3,774,920 Merck & Co 1,223,000 55,463,050 Novartis ADR 453,500(c) 20,253,310 OSI Pharmaceuticals 334,000(b) 20,073,400 Pfizer 3,206,000 102,463,759 Schering-Plough 658,000 12,804,680 Total 601,390,675 Health care services (7.2%) Aetna 580,000 49,764,000 AmerisourceBergen 154,000 8,325,240 Fisher Scientific Intl 639,500(b,d) 37,218,900 Healthsouth 10,370,800(b,d) 56,002,320 UnitedHealth Group 739,500 46,514,550 WellPoint Health Networks 249,000(b) 25,173,900 Total 222,998,910 Household products (5.6%) Avon Products 357,500 15,376,075 Colgate-Palmolive 958,000 50,965,600 Estee Lauder Cl A 111,550 4,897,045 Gillette 1,257,000 48,997,860 Procter & Gamble 1,017,000 53,036,550 Total 173,273,130 Insurance (2.0%) ACE 316,000(c) 12,826,440 Allstate 230,500 10,851,940 American Intl Group 309,500 21,866,175 Chubb 243,000 16,713,540 Total 62,258,095 Leisure time & entertainment (0.5%) Viacom Cl B 455,500 15,300,245 Media (3.7%) Cendant 406,000 9,289,280 Disney (Walt) 4,128,500 95,327,065 eBay 117,500(b) 9,203,775 Total 113,820,120 Metals (0.1%) Royal Gold 216,000 3,034,800 Multi-industry (0.5%) Tyco Intl 541,500(c) 16,786,500 Precious metals (2.7%) Barrick Gold 309,000(c,d) 5,908,080 Coeur d'Alene Mines 4,234,200(b,d) 14,650,332 Newmont Mining 1,282,000 51,882,540 Stillwater Mining 809,500(b) 11,778,225 Total 84,219,177 Retail -- general (2.2%) Home Depot 380,500 12,830,460 Target 527,500 22,999,000 Wal-Mart Stores 609,500 32,309,595 Total 68,139,055 Retail -- grocery (0.4%) Kroger 650,000(b) 10,270,000 Safeway 141,500(b) 2,989,895 Total 13,259,895 Telecom equipment & services (2.9%) Motorola 2,442,000 38,901,060 MTN Group 1,615,500(c) 6,947,554 Nextel Partners Cl A 812,500(b) 13,056,875 Nokia ADR 2,634,500(c) 30,612,890 Total 89,518,379 Utilities -- natural gas (--%) Kinder Morgan Management LLC --(b) 12 Utilities -- telephone (1.9%) Citizens Communications 488,500(b) 7,034,400 Sprint (FON Group) 2,729,000 50,977,720 Total 58,012,120 Total common stocks (Cost: $2,927,455,271) $3,008,924,280 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 11 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Options purchased (0.8%) Issuer Contracts Exercise Expiration Value(a) price date Puts S&P 500 Index 6,039 $1,125 Sept. 2004 $20,854,770 S&P 500 Index 2,214 1,100 Sept. 2004 4,904,010 Total options purchased (Cost: $24,767,977) $25,758,780 Short-term securities (5.6%)(e) Issuer Effective Amount Value(a) yield payable at maturity U.S. government agencies (1.2%) Federal Home Loan Mtge Corp Disc Nts 08-26-04 1.32% $3,800,000 $3,796,238 09-07-04 1.30 9,700,000 9,686,357 Federal Natl Mtge Assn Disc Nts 08-04-04 1.06 1,500,000 1,499,780 08-13-04 1.28 22,700,000 22,688,701 Total $37,671,076 Commercial paper (4.4%) CC (USA)/Centauri 08-16-04 1.27 5,600,000(f) 5,596,645 Dorado Finance 08-16-04 1.27 5,300,000(f) 5,296,825 Edison Asset Securitization 08-13-04 1.27 12,100,000(f) 12,094,023 09-02-04 1.37 20,800,000(f) 20,773,087 FCAR Owner Trust I 09-15-04 1.40 9,000,000 8,983,589 09-17-04 1.45 20,300,000 20,260,120 Galaxy Funding 08-06-04 1.19 6,000,000(f) 5,998,613 K2 (USA) 08-17-04 1.29 18,500,000(f) 18,488,080 09-10-04 1.40 1,300,000(f) 1,297,873 09-13-04 1.38 10,000,000(f) 9,982,787 Receivables Capital 08-02-04 1.13 4,100,000(f) 4,099,613 Scaldis Capital 08-18-04 1.29 4,700,000(f) 4,696,804 Variable Funding Capital 08-02-04 1.34 13,500,000 13,498,492 White Pine Finance 09-22-04 1.43 4,079,000(f) 4,070,274 Total 135,136,825 Total short-term securities (Cost: $172,827,013) $172,807,901 Total investments in securities (Cost: $3,125,050,261)(g) $3,207,490,961 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 12 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. As of July 31, 2004, the value of foreign securities represented 9.2% of net assets. (d) Security is partially or fully on loan. See Note 4 to the financial statements. (e) Cash collateral received from security lending activity is invested in short-term securities and represents 3.0% of this category (see Note 4 to the financial statements). 2.6% of the short-term securities is the Fund's cash equivalent position. (f) 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 July 31, 2004, the value of these securities amounted to $92,394,624 or 3.0% of net assets. (g) At July 31, 2004, the cost of securities for federal income tax purposes was $3,146,021,055 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 162,165,209 Unrealized depreciation (100,695,303) ------------ Net unrealized appreciation $ 61,469,906 ------------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 13 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Financial Statements
Statement of assets and liabilities Growth Portfolio July 31, 2004 Assets Investments in securities, at value (Note 1)* (identified cost $3,125,050,261) $3,207,490,961 Dividends and accrued interest receivable 2,076,182 Receivable for investment securities sold 65,963,293 ---------- Total assets 3,275,530,436 ------------- Liabilities Disbursements in excess of cash on demand deposit 658,343 Payable for investment securities purchased 84,302,534 Payable upon return of securities loaned (Note 4) 94,119,000 Accrued investment management services fee 48,441 Other accrued expenses 85,551 ------ Total liabilities 179,213,869 ----------- Net assets $3,096,316,567 ============== * Including securities on loan, at value (Note 4) $ 88,521,814 --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Statement of operations Growth Portfolio Year ended July 31, 2004 Investment income Income: Dividends $ 35,189,522 Interest 2,673,605 Fee income from securities lending (Note 4) 380,617 Less foreign taxes withheld (331,683) -------- Total income 37,912,061 ---------- Expenses (Note 2): Investment management services fee 16,372,054 Compensation of board members 18,963 Custodian fees 269,839 Audit fees 31,500 Other 71,437 ------ Total expenses 16,763,793 Earnings credits on cash balances (Note 2) (1,949) ------ Total net expenses 16,761,844 ---------- Investment income (loss) -- net 21,150,217 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 362,935,106 Foreign currency transactions (336,306) -------- Net realized gain (loss) on investments 362,598,800 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (210,306,341) ------------ Net gain (loss) on investments and foreign currencies 152,292,459 ----------- Net increase (decrease) in net assets resulting from operations $ 173,442,676 =============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets Growth Portfolio Year ended July 31, 2004 2003 Operations Investment income (loss) -- net $ 21,150,217 $ 19,243,868 Net realized gain (loss) on investments 362,598,800 (462,434,032) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (210,306,341) 741,212,811 ------------ ----------- Net increase (decrease) in net assets resulting from operations 173,442,676 298,022,647 ----------- ----------- Proceeds from contributions 20,257,382 46,555,814 Fair value of withdrawals (544,632,609) (443,556,729) ------------ ------------ Net contributions (withdrawals) from partners (524,375,227) (397,000,915) ------------ ------------ Total increase (decrease) in net assets (350,932,551) (98,978,268) Net assets at beginning of year 3,447,249,118 3,546,227,386 ------------- ------------- Net assets at end of year $3,096,316,567 $3,447,249,118 ============== ==============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Notes to Financial Statements Growth Portfolio 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Growth Portfolio (the Portfolio) is a series of Growth Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Growth Portfolio invests primarily in common stocks and securities convertible into common stocks of U.S. and foreign companies that appear to offer growth opportunities. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Trustees of the portfolios, American Express Financial Corporation (AEFC) utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair NAV. 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. - -------------------------------------------------------------------------------- 17 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT 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. 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. - -------------------------------------------------------------------------------- 18 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT 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. 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 $3,168,084 for the year ended July 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. - -------------------------------------------------------------------------------- 19 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT During the year ended July 31, 2004, the Portfolio's custodian fees were reduced by $1,949 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 $5,441,818,688 and $5,868,102,303, respectively, for the year ended July 31, 2004. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $336,098 for the year ended July 31, 2004. 4. LENDING OF PORTFOLIO SECURITIES As of July 31, 2004, securities valued at $88,521,814 were on loan to brokers. For collateral, the Portfolio received $94,119,000 in cash. 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 $380,617 for year ended July 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 2003 2002 2001 2000 Ratio of expenses to average daily net assets(a) .49% .62% .47% .55% .59% Ratio of net investment income (loss) to average daily net assets .61% .59% .37% .09% .09% Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23% Total return(b) 4.65% 9.73% (29.17%) (41.87%) 31.53%
(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. - -------------------------------------------------------------------------------- 20 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD OF TRUSTEES AND UNITHOLDERS GROWTH TRUST We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of Growth Portfolio (a series of Growth Trust) as of July 31, 2004, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended July 31, 2004, and the financial highlights for each of the years in the five-year period ended July 31, 2004. These financial statements and the financial highlights are the responsibility of portfolio management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Growth Portfolio as of July 31, 2004, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota September 20, 2004 - -------------------------------------------------------------------------------- 21 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Growth Fund July 31, 2004 Assets Investment in Portfolio (Note 1) $ 3,096,271,925 Capital shares receivable 160,582 ------- Total assets 3,096,432,507 ------------- Liabilities Capital shares payable 662,878 Accrued distribution fee 31,127 Accrued service fee 944 Accrued transfer agency fee 16,748 Accrued administrative services fee 3,774 Other accrued expenses 221,669 ------- Total liabilities 937,140 ------- Net assets applicable to outstanding capital stock $ 3,095,495,367 =============== Represented by Capital stock -- $.01 par value (Note 1) $ 1,323,291 Additional paid-in capital 4,239,045,992 Accumulated net realized gain (loss) (Note 5) (1,227,338,161) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 82,464,245 ---------- Total -- representing net assets applicable to outstanding capital stock $ 3,095,495,367 =============== Net assets applicable to outstanding shares: Class A $ 2,116,826,391 Class B $ 597,617,368 Class C $ 12,938,529 Class I $ 18,099,191 Class Y $ 350,013,888 Net asset value per share of outstanding capital stock: Class A shares 89,217,957 $ 23.73 Class B shares 27,231,529 $ 21.95 Class C shares 589,561 $ 21.95 Class I shares 750,932 $ 24.10 Class Y shares 14,539,091 $ 24.07 ---------- ---------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 22 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Statement of operations AXP Growth Fund Year ended July 31, 2004 Investment income Income: Dividends $ 35,189,061 Interest 2,673,575 Fee income from securities lending 380,612 Less foreign taxes withheld (331,678) -------- Total income 37,911,570 ---------- Expenses (Note 2): Expenses allocated from Portfolio 16,761,625 Distribution fee Class A 5,652,896 Class B 7,755,577 Class C 135,534 Transfer agency fee 6,967,363 Incremental transfer agency fee Class A 487,310 Class B 378,687 Class C 6,731 Service fee -- Class Y 382,486 Administrative services fees and expenses 1,523,915 Compensation of board members 13,596 Printing and postage 723,100 Registration fees 72,702 Audit fees 10,500 Other 46,723 ------ Total expenses 40,918,745 Earnings credits on cash balances (Note 2) (36,633) ------- Total net expenses 40,882,112 ---------- Investment income (loss) -- net (2,970,542) ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 362,930,744 Foreign currency transactions (336,301) -------- Net realized gain (loss) on investments 362,594,443 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (210,303,690) ------------ Net gain (loss) on investments and foreign currencies 152,290,753 ----------- Net increase (decrease) in net assets resulting from operations $ 149,320,211 =============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 23 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets AXP Growth Fund Year ended July 31, 2004 2003 Operations Investment income (loss) -- net $ (2,970,542) $ (5,450,978) Net realized gain (loss) on investments 362,594,443 (462,429,500) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (210,303,690) 741,204,696 ------------ ----------- Net increase (decrease) in net assets resulting from operations 149,320,211 273,324,218 ----------- ----------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 285,165,756 299,443,361 Class B shares 80,166,420 108,759,258 Class C shares 4,297,146 5,623,858 Class I shares 18,579,557 -- Class Y shares 110,428,653 141,293,380 Payments for redemptions Class A shares (533,084,922) (425,072,323) Class B shares (Note 2) (286,628,598) (240,971,184) Class C shares (Note 2) (3,709,528) (1,739,474) Class I shares (7,079) -- Class Y shares (176,524,688) (258,890,708) ------------ ------------ Increase (decrease) in net assets from capital share transactions (501,317,283) (371,553,832) ------------ ------------ Total increase (decrease) in net assets (351,997,072) (98,229,614) Net assets at beginning of year 3,447,492,439 3,545,722,053 ------------- ------------- Net assets at end of year $3,095,495,367 $3,447,492,439 ============== ==============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 24 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Notes to Financial Statements AXP Growth Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth calendar year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. Effective March 4, 2004, the Fund offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. As of July 31, 2004, AEFC and the AXP Portfolio Builder Series Funds owned 100% of Class I shares, which represents 0.58% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Investment in Growth Portfolio The Fund invests all of its assets in Growth Portfolio (the Portfolio), a series of Growth Trust (the Trust), an open-end investment company that has the same objectives as the Fund. The Portfolio invests primarily in common stocks and securities convertible into common stocks of U.S. and foreign companies that appear to offer growth opportunities. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund as of July 31, 2004 was 99.99%. - -------------------------------------------------------------------------------- 25 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT All securities held by the Portfolio 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. Pursuant to procedures adopted by the Board of Trustees of the portfolios, AEFC utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair NAV. 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. 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. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $2,970,542 and accumulated net realized loss has been decreased by $336,304 resulting in a net reclassification adjustment to decrease paid-in capital by $3,306,846. - -------------------------------------------------------------------------------- 26 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT The tax character of distributions paid for the years indicated is as follows: Year ended July 31, 2004 2003 Class A Distributions paid from: Ordinary income $-- $-- Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class I* Distributions paid from: Ordinary income -- N/A Long-term capital gain -- N/A Class Y Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- * Inception date was March 4, 2004. As of July 31, 2004, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ -- Accumulated long-term gain (loss) $(1,205,376,835) Unrealized appreciation (depreciation) $ 60,502,919 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. - -------------------------------------------------------------------------------- 27 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with AEFC to provide administrative services. Under an Administrative Services Agreement, the Fund pays AEFC a fee for 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. Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. 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. - -------------------------------------------------------------------------------- 28 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Sales charges received by the Distributor for distributing Fund shares were $4,319,599 for Class A, $869,869 for Class B and $4,580 for Class C for the year ended July 31, 2004. During the year ended July 31, 2004, the Fund's transfer agency fees were reduced by $36,633 as a result of earnings credits from overnight cash balances. 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2004 Class A Class B Class C Class I* Class Y Sold 11,944,233 3,592,298 193,314 751,217 4,533,974 Issued for reinvested distributions -- -- -- -- -- Redeemed (21,995,982) (12,837,345) (164,669) (285) (7,210,738) ----------- ----------- -------- ---- ---------- Net increase (decrease) (10,051,749) (9,245,047) 28,645 750,932 (2,676,764) ----------- ---------- ------ ------- ---------- * Inception date was March 4, 2004. Year ended July 31, 2003 Class A Class B Class C Class I Class Y Sold 13,842,204 5,510,181 283,408 N/A 6,670,940 Issued for reinvested distributions -- -- -- N/A -- Redeemed (20,576,625) (12,101,320) (89,705) N/A (12,224,761) ----------- ---------- ------- ------- ---------- Net increase (decrease) (6,734,421) (6,591,139) 193,703 N/A (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 year ended July 31, 2004. 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $1,205,376,835 as of July 31, 2004, that if not offset by capital gains will expire as follows: 2010 2011 $836,602,508 $368,774,327 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. - -------------------------------------------------------------------------------- 29 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT 6. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
Class A Per share income and capital changes(a) Fiscal period ended July 31, 2004 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) .91 1.92 (8.74) (22.34) 13.14 Total from investment operations .93 1.92 (8.78) (22.48) 13.00 Less distributions: Distributions from realized gains -- -- (.02) (2.20) (.78) Net asset value, end of period $23.73 $22.80 $20.88 $ 29.68 $54.36 Ratios/supplemental data Net assets, end of period (in millions) $2,117 $2,263 $2,213 $3,851 $6,637 Ratio of expenses to average daily net assets(b) 1.03% 1.21% .99% .99% .99% Ratio of net investment income (loss) to average daily net assets .07% --% (.15%) (.34%) (.30%) Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23% Total return(c) 4.08% 9.20% (29.59%) (42.14%) 31.01%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 30 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2004 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) (.16) (.17) (.25) (.42) (.46) Net gains (losses) (both realized and unrealized) .86 1.81 (8.23) (21.29) 12.61 Total from investment operations .70 1.64 (8.48) (21.71) 12.15 Less distributions: Distributions from realized gains -- -- (.02) (2.20) (.78) Net asset value, end of period $21.95 $21.25 $19.61 $ 28.11 $52.02 Ratios/supplemental data Net assets, end of period (in millions) $598 $775 $845 $1,510 $2,468 Ratio of expenses to average daily net assets(b) 1.81% 1.99% 1.77% 1.75% 1.75% Ratio of net investment income (loss) to average daily net assets (.71%) (.77%) (.93%) (1.11%) (1.06%) Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23% Total return(c) 3.29% 8.36% (30.18%) (42.57%) 30.02%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 31 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2004 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) (.16) (.17) (.21) (.42) (.04) Net gains (losses) (both realized and unrealized) .86 1.80 (8.27) (21.29) (.58) Total from investment operations .70 1.63 (8.48) (21.71) (.62) Less distributions: Distributions from realized gains -- -- (.02) (2.20) -- Net asset value, end of period $21.95 $21.25 $19.62 $ 28.12 $52.03 Ratios/supplemental data Net assets, end of period (in millions) $13 $12 $7 $9 $1 Ratio of expenses to average daily net assets(c) 1.81% 2.01% 1.80% 1.75% 1.75%(d) Ratio of net investment income (loss) to average daily net assets (.71%) (.81%) (.96%) (1.10%) (1.30%)(d) Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23% Total return(e) 3.29% 8.31% (30.17%) (42.56%) (1.18%)(f)
(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. - -------------------------------------------------------------------------------- 32 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Class I Per share income and capital changes(a) Fiscal period ended July 31, 2004(b) Net asset value, beginning of period $25.61 Income from investment operations: Net investment income (loss) .09 Net gains (losses) (both realized and unrealized) (1.60) Total from investment operations (1.51) Net asset value, end of period $24.10 Ratios/supplemental data Net assets, end of period (in millions) $18 Ratio of expenses to average daily net assets(c) .57%(d) Ratio of net investment income (loss) to average daily net assets .43%(d) Portfolio turnover rate (excluding short-term securities) 171% Total return(e) (5.90%)(f) (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was March 4, 2004. (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.
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2004 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) .07 .04 -- (.07) (.06) Net gains (losses) (both realized and unrealized) .91 1.94 (8.83) (22.52) 13.22 Total from investment operations .98 1.98 (8.83) (22.59) 13.16 Less distributions: Distributions from realized gains -- -- (.02) (2.20) (.78) Net asset value, end of period $24.07 $23.09 $21.11 $ 29.96 $54.75 Ratios/supplemental data Net assets, end of period (in millions) $350 $398 $481 $974 $1,551 Ratio of expenses to average daily net assets(b) .86% 1.03% .82% .83% .83% Ratio of net investment income (loss) to average daily net assets .25% .18% .02% (.18%) (.14%) Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23% Total return(c) 4.24% 9.38% (29.48%) (42.04%) 31.20%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 33 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD AND SHAREHOLDERS AXP GROWTH SERIES, INC. We have audited the accompanying statement of assets and liabilities of AXP Growth Fund (a series of AXP Growth Series, Inc.) as of July 31, 2004, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended July 31, 2004, and the financial highlights for each of the years in the five-year period ended July 31, 2004. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Growth Fund as of July 31, 2004, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota September 20, 2004 - -------------------------------------------------------------------------------- 34 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Fund Expenses Example (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended July 31, 2004. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 35 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Beginning Ending Expenses paid account value account value during the period Feb. 1, 2004 July 31, 2004 Feb. 1, 2004-July 31, 2004 Class A Actual(e) $1,000 $964.60 $4.88(a) Hypothetical (5% return before expenses) $1,000 $1,019.89 $5.02(a) Class B Actual(e) $1,000 $961.00 $8.63(b) Hypothetical (5% return before expenses) $1,000 $1,016.06 $8.87(b) Class C Actual(e) $1,000 $961.00 $8.68(c) Hypothetical (5% return before expenses) $1,000 $1,016.01 $8.92(c) Class I(f) Actual N/A N/A N/A Hypothetical (5% return before expenses) N/A N/A N/A Class Y Actual(e) $1,000 $965.10 $4.06(d) Hypothetical (5% return before expenses) $1,000 $1,020.74 $4.17(d)
(a) Expenses are equal to the Fund's Class A annualized expense ratio of 1.00%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) Expenses are equal to the Fund's Class B annualized expense ratio of 1.77%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (c) Expenses are equal to the Fund's Class C annualized expense ratio of 1.78%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (d) Expenses are equal to the Fund's Class Y annualized expense ratio of 0.83%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (e) Based on the actual return for the six months ended July 31, 2004: (3.54%) for Class A, (3.90%) for Class B, (3.90%) for Class C and (3.49%) for Class Y. (f) The values and expenses paid are not presented because Class I does not have a full six months of history. The inception date for Class I was March 4, 2004. - -------------------------------------------------------------------------------- 36 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT Board Members and Officers Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. Each member oversees 14 Master Trust portfolios and 87 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Arne H. Carlson Board member since 1999 Chair, Board Services 901 S. Marquette Ave. Corporation (provides Minneapolis, MN 55402 administrative services to Age 69 boards). Former Governor of Minnesota - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Fluor Scottish Power PLC, 901 S. Marquette Ave. Corporation (engineering and Vulcan Materials Company, Minneapolis, MN 55402 construction) since 1998 Inc. (construction Age 66 materials/chemicals) - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Livio D. DeSimone Board member since 2001 Retired Chair of the Board and Cargill, Incorporated 0 Seventh Street East Chief Executive Officer, (commodity merchants and Suite 3050 Minnesota Mining and processors), General St. Paul, MN 55101-4901 Manufacturing (3M) Mills, Inc. (consumer Age 70 foods), Vulcan Materials Company (construction materials/chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Anne P. Jones Board member since 1985 Attorney and Consultant 901 S. Marquette Ave. Minneapolis, MN 55402 Age 69 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Stephen R. Lewis, Jr.* Board member since 2002 Retired President and Professor Valmont Industries, Inc. 901 S. Marquette Ave. of Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 65 - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
* Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Columbia Wanger Asset Management, L.P., one of the fund's subadvisers. - -------------------------------------------------------------------------------- 37 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Alan K. Simpson Board member since 1997 Former three-term United States 1201 Sunshine Ave. Senator for Wyoming Cody, WY 82414 Age 72 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Alison Taunton-Rigby Board member since 2002 Founder and Chief Executive 901 S. Marquette Ave. Officer, RiboNovix, Inc. since Minneapolis, MN 55402 2004; President, Forester Age 60 Biotech since 2000; prior to that, President and CEO, Aquila Biopharmaceuticals, Inc. - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Board Member Affiliated with AEFC** Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- William F. Truscott Board member since Senior Vice President - Chief 53600 AXP Financial Center 2001, Vice President Investment Officer of AEFC since Minneapolis, MN 55474 since 2002 2001. Former Chief Investment Age 43 Officer and Managing Director, Zurich Scudder Investments - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
** Interested person by reason of being an officer, director and/or employee of AEFC. - -------------------------------------------------------------------------------- 38 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Jeffrey P. Fox Treasurer since 2002 Vice President - Investment 50005 AXP Financial Center Accounting, AEFC, since 2002; Minneapolis, MN 55474 Vice President - Finance, Age 49 American Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Paula R. Meyer President since 2002 Senior Vice President and 596 AXP Financial Center General Manager - Mutual Funds, Minneapolis, MN 55474 AEFC, since 2002; Vice President Age 50 and Managing Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Leslie L. Ogg Vice President, General President of Board Services 901 S. Marquette Ave. Counsel, and Secretary Corporation Minneapolis, MN 55402 since 1978 Age 65 - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the Web site americanexpress.com/funds; or by searching the Web site of the Securities and Exchange Commission http://www.sec.gov. You may view the Fund's voting record for all portfolio companies whose shareholders meetings were completed the previous quarter on americanexpress.com/funds or obtain a copy by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283. In addition, 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. - -------------------------------------------------------------------------------- 39 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Large Cap Equity Fund Annual Report for the Period Ended July 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 The Fund's Long-term Performance 8 Investments in Securities 10 Financial Statements 13 Notes to Financial Statements 17 Report of Independent Registered Public Accounting Firm 30 Federal Income Tax Information 31 Fund Expenses Example 33 Board Members and Officers 35 Proxy Voting 37 [dalbar logo] 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 ANNUAL REPORT Fund Snapshot AS OF JULY 31, 2004 PORTFOLIO MANAGER Portfolio manager Since Years in industry Doug Chase 3/02 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: ARQCX Y: ALEYX Total net assets $1.852 billion Number of holdings 86 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 24.6% Financials 17.7% Consumer staples 13.5% Consumer discretionary 12.8% Technology 11.6% Energy 7.2% Industrials 7.1% Materials 2.2% Telecommunications 2.0% Short-term securities 1.3% TOP TEN HOLDINGS Percentage of portfolio assets Pfizer (Health care products) 6.1% Citigroup (Finance companies) 5.1 Procter & Gamble (Household products) 3.8 Cendant (Media) 3.6 Viacom Cl B (Leisure time & entertainment) 3.5 AmerisourceBergen (Health care services) 3.4 ExxonMobil (Energy) 3.3 Colgate-Palmolive (Household products) 2.8 PepsiCo (Beverages & tobacco) 2.7 Bank of America (Banks and savings & loans) 2.7 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. - -------------------------------------------------------------------------------- 3 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Doug Chase discusses the Fund's positioning and results for the 2004 fiscal year. On June 25, 2004, the assets of AXP Blue Chip Advantage Fund and AXP Research Opportunities Fund were merged into AXP Large Cap Equity Fund. This reorganization was completed after shareholders approved the plan on June 9, 2004. The integration of the three Funds had minimal effect on Fund performance. On June 24, AXP Large Cap Equity Fund Class A shareholders of record received a special distribution of $0.12896 in conjunction with the mergers. Q: How did the AXP Large Cap Equity Fund perform for the 12 months ended July 31, 2004? A: AXP Large Cap Equity Fund's Class A shares advanced 7.19%, excluding sales charge, for the 12 months ended July 31, 2004. The Fund underperformed its benchmark, the Russell 1000(R) Index, which advanced 13.03% and its peers as represented by the Lipper Large-Cap Core Funds Index, which gained 10.01% over the same time frame. Q: What factors significantly affected performance? A: While the Fund benefited from the stock market's continued advance, three major market trends hampered its performance relative to the benchmark. First, value-oriented stocks significantly outperformed growth stocks during the year. The Fund invests primarily in companies that we believe will grow faster than the market's historical earnings growth rate of around 8%. Second, smaller-capitalization stocks outperformed larger stocks for the period. This was a disadvantage for the Fund, which essentially focused on the largest stocks within its benchmark, the Russell 1000 Index. Third, the market favored lower quality stocks throughout most of the past (bar chart) PERFORMANCE COMPARISON For the year ended July 31, 2004 15% (bar 2) 12% +13.03% (bar 3) 9% (bar 1) +10.01% 6% +7.19% 3% 0% (bar 1) AXP Large Cap Equity Fund Class A (excluding sales charge) (bar 2) Russell 1000(R) Index (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 4 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Questions & Answers (begin callout quote)>The market favored lower quality stocks throughout most of the past year, while we emphasized higher quality companies with sound balance sheets and a history of stable growth.(end callout quote) year, while we emphasized higher quality companies with sound balance sheets and a history of stable growth. The significant outperformance of value-oriented stocks continued to impede the Fund through the end of the fiscal period. However, we were pleased to see that the outperformance of smaller companies and the market's penchant for lower quality stocks began to wane toward the end of the Fund's fiscal period.
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 July 31, 2004 1 year +7.19% +1.04% +6.48% +2.48% +6.46% +6.46% +7.44% +7.44% Since inception -1.20% -3.67% -1.99% -3.61% -1.90% -1.90% -1.01% -1.01% as of June 30, 2004 1 year +12.51% +6.04% +11.60% +7.60% +11.57% +11.57% +12.49% +12.49% Since inception +0.89% -1.72% +0.10% -1.62% +0.18% +0.18% +1.08% +1.08%
The performance information shown represents the past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 5 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Questions & Answers Regarding the Fund's sector positioning, we made a strategic decision at the start of our fiscal year to emphasize stable growth companies in sectors such as consumer staples and health care. However, economic growth and corporate earnings were stronger than anticipated and, as a result, more economically sensitive sectors such as materials, industrials and technology outperformed, particularly in the first half of our fiscal period. The Fund's larger-than-index allocation to health care was disadvantageous in the first six months of the fiscal period, but the sector's performance improved in the latter half of the period. We had moved the Fund to a lower-than-index position in consumer discretionary stocks prior to the start of the fiscal period. This was a negative factor in the first half of the fiscal year when the sector delivered strong relative performance. In the second half, the lower-than-index weighting in consumer discretionary stocks had a favorable effect, but was offset by our selection of industries and individual stocks within the sector. In particular, a larger-than-index position in Viacom and our avoidance of strong performers eBay and Yahoo! hindered results. Individual contributors to relative return included real estate, travel services company Cendant, mortgage broker Countrywide Financial, and diversified industrial Tyco. Q: What changes did you make to the portfolio during the period? A: At the start of our fiscal period, we started to scale back the Fund's exposure to cyclical stocks. We reduced our allocations to retail stocks and to the industrial and materials sectors. We were wary of these areas because we believed the expectations priced into many of these stocks were much too high. We increased our position in media stocks during the period. Despite being a cyclical industry, media had not kept pace with the other cyclical sectors and we believed there was potential for further price appreciation. Over the course of the year, we took profits in a handful of media stocks that had been strong performers, including AOL Time Warner, but continued to hold significant positions in others such as Viacom. We trimmed some of our position in pharmaceutical firm Wyeth, which had appreciated considerably, and used a portion of the proceeds to add a broader mix of pharmaceutical stocks. We also initiated portfolio positions in the HMO industry. Although the market has been negative about HMOs, these companies have been regularly beating Wall Street earnings estimates. As for the health care sector in general, we are cognizant that political issues could increase volatility; however, we believe potential bad news is already reflected in the stock prices. We see attractive appreciation opportunities in this sector because we believe that over - -------------------------------------------------------------------------------- 6 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Questions & Answers time health care stocks are likely to grow earnings faster than the overall market. Consequently, we have taken advantage of any weakness to increase our health care weighting. After the energy sector's strong performance in December and January, we reduced the portfolio's energy position. However, we subsequently increased our holdings of major integrated oil producers. We eliminated a number of stocks during the past year. We took profits in defense contractor United Technologies following a run of very strong performance. We sold Wells Fargo even though we think the money center bank is well-run, because we considered it expensive and vulnerable to the negative impact of higher short-term interest rates. We also sold technology stock Hewlett Packard because the company appears to be facing greater competition in printers. The Fund held a significant position in Dell, which we think is better positioned in the printer market. To summarize our sector positioning at the end of the period, the Fund had larger-than-index positions in health care and consumer staples, and smaller-than-index positions in the consumer discretionary, financials, telecommunications, industrials, materials, utilities and technology sectors. Q: How will you manage the Fund in the coming months? A: Regardless of the economic environment, we adhere to a strategy of identifying stocks with strong fundamentals, sustainable growth rates and reasonable valuations. We strive to identify stocks that we believe will grow faster than the market's historical growth rate, but may be selling at attractive valuation levels. Our current view is that stock prices already reflect economic expectations that may be higher than what actually occurs. Given the inevitable impact of the Federal Reserve's shift toward higher short-term interest rates, as well as the possibility of an economic slowdown and an earnings peak, we believe the type of stocks we hold should begin to perform well. We have recently seen the market put high-quality and low-quality stocks on a more even level. Should economic and earnings growth begin to moderate as we anticipate, investors are likely to seek alternatives to cyclical and industrial holdings. We believe health care, consumer staples and stable growth companies should benefit from such a shift and have positioned the Fund accordingly. - -------------------------------------------------------------------------------- 7 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP Large Cap Equity Fund Class A shares (from 4/1/02 to 7/31/04) as compared to the performance of two widely cited performance indices, the Russell 1000(R) Index and the Lipper Large-Cap Core Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents the past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current prospectus. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements. Class A Short-term Long-term Fiscal year ended Income capital gains capital gains Total July 31, 2004 $-- $0.20 $0.02 $0.22 July 31, 2003 -- -- -- 0.00 July 31, 2002(1) -- -- -- 0.00 (1) For the period from March 28, 2002 (when shares became publicly available) to July 31, 2002. - -------------------------------------------------------------------------------- 8 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT (line graph) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP LARGE CAP EQUITY FUND AXP Large Cap Equity Fund Class A (includes sales charge) $ 9,425 $7,766 $8,546 $ 9,160 Russell 1000(R) Index(1) $10,000 $8,014 $8,911 $10,072 Lipper Large-Cap Core Funds Index(2) $10,000 $8,108 $8,808 $ 9,690 4/1/02 7/02 7/03 7/04 COMPARATIVE RESULTS Results as of July 31, 2004 Since 1 year inception(3) AXP Large Cap Equity Fund (includes sales charge) Class A Cumulative value of $10,000 $10,104 $9,160 Average annual total return +1.04% -3.67% Russell 1000(R) Index(1) Cumulative value of $10,000 $11,303 $10,072 Average annual total return +13.03% +0.31% Lipper Large-Cap Core Funds Index(2) Cumulative value of $10,000 $11,001 $9,690 Average annual total return +10.01% -1.35% Results for other share classes can be found on page 5. (1) The Russell 1000(R) Index, an unmanaged index, measures the performance of the 1,000 largest companies in the Russell 3000 Index, and represents approximately 92% of the total market capitalization of the Russell 3000 Index. (2) The Lipper Large-Cap Core Funds Index, an 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. (3) Fund data is from March 28, 2002. Index data is from April 1, 2002. - -------------------------------------------------------------------------------- 9 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Investments in Securities AXP Large Cap Equity Fund July 31, 2004 (Percentages represent value of investments compared to net assets) Common stocks (98.6%) Issuer Shares Value(a) Aerospace & defense (1.7%) Empresa Brasileira de Aeronautica ADR 411,100(c) $11,757,460 Lockheed Martin 163,325 8,654,592 Northrop Grumman 223,428 11,752,313 Total 32,164,365 Banks and savings & loans (3.3%) Bank of America 580,300 49,331,303 Commerce Bancorp 115,700 5,824,338 Investors Financial Services 119,600 5,463,328 Total 60,618,969 Beverages & tobacco (6.4%) Altria Group 427,600 20,353,760 Anheuser-Busch Companies 193,500 10,042,650 Coca-Cola 871,050 38,204,253 PepsiCo 995,124 49,756,200 Total 118,356,863 Building materials & construction (0.3%) Masco 177,800 5,376,672 Cable (0.6%) NTL 225,469(b) 11,751,444 Cellular telecommunications (1.7%) Nextel Communications Cl A 639,600(b) 14,557,296 Vodafone Group ADR 790,500(c) 17,177,565 Total 31,734,861 Chemicals (0.8%) Dow Chemical 375,045 14,960,545 Computer hardware (4.8%) Cisco Systems 1,994,400(b) 41,603,184 Dell 1,342,400(b) 47,614,928 Total 89,218,112 Computer software & services (4.4%) Affiliated Computer Services Cl A 342,700(b) 17,786,130 Microsoft 1,449,800 41,261,308 Oracle 1,521,100(b) 15,986,761 PeopleSoft 381,200(b) 6,869,224 Total 81,903,423 Electronics (2.4%) Analog Devices 113,500 4,505,950 Broadcom Cl A 126,700(b) 4,480,112 Intel 1,130,700 27,566,466 Taiwan Semiconductor Mfg ADR 1,068,583(c) 7,608,314 Total 44,160,842 Energy (7.2%) ChevronTexaco 277,800 26,571,570 ConocoPhillips 210,373 16,571,081 ExxonMobil 1,307,446 60,534,750 Royal Dutch Petroleum ADR 591,600(c) 29,757,480 Total 133,434,881 Finance companies (5.1%) Citigroup 2,133,308 94,057,550 Financial services (6.0%) Capital One Financial 210,100 14,564,132 Countrywide Financial 352,398 25,407,896 Fannie Mae 595,497 42,256,467 MBNA 414,827 10,242,079 Utilities Select Sector SPDR Fund 803,900 19,390,068 Total 111,860,642 Health care products (15.5%) Amgen 85,200(b) 4,846,176 Biogen Idec 225,400(b) 13,524,000 Boston Scientific 182,600(b) 6,986,276 Forest Laboratories 216,600(b) 10,892,814 Genentech 188,324(b) 9,167,612 Gilead Sciences 61,500(b) 3,975,360 Johnson & Johnson 623,650 34,469,136 Medco Health Solutions 942,000(b) 28,542,600 Medtronic 181,800 9,030,006 Merck & Co 410,100 18,598,035 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Health care products (cont.) Momenta Pharmaceutical 147,350(b) $1,211,954 Novartis ADR 490,650(c) 21,912,429 Pfizer 3,534,800 112,972,207 Wyeth 236,000 8,354,400 Total 284,483,005 Health care services (9.3%) Aetna 251,700 21,595,860 AmerisourceBergen 1,158,255 62,615,266 Cardinal Health 473,300 21,061,850 Caremark Rx 298,200(b) 9,095,100 Fisher Scientific Intl 104,900(b) 6,105,180 HCA 261,500 10,106,975 McKesson 771,966 24,834,146 UnitedHealth Group 248,600 15,636,940 Total 171,051,317 Household products (7.1%) Colgate-Palmolive 988,600 52,593,520 Gillette 236,700 9,226,566 Procter & Gamble 1,343,116 70,043,499 Total 131,863,585 Insurance (3.3%) ACE 358,647(c) 14,557,482 Allstate 185,200 8,719,216 American Intl Group 273,694 19,336,481 Chubb 263,200 18,102,896 Total 60,716,075 Leisure time & entertainment (3.6%) Multimedia Games 171,300(b) 3,242,709 Viacom Cl B 1,908,200 64,096,438 Total 67,339,147 Machinery (1.1%) Caterpillar 207,856 15,275,337 Ingersoll-Rand Cl A 76,900(c) 5,282,261 Total 20,557,598 Media (5.9%) Cendant 2,914,835 66,691,425 Disney (Walt) 1,821,100 42,049,199 Total 108,740,624 Multi-industry (4.2%) General Electric 1,444,156 48,018,187 Tyco Intl 984,800(c) 30,528,800 Total 78,546,987 Paper & packaging (0.6%) Intl Paper 112,900 4,880,667 Weyerhaeuser 104,800 6,497,600 Total 11,378,267 Precious metals (0.5%) Freeport McMoRan Copper & Gold Cl B 271,241 9,452,749 Retail -- general (2.6%) Home Depot 418,400 14,108,448 Target 214,300 9,343,480 Wal-Mart Stores 473,700 25,110,837 Total 48,562,765 Telecom equipment & services (0.2%) Motorola 1,200 19,116 Nokia ADR 396,300(c) 4,605,006 Total 4,624,122 Total common stocks (Cost: $1,857,738,532) $1,826,915,410 Short-term securities (1.3%) Issuer Effective Amount Value(a) yield payable at maturity U.S. government agencies (0.8%) Federal Natl Mtge Assn Disc Nts 08-13-04 1.28% $900,000 $899,552 08-25-04 1.31 1,100,000 1,098,959 09-20-04 1.36 2,000,000 1,996,079 09-22-04 1.31 10,000,000 9,980,321 Total 13,974,911 Commercial paper (0.5%) Fairway Finance 08-18-04 1.35 3,800,000 3,797,293 Swedbank (ForeningsSparbanken) 08-23-04 1.38 5,300,000(c) 5,295,123 Total 9,092,416 Total short-term securities (Cost: $23,067,631) $23,067,327 Total investments in securities (Cost: $1,880,806,163)(d) $1,849,982,737 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 11 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. As of July 31, 2004, the value of foreign securities represented 8.0% of net assets. (d) At July 31, 2004, the cost of securities for federal income tax purposes was $1,916,814,225 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 64,841,529 Unrealized depreciation (131,673,017) ------------ Net unrealized depreciation $ (66,831,488) ------------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 12 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Large Cap Equity Fund July 31, 2004 Assets Investments in securities, at value (Note 1) (identified cost $1,880,806,163) $ 1,849,982,737 Capital shares receivable 262,334 Dividends and accrued interest receivable 2,274,997 Receivable for investment securities sold 31,109,269 ---------- Total assets 1,883,629,337 ------------- Liabilities Disbursements in excess of cash on demand deposit 353,667 Capital shares payable 266,038 Payable for investment securities purchased 30,385,691 Accrued investment management services fee 29,785 Accrued distribution fee 24,443 Accrued service fee 20 Accrued transfer agency fee 12,238 Accrued administrative services fee 2,414 Other accrued expenses 222,522 ------- Total liabilities 31,296,818 ---------- Net assets applicable to outstanding capital stock $ 1,852,332,519 =============== Represented by Capital stock -- $.01 par value (Note 1) $ 4,013,006 Additional paid-in capital 2,939,891,294 Undistributed net investment income 209,548 Accumulated net realized gain (loss) (Note 7) (1,060,957,903) Unrealized appreciation (depreciation) on investments (30,823,426) ----------- Total -- representing net assets applicable to outstanding capital stock $ 1,852,332,519 =============== Net assets applicable to outstanding shares: Class A $ 1,247,790,901 Class B $ 571,677,372 Class C $ 10,904,264 Class I $ 14,459,564 Class Y $ 7,500,418 Net asset value per share of outstanding capital stock: Class A shares 268,844,264 $ 4.64 Class B shares 125,365,561 $ 4.56 Class C shares 2,386,928 $ 4.57 Class I shares 3,094,279 $ 4.67 Class Y shares 1,609,548 $ 4.66 --------- ---------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Statement of operations AXP Large Cap Equity Fund Year ended July 31, 2004 Investment income Income: Dividends $ 6,345,919 Interest 137,408 Less foreign taxes withheld (98,416) ------- Total income 6,384,911 --------- Expenses (Note 2): Investment management services fee 2,441,621 Distribution fee Class A 688,355 Class B 1,291,172 Class C 53,881 Transfer agency fee 796,191 Incremental transfer agency fee Class A 56,869 Class B 48,270 Class C 2,106 Service fee -- Class Y 796 Administrative services fees and expenses 212,114 Compensation of board members 9,463 Custodian fees 280,632 Printing and postage 100,300 Registration fees 77,313 Audit fees 23,000 Other 5,453 ----- Total expenses 6,087,536 Expenses waived/reimbursed by AEFC (Note 2) (102,210) -------- 5,985,326 Earnings credits on cash balances (Note 2) (2,134) ------ Total net expenses 5,983,192 --------- Investment income (loss) -- net 401,719 ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 12,441,166 Net change in unrealized appreciation (depreciation) on investments (66,709,001) ----------- Net gain (loss) on investments (54,267,835) ----------- Net increase (decrease) in net assets resulting from operations $(53,866,116) ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Statements of changes in net assets AXP Large Cap Equity Fund Year ended July 31, 2004 2003 Operations and distributions Investment income (loss) -- net $ 401,719 $ (820) Net realized gain (loss) on security transactions 12,441,166 1,719,341 Net change in unrealized appreciation (depreciation) on investments (66,709,001) 7,080,694 ----------- --------- Net increase (decrease) in net assets resulting from operations (53,866,116) 8,799,215 ----------- --------- Distributions to shareholders from: Net investment income Class A (190,447) (27,013) Class Y (99) (21) Net realized gain Class A (10,249,150) -- Class B (4,251,044) -- Class C (267,748) -- Class I (411,555) -- Class Y (29,079) -- ----------- ------- Total distributions (15,399,122) (27,034) ----------- -------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Statements of changes in net assets (continued) AXP Large Cap Equity Fund Year ended July 31, 2004 2003 Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) $ 303,658,868 $ 72,641,134 Class B shares 83,846,079 31,826,112 Class C shares 5,258,048 1,776,439 Class I shares 20,944,518 -- Class Y shares 8,142,956 35,963 Fund merger (Note 6) Class A shares 942,709,419 -- Class B shares 589,683,135 -- Class C shares 4,576,296 -- Class Y shares 11,200 -- Reinvestment of distributions at net asset value Class A shares 10,345,503 25,435 Class B shares 4,192,636 -- Class C shares 257,935 -- Class I shares 411,300 -- Class Y shares 28,728 13 Payments for redemptions Class A shares (50,748,072) (6,855,152) Class B shares (Note 2) (115,514,441) (4,072,868) Class C shares (Note 2) (911,625) (107,435) Class I shares (5,803,591) -- Class Y shares (413,179) (1,872) -------- ------ Increase (decrease) in net assets from capital share transactions 1,800,675,713 95,267,769 ------------- ---------- Total increase (decrease) in net assets 1,731,410,475 104,039,950 Net assets at beginning of year 120,922,044 16,882,094 ----------- ---------- Net assets at end of year $1,852,332,519 $120,922,044 ============== ============ Undistributed net investment income $ 209,548 $ -- -------------- ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Notes to Financial Statements AXP Large Cap Equity Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund invests primarily in equity securities of companies with a market capitalization greater than $5 billion at the time of purchase. 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 offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. As of July 31, 2004, American Express Financial Corporation (AEFC) and the AXP Portfolio Builder Series funds owned 100% of Class I shares, which represents 0.78% of the Fund's net assets. 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. - -------------------------------------------------------------------------------- 17 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Directors of the funds, American Express Financial Corporation (AEFC) utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair NAV. 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. - -------------------------------------------------------------------------------- 18 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Futures transactions To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $1,625 and accumulated net realized loss has been decreased by $903 resulting in a net reclassification adjustment to increase paid-in capital by $722. - -------------------------------------------------------------------------------- 19 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT The tax character of distributions paid for the years indicated is as follows: Year ended July 31, 2004 2003 Class A Distributions paid from: Ordinary income $9,388,916 $27,013 Long-term capital gain 1,050,681 -- Class B Distributions paid from: Ordinary income 3,818,774 -- Long-term capital gain 432,270 -- Class C Distributions paid from: Ordinary income 240,898 -- Long-term capital gain 26,850 -- Class I* Distributions paid from: Ordinary income 350,249 N/A Long-term capital gain 61,306 N/A Class Y Distributions paid from: Ordinary income 25,037 21 Long-term capital gain 4,141 -- * Inception date was March 4, 2004. As of July 31, 2004, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ 942,993 Accumulated long-term gain (loss) $ 1,648,977 Unrealized appreciation (depreciation) $(1,094,163,751) 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. On June 24, 2004, an additional dividend was paid before the merger to ensure that current shareholders of AXP Large Cap Equity Fund would not experience a dilution in their share of the Fund's income or capital gains. 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. - -------------------------------------------------------------------------------- 20 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment decreased the fee by $25,769 for the year ended July 31, 2004. In addition, AEFC has contractually agreed to waive 0.05% of the management fees through July 31, 2005. 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. Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. 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. - -------------------------------------------------------------------------------- 21 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $2,433,798 for Class A, $111,016 for Class B and $2,425 for Class C for the year ended July 31, 2004. Under an agreement, effective until July 31, 2004, AEFC and its affiliates agreed to waive certain fees and expenses such that net expenses would not exceed 1.25% for Class A, 2.01% for Class B, 2.01% for Class C, 0.93% for Class I and 1.07% for Class Y of the Fund's average daily net assets. Beginning June 10, 2004, AEFC contractually agreed to waive 0.05% of the management fee through July 31, 2005. For the year ended July 31, 2004, AEFC and its affiliates waived certain fees and expenses to 1.20% for Class A, 1.95% for Class B, 1.98% for Class C, 0.71% for Class I and 1.00% for Class Y. During the year ended July 31, 2004, the Fund's custodian and transfer agency fees were reduced by $2,134 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 $2,236,760,336 (including $1,323,493,648 from AXP Blue Chip Advantage Fund and $195,865,122 from AXP Research Opportunities Fund that were acquired in the fund merger as described in Note 6) and $495,774,461, respectively, for the year ended July 31, 2004. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $6,644 for the year ended July 31, 2004. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2004 Class A Class B Class C Class I* Class Y Sold 63,776,788 17,608,704 1,105,201 4,261,085 1,674,757 Fund merger 195,139,277 124,164,313 961,940 -- 2,310 Issued for reinvested distributions 2,127,178 875,289 53,736 83,939 5,876 Redeemed (10,573,028) (25,212,059) (190,776) (1,250,745) (86,872) ----------- ----------- -------- ---------- ------- Net increase (decrease) 250,470,215 117,436,247 1,930,101 3,094,279 1,596,071 ----------- ----------- --------- --------- --------- * Inception was March 4, 2004. Year ended July 31, 2003 Class A Class B Class C Class I Class Y Sold 17,273,053 7,641,133 426,869 N/A 8,203 Issued for reinvested distributions 6,391 -- -- N/A 3 Redeemed (1,688,951) (977,921) (25,450) N/A (400) ----------- ----------- --------- --------- --------- Net increase (decrease) 15,590,493 6,663,212 401,419 N/A 7,806 ----------- ----------- --------- --------- ---------
- -------------------------------------------------------------------------------- 22 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. The Fund had no borrowings outstanding during the year ended July 31, 2004. 6. FUND MERGER At the close of business on June 25, 2004, AXP Large Cap Equity Fund acquired the assets and assumed the identified liabilities of AXP Blue Chip Advantage Fund and AXP Research Opportunities Fund. This reorganization was completed after shareholders approved the plan on June 9, 2004. The aggregate net assets of AXP Large Cap Equity Fund immediately before the acquisition was $404,994,552 and the combined net assets immediately after the acquisition was $1,941,974,602. The merger was accomplished by a tax-free exchange of the following: Shares Value AXP Blue Chip Advantage Fund 171,778,024 $1,331,930,990 AXP Research Opportunities Fund 45,469,648 205,049,060 In exchange for the AXP Blue Chip Advantage Fund and AXP Research Opportunities Fund shares and net assets, AXP Large Cap Equity Fund issued the following number of shares: Shares Class A 195,139,277 Class B 124,164,313 Class C 961,940 Class Y 2,310 AXP Blue Chip Advantage Fund's and AXP Research Opportunities Fund's net assets after adjustments for any permanent book-to-tax differences at the merger date were as follows, which include the following amounts of capital stock, unrealized appreciation, and accumulated net realized loss.
Total net Capital Unrealized Accumulated assets stock appreciation net realized loss AXP Blue Chip Advantage Fund $1,331,930,990 $2,300,150,539 $20,542,743 $(988,762,292) AXP Research Opportunities Fund 205,049,060 265,819,324 9,544,965 (70,315,229)
- -------------------------------------------------------------------------------- 23 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $1,027,332,263 that if not offset by future capital gains realized after July 31, 2004 will expire as follows: 2008 2009 2010 2011 $580,153,257 $416,711,846 $20,988,174 $9,478,986 AXP Large Cap Equity Fund acquired $1,028,552,364 of capital loss carry-overs in connection with the AXP Blue Chip Advantage Fund and AXP Research Opportunities Fund merger (Note 6). In addition to the acquired capital loss carry-overs, the Fund also acquired unrealized capital gains as a result of the mergers. The yearly utilization of the acquired capital losses as well as the utilization of the acquired unrealized losses is limited by the Internal Revenue Code. It is unlikely the board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. - -------------------------------------------------------------------------------- 24 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT 8. 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 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) .32 .41 (.89) Total from investment operations .33 .42 (.89) Less distributions: Distributions from realized gains (.22) -- -- Net asset value, end of period $4.64 $4.53 $4.11 Ratios/supplemental data Net assets, end of period (in millions) $1,248 $83 $11 Ratio of expenses to average daily net assets(c),(e) 1.20% 1.25% 1.25%(d) Ratio of net investment income (loss) to average daily net assets .36% .24% (.11%)(d) Portfolio turnover rate (excluding short-term securities) 99% 135% 88% Total return(f) 7.19% 10.22% (17.80%)(g)
(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 1.23%, 1.84% and 5.12% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 25 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2004 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) .31 .39 (.89) Total from investment operations .30 .38 (.90) Less distributions: Distributions from realized gains (.22) -- -- Net asset value, end of period $4.56 $4.48 $4.10 Ratios/supplemental data Net assets, end of period (in millions) $572 $36 $5 Ratio of expenses to average daily net assets(c),(e) 1.95% 2.01% 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.46%) (.52%) (.86%)(d) Portfolio turnover rate (excluding short-term securities) 99% 135% 88% Total return(f) 6.48% 9.27% (18.00%)(g)
(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 B would have been 1.98%, 2.60% and 5.88% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 26 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2004 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) .31 .40 (.89) Total from investment operations .30 .39 (.90) Less distributions: Distributions from realized gains (.22) -- -- Net asset value, end of period $4.57 $4.49 $4.10 Ratios/supplemental data Net assets, end of period (in millions) $11 $2 $-- Ratio of expenses to average daily net assets(c),(e) 1.98% 2.01% 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.43%) (.53%) (.92%)(d) Portfolio turnover rate (excluding short-term securities) 99% 135% 88% Total return(f) 6.46% 9.51% (18.00%)(g)
(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 C would have been 2.01%, 2.60% and 5.88% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 27 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Class I Per share income and capital changes(a) Fiscal period ended July 31, 2004(b) Net asset value, beginning of period $5.08 Income from investment operations: Net gains (losses) (both realized and unrealized) (.28) Less distributions: Distributions from realized gains (.13) Net asset value, end of period $4.67 Ratios/supplemental data Net assets, end of period (in millions) $14 Ratio of expenses to average daily net assets(c),(e) .71%(d) Ratio of net investment income (loss) to average daily net assets .74%(d) Portfolio turnover rate (excluding short-term securities) 99% Total return(f) (5.65%)(g) (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was March 4, 2004. (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 I would have been 0.72% for the period ended July 31, 2004. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 28 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2004 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) .34 .42 (.89) Total from investment operations .35 .43 (.89) Less distributions: Dividends from net investment income (.01) -- -- Distributions from realized gains (.22) -- -- Total distributions (.23) -- -- Net asset value, end of period $4.66 $4.54 $4.11 Ratios/supplemental data Net assets, end of period (in millions) $8 $-- $-- Ratio of expenses to average daily net assets(c),(e) 1.00% 1.07% 1.07%(d) Ratio of net investment income (loss) to average daily net assets .50% .45% .09%(d) Portfolio turnover rate (excluding short-term securities) 99% 135% 88% Total return(f) 7.44% 10.46% (17.80%)(g)
(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 Y would have been 1.03%, 1.66% and 4.94% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 29 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD AND SHAREHOLDERS AXP GROWTH SERIES, INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of AXP Large Cap Equity Fund (a series of AXP Growth Series, Inc.) as of July 31, 2004, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended July 31, 2004, and the financial highlights for each of the years in the two-year period ended July 31, 2004 and for the period from March 28, 2002 (when shares became publicly available) to July 31, 2002. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Large Cap Equity Fund as of July 31, 2004, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota September 20, 2004 - -------------------------------------------------------------------------------- 30 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Federal Income Tax Information (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. AXP Large Cap Equity Fund Fiscal year ended July 31, 2004 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 44.25% Dividends Received Deduction for corporations 44.00% Payable date Per share Dec. 18, 2003 $0.09465 June 24, 2004 0.10975 Total $0.20440 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share June 24, 2004 $0.01921 Total distributions $0.22361 Class B Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 44.25% Dividends Received Deduction for corporations 44.00% Payable date Per share Dec. 18, 2003 $0.08939 June 24, 2004 0.10975 Total $0.19914 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share June 24, 2004 $0.01921 Total distributions $0.21835 - -------------------------------------------------------------------------------- 31 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Class C Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 44.25% Dividends Received Deduction for corporations 44.00% Payable date Per share Dec. 18, 2003 $0.08939 June 24, 2004 0.10975 Total $0.19914 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share June 24, 2004 $0.01921 Total distributions $0.21835 Class I Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 44.25% Dividends Received Deduction for corporations 44.00% Payable date Per share June 24, 2004 $0.10975 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share June 24, 2004 $0.01921 Total distributions $0.12896 Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 44.25% Dividends Received Deduction for corporations 44.00% Payable date Per share Dec. 18, 2003 $0.09635 June 24, 2004 0.10975 Total $0.20610 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share June 24, 2004 $0.01921 Total distributions $0.22531 - -------------------------------------------------------------------------------- 32 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Fund Expenses Example (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended July 31, 2004. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 33 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Beginning Ending Expenses paid account value account value during the period Feb. 1, 2004 July 31, 2004 Feb. 1, 2004-July 31, 2004 Class A Actual(e) $1,000 $958.30 $5.75(a),(g) Hypothetical (5% return before expenses) $1,000 $1,019.00 $5.92(a),(g) Class B Actual(e) $1,000 $955.70 $9.43(b),(g) Hypothetical (5% return before expenses) $1,000 $1,015.22 $9.72(b),(g) Class C Actual(e) $1,000 $955.80 $9.53(c),(g) Hypothetical (5% return before expenses) $1,000 $1,015.12 $9.82(c),(g) Class I(f) Actual N/A N/A N/A Hypothetical (5% return before expenses) N/A N/A N/A Class Y Actual(e) $1,000 $960.40 $4.87(d),(g) Hypothetical (5% return before expenses) $1,000 $1,019.89 $5.02(d),(g)
(a) Expenses are equal to the Fund's Class A annualized expense ratio of 1.18%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) Expenses are equal to the Fund's Class B annualized expense ratio of 1.94%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (c) Expenses are equal to the Fund's Class C annualized expense ratio of 1.96%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (d) Expenses are equal to the Fund's Class Y annualized expense ratio of 1.00%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (e) Based on the actual return for the six months ended July 31, 2004: (4.17%) for Class A, (4.43%) for Class B, (4.42%) for Class C and (3.96%) for Class Y. (f) The values and expenses paid are not presented because Class I does not have a full six months of history. The inception date for Class I was March 4, 2004. (g) AEFC has contractually agreed to waive 0.05% of the management fees for this Fund through July 31, 2005. If the waiver had been in effect for the entire six-month period ended July 31, 2004, the expenses would have been the same as those presented above. - -------------------------------------------------------------------------------- 34 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT Board Members and Officers Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. Each member oversees 14 Master Trust portfolios and 87 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Arne H. Carlson Board member since 1999 Chair, Board Services 901 S. Marquette Ave. Corporation (provides Minneapolis, MN 55402 administrative services to Age 69 boards). Former Governor of Minnesota - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Fluor Scottish Power PLC, 901 S. Marquette Ave. Corporation (engineering and Vulcan Materials Company, Minneapolis, MN 55402 construction) since 1998 Inc. (construction Age 66 materials/chemicals) - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Livio D. DeSimone Board member since 2001 Retired Chair of the Board and Cargill, Incorporated 0 Seventh Street East Chief Executive Officer, (commodity merchants and Suite 3050 Minnesota Mining and processors), General St. Paul, MN 55101-4901 Manufacturing (3M) Mills, Inc. (consumer Age 70 foods), Vulcan Materials Company (construction materials/chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Anne P. Jones Board member since 1985 Attorney and Consultant 901 S. Marquette Ave. Minneapolis, MN 55402 Age 69 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Stephen R. Lewis, Jr.* Board member since 2002 Retired President and Professor Valmont Industries, Inc. 901 S. Marquette Ave. of Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 65 - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
* Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Columbia Wanger Asset Management, L.P., one of the fund's subadvisers. - -------------------------------------------------------------------------------- 35 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Alan K. Simpson Board member since 1997 Former three-term United States 1201 Sunshine Ave. Senator for Wyoming Cody, WY 82414 Age 72 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Alison Taunton-Rigby Board member since 2002 Founder and Chief Executive 901 S. Marquette Ave. Officer, RiboNovix, Inc. since Minneapolis, MN 55402 2004; President, Forester Age 60 Biotech since 2000; prior to that, President and CEO, Aquila Biopharmaceuticals, Inc. - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Board Member Affiliated with AEFC** Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- William F. Truscott Board member since Senior Vice President - Chief 53600 AXP Financial Center 2001, Vice President Investment Officer of AEFC since Minneapolis, MN 55474 since 2002 2001. Former Chief Investment Age 43 Officer and Managing Director, Zurich Scudder Investments - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
** Interested person by reason of being an officer, director and/or employee of AEFC. - -------------------------------------------------------------------------------- 36 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Jeffrey P. Fox Treasurer since 2002 Vice President - Investment 50005 AXP Financial Center Accounting, AEFC, since 2002; Minneapolis, MN 55474 Vice President - Finance, Age 49 American Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Paula R. Meyer President since 2002 Senior Vice President and 596 AXP Financial Center General Manager - Mutual Funds, Minneapolis, MN 55474 AEFC, since 2002; Vice President Age 50 and Managing Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Leslie L. Ogg Vice President, General President of Board Services 901 S. Marquette Ave. Counsel, and Secretary Corporation Minneapolis, MN 55402 since 1978 Age 65 - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the Web site americanexpress.com/funds; or by searching the Web site of the Securities and Exchange Commission http://www.sec.gov. You may view the Fund's voting record for all portfolio companies whose shareholders meetings were completed the previous quarter on americanexpress.com/funds or obtain a copy by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283. In addition, 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. - -------------------------------------------------------------------------------- 37 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Large Cap Value Fund Annual Report for the Period Ended July 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 The Fund's Long-term Performance 8 Investments in Securities 10 Financial Statements 14 Notes to Financial Statements 17 Report of Independent Registered Public Accounting Firm 28 Federal Income Tax Information 29 Fund Expenses Example 31 Board Members and Officers 33 Proxy Voting 35 (Dalbar logo) 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 ANNUAL REPORT Fund Snapshot AS OF JULY 31, 2004 PORTFOLIO MANAGER Portfolio manager Since Years in industry Bob Ewing, CFA 6/02 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 $109.9 million Number of holdings 168 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Financials 31.1% Energy 11.0% Consumer discretionary 10.6% Health care 7.5% Consumer staples 7.2% Industrials 6.8% Short-term securities 6.6% Materials 6.2% Telecommunications 5.7% Technology 4.2% Utilities 3.1% TOP TEN HOLDINGS Percentage of portfolio assets Bank of America (Banks and savings & loans) 4.2% Citigroup (Finance companies) 4.2 ExxonMobil (Energy) 2.8 J.P. Morgan Chase (Broker dealers) 2.1 ChevronTexaco (Energy) 2.0 Wells Fargo (Banks and savings & loans) 2.0 ConocoPhillips (Energy) 1.9 Altria Group (Beverages & tobacco) 1.8 American Intl Group (Insurance) 1.7 U.S. Bancorp (Banks and savings & loans) 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. - -------------------------------------------------------------------------------- 3 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Bob Ewing discusses the Fund's positioning and results for the 2004 fiscal year. Q: How did AXP Large Cap Value Fund perform for the 2004 fiscal year? A: AXP Large Cap Value Fund's Class A shares advanced 12.85%, excluding sales charge, for the 12 months ended July 31, 2004. The Fund underperformed its peers, as represented by the Lipper Large-Cap Value Funds Index, which advanced 15.13% for the period. The Fund's benchmark, the Russell 1000(R) Value Index, gained 17.68%. Q: What factors had a significant effect on performance? A: Although the Fund benefited from the stock market's advance during the period, its more conservative positioning ran counter to several dominant market themes. During the past year, value stocks outpaced growth stocks. However, two market trends were working against the Fund's strategy. First, smaller capitalization stocks generally performed better than the larger stocks that are the focus of this Fund. Second, lower-quality stocks outperformed higher-quality stocks for most of the period. In our view, stocks were vulnerable to elevated global risks during the period -- both economic and political. This led us to conclude that a conservative portfolio positioning was prudent. The market, however, seemed to throw caution to the wind. Investors were willing to pay premiums for companies whose earnings are more sensitive to economic activity and thus would benefit more if the economy continued to accelerate. In many cases, stocks that garnered the most favor were those of companies in riskier market sectors, with higher debt levels and less financial strength. In contrast, we kept the Fund's (bar graph) PERFORMANCE COMPARISON For the year ended July 31, 2004 20% (bar 2) +17.68% (bar 3) 15% (bar 1) +15.13% +12.85% 10% 5% 0% (bar 1) AXP Large Cap Value Fund Class A (excluding sales charge) (bar 2) Russell 1000(R) Value Index (unmanaged) (bar 3) Lipper Large-Cap Value Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 4 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Questions & Answers (begin callout quote)> Although the Fund benefited from the stock market's advance during the period, its more conservative positioning ran counter to several dominant market themes.(end callout quote) average market capitalization larger than its benchmark, focused on higher quality companies and reduced the Fund's risk relative to its benchmark. Given this strategy, the market environment placed the Fund at a near-term disadvantage compared to its benchmark and peers.
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 July 31, 2004 1 year +12.85% +6.35% +12.00% +8.00% +12.19% +12.19% +13.14% +13.14% Since inception +6.93% +3.94% +6.14% +4.34% +6.16% +6.16% +7.17% +7.17% as of June 30, 2004 1 year +17.00% +10.28% +15.92% +11.92% +15.91% +15.91% +17.09% +17.09% Since inception +8.52% +5.37% +7.71% +5.84% +7.62% +7.62% +8.68% +8.68%
The performance information shown represents the past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 5 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Questions & Answers Stock selection among consumer discretionary stocks detracted from the Fund's relative performance in the first half of the period. We had expected many consumer discretionary categories to underperform, but continuing signs of economic improvement sustained the market's enthusiasm for consumer stocks. Consequently, the Fund's conservative positioning in selected retailers and media companies hurt relative performance. In terms of individual contributors, Capital One Financial, a credit card company, performed quite well. Capital One has been working to diversify its revenue sources and increase its business with upscale customers. These efforts led to strong 2003 earnings and a reduction in the company's delinquency rate. 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 we replaced them with others that we considered to be more attractively valued. However, we have not meaningfully altered the Fund's thematic orientation, which was implemented a year ago. First, we favored higher-quality, larger-capitalization companies. Second, we sought to reduce the Fund's overall price-to-earnings ratio relative to its benchmark, as a means of reducing the Fund's risk. Third, we continued to look for the most attractively valued stocks, but not necessarily in traditional value sectors. We looked for pockets of opportunity in areas -- like energy stocks -- that had been largely left behind in the recent rally. Finally, we positioned the Fund to perform well in a flat market environment. To that end, the portfolio's beta, a measure of its aggressiveness, was slightly lower than the index at the end of the period. We believe that lowering the portfolio's risk level is best accomplished by owning cheap stocks and we are open to finding these stocks in any sector. Currently, we are not finding the most attractively priced stocks in traditional value sectors such as industrials and cyclicals. Instead, two areas where we have been finding more attractively valued stocks are health care and consumer products, which are typically more growth-oriented sectors. Health care stocks, particularly pharmaceutical firms and hospitals, were exceptionally inexpensive and an excellent place to find valuation opportunities. In the consumer products area, we purchased shares of Colgate Palmolive during the first calendar quarter of 2004. It is unusual for such a company to meet - -------------------------------------------------------------------------------- 6 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Questions & Answers our valuation standards, but Colgate's stock price declined due to some international pressure, making the valuation attractive to us. To summarize our sector positioning at fiscal year-end, the Fund had higher-than-index positions in the health care, consumer staples and materials sectors. The three sectors that had the lowest weightings compared to the index were industrials, utilities and technology. Q: How do you plan to manage the Fund in the coming months? A: We are cautious in our outlook for the stock market because the U.S. is now almost three years into the economic recovery. It seems clear that the Federal Reserve's monetary policy will be more restrictive going forward and we believe the corporate earnings growth rate probably peaked in the first or second quarter of 2004. Although we do expect the economy to continue to improve somewhat, we believe it is likely to fall short of expectations, which could negatively affect the stock market. We expect to maintain a relatively conservative portfolio positioning, with continued emphasis on the themes mentioned earlier. As in all market environments, we will maintain our focus on relative value, with our team of analysts building the portfolio on a stock-by-stock basis. We will continue to seek companies that have potential for earnings growth and also offer attractive value relative to the overall market, to their peers and to their own histories. - -------------------------------------------------------------------------------- 7 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP Large Cap Value Fund Class A shares (from 7/1/02 to 7/31/04) as compared to the performance of two widely cited performance indices, the Russell 1000(R) Value Index and the Lipper Large-Cap Value Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents the past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current prospectus. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements. Class A Short-term Long-term Fiscal year ended Income capital gains capital gains Total July 31, 2004 $0.03 $0.23 $0.01 $0.27 July 31, 2003 0.01 -- -- 0.01 July 31, 2002(1) -- -- -- 0.00 (1) For the period from June 27, 2002 (when shares became publicily available) to July 31, 2002. - -------------------------------------------------------------------------------- 8 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP LARGE CAP VALUE FUND AXP Large Cap Value Fund Class A (includes sales charge) $ 9,425 $8,695 $ 9,610 $10,845 Russell 1000(R) Value Index(1) $10,000 $9,070 $10,045 $11,821 Lipper Large-Cap Value Funds Index(2) $10,000 $9,136 $ 9,923 $11,424 7/1/02 7/02 7/03 7/04 COMPARATIVE RESULTS Results as of July 31, 2004 Since 1 year inception(3) AXP Large Cap Value Fund (includes sales charge) Class A Cumulative value of $10,000 $10,635 $10,845 Average annual total return +6.35% +3.94% Russell 1000(R) Value Index(1) Cumulative value of $10,000 $11,768 $11,821 Average annual total return +17.68% +8.36% Lipper Large-Cap Value Funds Index(2) Cumulative value of $10,000 $11,513 $11,424 Average annual total return +15.13% +6.60% Results for other share classes can be found on page 5. (1) The Russell 1000(R) Value Index, an unmanaged index, measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. (2) The Lipper Large-Cap Value Funds Index, an 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. (3) Fund data is from June 27, 2002. Index data is from July 1, 2002. - -------------------------------------------------------------------------------- 9 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Investments in Securities AXP Large Cap Value Fund July 31, 2004 (Percentages represent value of investments compared to net assets) Common stocks (95.1%) Issuer Shares Value(a) Aerospace & defense (3.6%) Boeing 15,911 $807,483 Empresa Brasileira de Aeronautica ADR 20,890(c) 597,454 General Dynamics 4,220 417,020 Lockheed Martin 10,705 567,258 Northrop Grumman 17,132 901,144 United Technologies 7,312 683,672 Total 3,974,031 Automotive & related (0.4%) General Motors 10,658 459,786 Banks and savings & loans (11.3%) Bank of America 55,710 4,735,906 Bank of New York 23,061 662,543 Commerce Bancorp 6,600 332,244 Investors Financial Services 4,500 205,560 PNC Financial Services Group 9,540 482,724 U.S. Bancorp 65,450 1,852,235 Wachovia 19,038 843,574 Washington Mutual 26,601 1,032,119 Wells Fargo 38,786 2,226,703 Total 12,373,608 Beverages & tobacco (3.5%) Altria Group 41,337 1,967,642 Coca-Cola 18,790 824,129 Coca-Cola Enterprises 13,200 269,280 PepsiCo 15,715 785,750 Total 3,846,801 Broker dealers (4.8%) Franklin Resources 2,250 108,563 J.P. Morgan Chase 63,224 2,360,152 Merrill Lynch & Co 26,197 1,302,515 Morgan Stanley 29,756 1,467,863 Total 5,239,093 Building materials & construction (1.5%) American Standard 16,654(b) 631,019 Masco 14,548 439,932 Temple-Inland 8,099 552,757 Total 1,623,708 Cable (1.7%) Comcast Cl A 15,914(b) 436,044 Comcast Special Cl A 16,275(b) 436,170 EchoStar Communications Cl A 13,231(b) 366,763 NTL 11,242(b) 585,933 Total 1,824,910 Cellular telecommunications (0.9%) Nextel Communications Cl A 12,200(b) 277,672 Vodafone Group ADR 33,838(c) 735,300 Total 1,012,972 Chemicals (2.4%) Dow Chemical 32,884 1,311,743 Eastman Chemical 6,513 291,001 Hercules 10,200(b) 120,462 Lyondell Chemical 35,952 653,607 RPM Intl 18,000 270,900 Total 2,647,713 Computer hardware (1.7%) Cisco Systems 20,755(b) 432,949 Dell 9,650(b) 342,286 EMC 20,800(b) 228,176 Hewlett-Packard 43,583 878,197 Total 1,881,608 Computer software & services (1.8%) Affiliated Computer Services Cl A 7,588(b) 393,817 Cadence Design Systems 24,800(b) 334,056 Intl Business Machines 5,200 452,764 Microsoft 10,858 309,019 State Street 11,000 470,910 Total 1,960,566 Electronics (0.8%) Cypress Semiconductor 21,000(b) 238,140 Intel 16,150 393,737 Texas Instruments 9,441 201,377 Total 833,254 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Energy (9.5%) Anadarko Petroleum 13,800 $825,102 BP ADR 17,800(c) 1,003,208 ChevronTexaco 23,537 2,251,314 ConocoPhillips 26,440 2,082,679 Devon Energy 5,562 386,503 ExxonMobil 67,896 3,143,584 Newfield Exploration 8,720(b) 515,090 Royal Dutch Petroleum ADR 4,519(c) 227,306 Total 10,434,786 Energy equipment & services (1.7%) Cooper Cameron 10,800(b) 551,772 Schlumberger 5,895 379,166 Transocean 11,301(b) 320,948 Weatherford Intl 14,046(b) 657,073 Total 1,908,959 Environmental services (0.1%) Allied Waste Inds 9,675(b) 89,397 Finance companies (4.3%) Citigroup 106,491 4,695,188 Financial services (4.5%) Capital One Financial 9,800 679,336 Countrywide Financial 14,280 1,029,588 Fannie Mae 17,349 1,231,085 Freddie Mac 23,267 1,496,301 MBNA 20,935 516,885 Total 4,953,195 Food (1.5%) General Mills 11,200 502,880 Hain Celestial Group 9,600(b) 158,688 Heinz (HJ) 19,000 700,910 Sara Lee 12,141 266,616 Total 1,629,094 Furniture & appliances (0.1%) Leggett & Platt 4,288 115,990 Health care products (5.4%) Amgen 1,982(b) 112,736 Baxter Intl 9,530 286,567 Biogen Idec 5,278(b) 316,680 Boston Scientific 7,900(b) 302,254 Bristol-Myers Squibb 12,106 277,227 Gilead Sciences 4,246(b) 274,461 GlaxoSmithKline ADR 5,744(c) 235,217 Guidant 1,850 102,342 Johnson & Johnson 11,834 654,065 Medco Health Solutions 10,972(b) 332,452 Merck & Co 28,374 1,286,761 Novartis ADR 7,642(c) 341,292 Pfizer 25,403 811,880 Schering-Plough 19,723 383,810 Wyeth 5,958 210,913 Total 5,928,657 Health care services (2.2%) Aetna 10,160 871,728 AmerisourceBergen 4,364 235,918 HCA 12,408 479,569 Hospira 8,500(b) 220,235 Lincare Holdings 7,763(b) 247,950 Select Medical 7,575 97,263 Tenet Healthcare 28,300(b) 316,394 Total 2,469,057 Household products (2.1%) Clorox 5,650 281,201 Colgate-Palmolive 16,950 901,740 Procter & Gamble 22,408 1,168,577 Total 2,351,518 Insurance (6.2%) ACE 15,362(c) 623,544 Allstate 25,391 1,195,408 American Intl Group 27,710 1,957,711 Assurant 4,200 102,480 Chubb 9,900 680,922 CIGNA 5,679 352,155 Endurance Specialty Holdings 16,800(c) 555,240 First American 8,828 237,120 Hartford Financial Services Group 3,748 243,995 Montpelier Re Holdings 4,998(c) 176,829 St. Paul Travelers Companies 8,290 307,310 Willis Group Holdings 9,523(c) 331,400 Total 6,764,114 Leisure time & entertainment (1.5%) Mattel 30,696 537,794 Viacom Cl B 32,904 1,105,245 Total 1,643,039 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 11 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Machinery (1.2%) AGCO 22,450(b) $469,654 Caterpillar 4,530 332,910 Illinois Tool Works 2,150 194,618 Ingersoll-Rand Cl A 4,993(c) 342,969 Total 1,340,151 Media (4.8%) Cendant 34,500 789,360 Disney (Walt) 72,320 1,669,868 IAC/InterActiveCorp 8,482(b) 231,559 Liberty Media Cl A 102,548(b) 869,607 Liberty Media Intl Cl A 5,112(b) 159,392 Reader's Digest Assn 13,950 199,206 Scripps (EW) Cl A 2,900 297,018 Time Warner 31,800(b) 529,470 Tribune 12,299 522,093 Total 5,267,573 Metals (0.6%) Alcan 6,677(c) 264,543 Alcoa 12,068 386,538 Total 651,081 Multi-industry (2.0%) General Electric 22,373 743,902 ITT Inds 3,687 294,776 Tyco Intl 38,116(c) 1,181,596 Total 2,220,274 Paper & packaging (1.9%) Avery Dennison 8,000 484,560 Bowater 10,693 398,849 Intl Paper 15,964 690,124 Weyerhaeuser 8,193 507,966 Total 2,081,499 Real estate investment trust (0.7%) Apartment Investment & Management Cl A 6,596 210,874 Equity Office Properties Trust 21,191 549,907 Total 760,781 Restaurants (0.3%) Domino's Pizza 8,000(b) 111,200 McDonald's 8,999 247,473 Total 358,673 Retail -- general (2.0%) BJ's Wholesale Club 10,985(b) 256,060 Costco Wholesale 11,500 467,590 Dollar Tree Stores 4,000(b) 107,640 Home Depot 13,393 451,612 Sonic Automotive 15,062 336,636 Target 12,176 530,874 Total 2,150,412 Retail -- grocery (0.2%) Kroger 12,800(b) 202,240 Telecom equipment & services (0.6%) Lucent Technologies 32,500(b) 99,125 Motorola 28,334 451,361 Nokia ADR 9,000(c) 104,580 Total 655,066 Utilities -- electric (2.9%) Dominion Resources 15,225 966,179 Entergy 3,100 178,250 Exelon 35,700 1,245,929 FirstEnergy 7,390 288,949 FPL Group 2,650 178,425 PPL 4,000 185,400 Xcel Energy 10,200 174,420 Total 3,217,552 Utilities -- natural gas (0.3%) ONEOK 13,700 287,700 Utilities -- telephone (4.2%) BellSouth 25,800 698,922 Citizens Communications 8,000(b) 115,200 KT ADR 26,796(c) 476,701 SBC Communications 61,973 1,570,395 Sprint (FON Group) 25,100 468,868 Verizon Communications 34,681 1,336,606 Total 4,666,692 Total common stocks (Cost: $100,176,488) $104,520,738 Other (--%) Issuer Shares Value(a) Liberty Media Intl Cl A Rights 1,153(b) $6,930 Total other (Cost: $1,051) $6,930 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 12 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Short-term securities (6.7%) Issuer Effective Amount Value(a) yield payable at maturity U.S. government agencies (5.2%) Federal Home Loan Bank Disc Nt 08-11-04 1.22% $2,500,000 $2,498,983 Federal Home Loan Mtge Corp Disc Nts 08-23-04 1.26 1,700,000 1,698,574 09-07-04 1.30 1,500,000 1,497,890 Total 5,695,447 Commercial paper (1.5%) Barton Capital 08-02-04 1.33 1,700,000 1,699,812 Total short-term securities (Cost: $7,395,672) $7,395,259 Total investments in securities (Cost: $107,573,211)(d) $111,922,927 Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. As of July 31, 2004, the value of foreign securities represented 6.6% of net assets. (d) At July 31, 2004, the cost of securities for federal income tax purposes was $108,081,916 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 5,852,772 Unrealized depreciation (2,011,761) ---------- Net unrealized appreciation $ 3,841,011 ----------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 13 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Large Cap Value Fund July 31, 2004 Assets Investments in securities, at value (Note 1) (identified cost $107,573,211) $111,922,927 Cash in bank on demand deposit 83,708 Capital shares receivable 61,515 Dividends and accrued interest receivable 178,566 Receivable for investment securities sold 630,976 ------- Total assets 112,877,692 ----------- Liabilities Capital shares payable 12,027 Payable for investment securities purchased 2,918,449 Accrued investment management services fee 1,796 Accrued distribution fee 1,179 Accrued transfer agency fee 472 Accrued administrative services fee 150 Other accrued expenses 93,267 ------ Total liabilities 3,027,340 --------- Net assets applicable to outstanding capital stock $109,850,352 ============ Represented by Capital stock -- $.01 par value (Note 1) $ 206,058 Additional paid-in capital 102,108,716 Undistributed net investment income 336,307 Accumulated net realized gain (loss) 2,849,555 Unrealized appreciation (depreciation) on investments 4,349,716 --------- Total -- representing net assets applicable to outstanding capital stock $109,850,352 ============ Net assets applicable to outstanding shares: Class A $ 66,930,223 Class B $ 25,089,800 Class C $ 1,396,231 Class I $ 16,374,402 Class Y $ 59,696 Net asset value per share of outstanding capital stock: Class A shares 12,533,070 $ 5.34 Class B shares 4,742,971 $ 5.29 Class C shares 264,069 $ 5.29 Class I shares 3,054,544 $ 5.36 Class Y shares 11,139 $ 5.36 ------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Statement of operations AXP Large Cap Value Fund Year ended July 31, 2004 Investment income Income: Dividends $1,632,142 Interest 47,103 Less foreign taxes withheld (9,088) ------ Total income 1,670,157 --------- Expenses (Note 2): Investment management services fee 446,686 Distribution fee Class A 126,365 Class B 216,940 Class C 11,354 Transfer agency fee 124,186 Incremental transfer agency fee Class A 8,939 Class B 7,330 Class C 451 Service fee -- Class Y 43 Administrative services fees and expenses 41,856 Compensation of board members 5,230 Custodian fees 202,375 Printing and postage 46,465 Registration fees 79,284 Audit fees 18,500 Other 3,683 ----- Total expenses 1,339,687 Expenses waived/reimbursed by AEFC (Note 2) (224,746) -------- 1,114,941 Earnings credits on cash balances (Note 2) (1,777) ------ Total net expenses 1,113,164 --------- Investment income (loss) -- net 556,993 ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 5,214,984 Net change in unrealized appreciation (depreciation) on investments 1,187,608 --------- Net gain (loss) on investments 6,402,592 --------- Net increase (decrease) in net assets resulting from operations $6,959,585 ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets AXP Large Cap Value Fund Year ended July 31, 2004 2003 Operations and distributions Investment income (loss) -- net $ 556,993 $ 177,570 Net realized gain (loss) on investments 5,214,984 673,743 Net change in unrealized appreciation (depreciation) on investments 1,187,608 3,294,759 --------- --------- Net increase (decrease) in net assets resulting from operations 6,959,585 4,146,072 --------- --------- Distributions to shareholders from: Net investment income Class A (292,557) (40,203) Class B (34,475) (7,259) Class C (1,580) (539) Class Y (292) (39) Net realized gain Class A (2,044,844) -- Class B (923,944) -- Class C (49,121) -- Class Y (1,778) -- ---------- ------- Total distributions (3,348,591) (48,040) ---------- ------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 40,922,272 26,344,197 Class B shares 15,773,087 12,297,591 Class C shares 859,541 637,405 Class I shares 16,471,765 -- Class Y shares 46,998 11,000 Reinvestment of distributions at net asset value Class A shares 2,313,251 34,417 Class B shares 949,778 7,127 Class C shares 49,389 514 Class Y shares 1,511 9 Payments for redemptions Class A shares (9,764,607) (2,271,256) Class B shares (Note 2) (6,087,609) (1,533,475) Class C shares (Note 2) (329,387) (11,095) Class I shares (5,871) -- Class Y shares (17,446) -- ---------- ------- Increase (decrease) in net assets from capital share transactions 61,182,672 35,516,434 ---------- ---------- Total increase (decrease) in net assets 64,793,666 39,614,466 Net assets at beginning of year 45,056,686 5,442,220 ---------- --------- Net assets at end of year $109,850,352 $45,056,686 ============ =========== Undistributed net investment income $ 336,307 $ 133,587 ------------ -----------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Notes to Financial Statements AXP Large Cap Value Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund invests primarily in equity securities of companies with a market capitalization greater than $5 billion. 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 offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. As of July 31, 2004, American Express Financial Corporation (AEFC) and the AXP Portfolio Builder Funds owned 100% of Class I shares, which represents 14.91% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Directors of the funds, AEFC utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected - -------------------------------------------------------------------------------- 17 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair NAV. 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. - -------------------------------------------------------------------------------- 18 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $25,369 and accumulated net realized gain has been increased by $25,369. - -------------------------------------------------------------------------------- 19 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT The tax character of distributions paid for the years indicated is as follows: Year ended July 31, 2004 2003 Class A Distributions paid from: Ordinary income $2,282,707 $40,203 Long-term capital gain 54,694 -- Class B Distributions paid from: Ordinary income 933,705 7,259 Long-term capital gain 24,714 -- Class C Distributions paid from: Ordinary income 49,387 539 Long-term capital gain 1,314 -- Class I* Distributions paid from: Ordinary income -- N/A Long-term capital gain -- N/A Class Y Distributions paid from: Ordinary income 2,024 39 Long-term capital gain 46 -- * Inception date was March 4, 2004. As of July 31, 2004, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $1,788,714 Accumulated long-term gain (loss) $1,905,853 Unrealized appreciation (depreciation) $3,841,011 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. - -------------------------------------------------------------------------------- 20 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Value Funds Index. 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 $10,737 for the year ended July 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. Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. 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. - -------------------------------------------------------------------------------- 21 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $438,979 for Class A, $15,276 for Class B and $716 for Class C for the year ended July 31, 2004. For the year ended July 31, 2004, AEFC and its affiliates waived certain fees and expenses to 1.24% for Class A, 2.00% for Class B, 2.00% for Class C, 0.93% for Class I, and 1.06% for Class Y. Under this agreement, which was effective until July 31, 2004, net expenses would not exceed 1.25% for Class A, 2.01% for Class B, 2.01% for Class C, 0.93% for Class I and 1.07% for Class Y of the Fund's average daily net assets. Beginning Aug. 1, 2004, AEFC and its affiliates have agreed to waive certain fees and expenses until July 31, 2005. Under this agreement, net expenses will not exceed 1.35% for Class A, 2.11% for Class B, 2.11% for Class C, 1.03% for Class I, and 1.17% for Class Y of the Fund's average daily net assets. During the year ended July 31, 2004, the Fund's custodian and transfer agency fees were reduced by $1,777 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 $98,389,437 and $42,792,159, respectively, for the year ended July 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 year ended July 31, 2004. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2004 Class A Class B Class C Class I* Class Y Sold 7,723,484 3,005,409 163,615 3,055,637 8,912 Issued for reinvested distributions 443,151 182,649 9,516 -- 289 Redeemed (1,837,759) (1,153,773) (61,678) (1,093) (3,191) ---------- ---------- ------- --------- ------ Net increase (decrease) 6,328,876 2,034,285 111,453 3,054,544 6,010 ---------- ---------- ------- --------- ------ * Inception date was March 4, 2004. Year ended July 31, 2003 Class A Class B Class C Class I Class Y Sold 5,828,574 2,731,482 142,666 N/A 2,495 Issued for reinvested distributions 7,804 1,620 117 N/A 2 Redeemed (509,520) (335,784) (2,292) N/A -- ---------- ---------- ------- --------- ------ Net increase (decrease) 5,326,858 2,397,318 140,491 N/A 2,497 ---------- ---------- ------- --------- ------
- -------------------------------------------------------------------------------- 22 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. The Fund had no borrowings outstanding during the year ended July 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 2003 2002(b) Net asset value, beginning of period $4.98 $4.52 $4.90 Income from investment operations: Net investment income (loss) .04 .03 -- Net gains (losses) (both realized and unrealized) .59 .44 (.38) Total from investment operations .63 .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 $5.34 $4.98 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $67 $31 $4 Ratio of expenses to average daily net assets(c),(e) 1.24% 1.25% 1.19%(d) Ratio of net investment income (loss) to average daily net assets .95% 1.01% .23%(d) Portfolio turnover rate (excluding short-term securities) 59% 77% 9% Total return(f) 12.85% 10.52% (7.75%)(g)
(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 1.54%, 2.64% and 20.50% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 23 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2004 2003 2002(b) Net asset value, beginning of period $4.95 $4.52 $4.90 Income from investment operations: Net investment income (loss) -- .01 -- Net gains (losses) (both realized and unrealized) .59 .43 (.38) Total from investment operations .59 .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 $5.29 $4.95 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $25 $13 $1 Ratio of expenses to average daily net assets(c),(e) 2.00% 2.00% 1.95%(d) Ratio of net investment income (loss) to average daily net assets .16% .25% (.49%)(d) Portfolio turnover rate (excluding short-term securities) 59% 77% 9% Total return(f) 12.00% 9.66% (7.75%)(g)
(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 B would have been 2.30%, 3.40% and 21.26% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 24 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2004 2003 2002(b) Net asset value, beginning of period $4.94 $4.52 $4.90 Income from investment operations: Net investment income (loss) -- .01 -- Net gains (losses) (both realized and unrealized) .60 .42 (.38) Total from investment operations .60 .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 $5.29 $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),(e) 2.00% 2.00% 1.95%(d) Ratio of net investment income (loss) to average daily net assets .19% .26% (.45%)(d) Portfolio turnover rate (excluding short-term securities) 59% 77% 9% Total return(f) 12.19% 9.50% (7.75%)(g)
(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 C would have been 2.30%, 3.40% and 21.26% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 25 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Class I Per share income and capital changes(a) Fiscal period ended July 31, 2004(b) Net asset value, beginning of period $5.57 Income from investment operations: Net investment income (loss) .03 Net gains (losses) (both realized and unrealized) (.24) Total from investment operations (.21) Net asset value, end of period $5.36 Ratios/supplemental data Net assets, end of period (in millions) $16 Ratio of expenses to average daily net assets(c),(e) .93%(d) Ratio of net investment income (loss) to average daily net assets 1.33%(d) Portfolio turnover rate (excluding short-term securities) 59% Total return(f) (3.77%)(g) (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was March 4, 2004. (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 I would have been 1.02% for the period ended July 31, 2004. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 26 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2004 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) .61 .45 (.38) Total from investment operations .65 .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 $5.36 $4.99 $4.52 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- Ratio of expenses to average daily net assets(c),(e) 1.06% .95% 1.01%(d) Ratio of net investment income (loss) to average daily net assets 1.12% 1.30% .31%(d) Portfolio turnover rate (excluding short-term securities) 59% 77% 9% Total return(f) 13.14% 10.76% (7.75%)(g)
(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 Y would have been 1.36%, 2.46% and 20.32% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 27 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD AND SHAREHOLDERS AXP GROWTH SERIES, INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of AXP Large Cap Value Fund (a series of AXP Growth Series, Inc.) as of July 31, 2004, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended July 31, 2004, and the financial highlights for each of the years in the two-year period ended July 31, 2004, and for the period from June 27, 2002 (when shares became publicly available) to July 31, 2002. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Large Cap Value Fund as of July 31, 2004, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota September 20, 2004 - -------------------------------------------------------------------------------- 28 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Federal Income Tax Information (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. AXP Large Cap Value Fund Fiscal year ended July 31, 2004 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 39.18% Dividends Received Deduction for corporations 38.87% Payable date Per share Dec. 18, 2003 $0.26701 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 18, 2003 $0.00641 Total distributions $0.27342 Class B Income distribution -- taxable as dividend income: Qualified Dividend Income for individuals 39.18% Dividends Received Deduction for corporations 38.87% Payable date Per share Dec. 18, 2003 $0.24312 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 18, 2003 $0.00641 Total distributions $0.24953 Class C Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 39.18% Dividends Received Deduction for corporations 38.87% Payable date Per share Dec. 18, 2003 $0.24095 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 18, 2003 $0.00641 Total distributions $0.24736 - -------------------------------------------------------------------------------- 29 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 39.18% Dividends Received Deduction for corporations 38.87% Payable date Per share Dec. 18, 2003 $0.27255 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 18, 2003 $0.00641 Total distributions $0.27896 - -------------------------------------------------------------------------------- 30 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Fund Expenses Example (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended July 31, 2004. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 31 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Beginning Ending Expenses paid account value account value during the period Feb. 1, 2004 July 31, 2004 Feb. 1, 2004-July 31, 2004 Class A Actual(e) $1,000 $985.20 $6.12(a) Hypothetical (5% return before expenses) $1,000 $1,018.70 $6.22(a) Class B Actual(e) $1,000 $981.40 $9.85(b) Hypothetical (5% return before expenses) $1,000 $1,014.92 $10.02(b) Class C Actual(e) $1,000 $981.40 $9.85(c) Hypothetical (5% return before expenses) $1,000 $1,014.92 $10.02(c) Class I(f) Actual N/A N/A N/A Hypothetical (5% return before expenses) N/A N/A N/A Class Y Actual(e) $1,000 $985.30 $5.23(d) Hypothetical (5% return before expenses) $1,000 $1,019.59 $5.32(d)
(a) Expenses are equal to the Fund's Class A annualized expense ratio of 1.24%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) Expenses are equal to the Fund's Class B annualized expense ratio of 2.00%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (c) Expenses are equal to the Fund's Class C annualized expense ratio of 2.00%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (d) Expenses are equal to the Fund's Class Y annualized expense ratio of 1.06%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (e) Based on the actual return for the six months ended July 31, 2004: (1.48%) for Class A, (1.86%) for Class B, (1.86%) for Class C and (1.47%) for Class Y. (f) The values and expenses paid are not presented because Class I does not have a full six months of history. The inception date for Class I was March 4, 2004. - -------------------------------------------------------------------------------- 32 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT Board Members and Officers Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. Each member oversees 14 Master Trust portfolios and 87 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Arne H. Carlson Board member since 1999 Chair, Board Services 901 S. Marquette Ave. Corporation (provides Minneapolis, MN 55402 administrative services to Age 69 boards). Former Governor of Minnesota - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Fluor Scottish Power PLC, 901 S. Marquette Ave. Corporation (engineering and Vulcan Materials Company, Minneapolis, MN 55402 construction) since 1998 Inc. (construction Age 66 materials/chemicals) - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Livio D. DeSimone Board member since 2001 Retired Chair of the Board and Cargill, Incorporated 0 Seventh Street East Chief Executive Officer, (commodity merchants and Suite 3050 Minnesota Mining and processors), General St. Paul, MN 55101-4901 Manufacturing (3M) Mills, Inc. (consumer Age 70 foods), Vulcan Materials Company (construction materials/chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Anne P. Jones Board member since 1985 Attorney and Consultant 901 S. Marquette Ave. Minneapolis, MN 55402 Age 69 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Stephen R. Lewis, Jr.* Board member since 2002 Retired President and Professor Valmont Industries, Inc. 901 S. Marquette Ave. of Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 65 - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
* Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Columbia Wanger Asset Management, L.P., one of the fund's subadvisers. - -------------------------------------------------------------------------------- 33 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Alan K. Simpson Board member since 1997 Former three-term United States 1201 Sunshine Ave. Senator for Wyoming Cody, WY 82414 Age 72 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Alison Taunton-Rigby Board member since 2002 Founder and Chief Executive 901 S. Marquette Ave. Officer, RiboNovix, Inc. since Minneapolis, MN 55402 2004; President, Forester Age 60 Biotech since 2000; prior to that, President and CEO, Aquila Biopharmaceuticals, Inc. - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Board Member Affiliated with AEFC** Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- William F. Truscott Board member since Senior Vice President - Chief 53600 AXP Financial Center 2001, Vice President Investment Officer of AEFC since Minneapolis, MN 55474 since 2002 2001. Former Chief Investment Age 43 Officer and Managing Director, Zurich Scudder Investments - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
** Interested person by reason of being an officer, director and/or employee of AEFC. - -------------------------------------------------------------------------------- 34 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Jeffrey P. Fox Treasurer since 2002 Vice President - Investment 50005 AXP Financial Center Accounting, AEFC, since 2002; Minneapolis, MN 55474 Vice President - Finance, Age 49 American Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Paula R. Meyer President since 2002 Senior Vice President and 596 AXP Financial Center General Manager - Mutual Funds, Minneapolis, MN 55474 AEFC, since 2002; Vice President Age 50 and Managing Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Leslie L. Ogg Vice President, General President of Board Services 901 S. Marquette Ave. Counsel, and Secretary Corporation Minneapolis, MN 55402 since 1978 Age 65 - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the Web site americanexpress.com/funds; or by searching the Web site of the Securities and Exchange Commission http://www.sec.gov. You may view the Fund's voting record for all portfolio companies whose shareholders meetings were completed the previous quarter on americanexpress.com/funds or obtain a copy by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283. In addition, 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. - -------------------------------------------------------------------------------- 35 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Quantitative Large Cap Equity Fund Annual Report for the Period Ended July 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 The Fund's Long-term Performance 8 Investments in Securities 10 Financial Statements 14 Notes to Financial Statements 17 Report of Independent Registered Public Accounting Firm 28 Federal Income Tax Information 29 Fund Expenses Example 31 Board Members and Officers 33 Proxy Voting 35 - -------------------------------------------------------------------------------- 2 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Fund Snapshot AS OF JULY 31, 2004 PORTFOLIO MANAGERS Portfolio managers Since Years in industry Dimitris J. Bertsimas 4/03 11 Gina K. Mourtzinou 4/03 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 $25.4 million Number of holdings 151 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] Consumer discretionary 13.9% Financials 13.0% Telecommunications 11.9% Health care 10.3% Consumer staples 10.2% Technology 10.1% Short-term securities 9.4% Industrials 8.6% Energy 7.0% Utilities 3.3% Materials 2.3% TOP TEN HOLDINGS Percentage of portfolio assets Altria Group (Beverages & tobacco) 5.6% Tyco Intl (Multi-industry) 3.7 Intel (Electronics) 3.5 Johnson & Johnson (Health care products) 3.3 Fannie Mae (Financial services) 2.6 QUALCOMM (Telecom equipment & services) 2.6 Motorola (Telecom equipment & services) 2.3 Bank of America (Banks and savings & loans) 2.1 Home Depot (Retail -- general) 2.0 SBC Communications (Utilities -- telephone) 1.9 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Fund holdings are subject to change. - -------------------------------------------------------------------------------- 3 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Managers Dimitris Bertsimas and Gina Mourtzinou discuss the Fund's positioning and results for the 2004 fiscal year. Q: How did AXP Quantitative Large Cap Equity Fund perform for the 12 months ended July 31, 2004? A: AXP Quantitative Large Cap Equity Fund's Class A shares gained 11.99%, excluding sales charge, for the 12 months ended July 31, 2004. The Fund outperformed the Lipper Large-Cap Core Funds Index, representing the Fund's peer group, which returned 10.01%, but underperformed its benchmark, the S&P 500 Index, which gained 13.17% for the same period. Q: What factors most significantly affected performance? A: Stocks selected using the Fund's three quantitative models (value, momentum, and quality) drove strong performance relative to its peers in the 12-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. To take advantage of strong performance by the value model, the Fund shifted to an investment allocation of 50% in the momentum model, 30% in the value model, and 20% in the quality model during the fourth calendar quarter of 2003. The Fund maintained that allocation through the end of the fiscal year. For the 12-month period, the value and quality sub-portfolios outperformed the S&P 500 Index, and the momentum sub-portfolio underperformed. Momentum model weakness resulted in the Fund's underpeformance of its benchmark for the period. (bar graph) PERFORMANCE COMPARISON For the year ended July 31, 2004 15% (bar 2) +13.17% 12% (bar 1) (bar 3) +11.99% +10.01% 9% 6% 3% 0% (bar 1) AXP Quantitative Large Cap Equity Fund Class A (excluding sales charge) (bar 2) S&P 500 Index (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 4 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Questions & Answers (begin callout quote)> Stocks selected using the Fund's three quantitative models (value, momentum, and quality) drove strong performance relative to its peers in the 12-month period.(end callout quote) Our use of risk modeling, through limits on individual holding size and on sector and industry allocations relative to the applicable benchmark, also proved an important strategy. We tightened the Fund's risk controls overall and improved the quality of the portfolio as another measure of risk management. For example,
AVERAGE ANNUAL 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 July 31, 2004 1 year +11.99% +5.55% +10.95% +6.95% +10.96% +10.96% +11.87% +11.87% Since inception +16.85% +11.52% +15.83% +12.79% +15.84% +15.84% +16.92% +16.92% as of June 30, 2004 1 year +17.01% +10.29% +15.97% +11.97% +16.18% +16.18% +17.10% +17.10% Since inception +23.01% +17.01% +21.90% +18.63% +22.08% +22.08% +23.09% +23.09%
The performance information shown represents the past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 5 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Questions & Answers during the second calendar quarter of 2004, we added limitations on the percentage of assets allocated to small-cap stocks based on our view that large-cap stocks, as represented by stable companies with high revenues, low volatility of earnings, and low debt, would bring more quality to the portfolio. These enhanced risk controls were a key factor supporting the Fund's outperformance of its peers. Q: Which equity sectors and securities affected the Fund's performance most during the fiscal year? A: From a sector perspective, the utilities, consumer discretionary, and telecommunications services sectors made positive contributions to the Fund's performance for the fiscal year. On the other hand, positions in the health care, information technology, and consumer staples sectors detracted from the Fund's relative performance. At the end of the fiscal year, the Fund had top ten positions in Altria Group and Tyco International, each selected by all three of our proprietary quantitative models, and in Intel, selected by the momentum model. Multi-industry conglomerate Tyco and beverages & tobacco giant Altria made positive contributions to the Fund's performance during the annual period. Electronics bellwether Intel detracted from performance. Q: What changes did you make to the portfolio and how is it currently positioned? A: Throughout the fiscal year, the Fund's assets grew substantially. During the first half of the annual period, the influx of cash caused us to rebalance the portfolio more than once a month. We were able to stick to our core plan of rebalancing the portfolio once a month during the second half of the fiscal year. - -------------------------------------------------------------------------------- 6 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Questions & Answers Early in the annual period, as mentioned, we made a gradual move to increase the weighting of the value model. During the second half of the fiscal year, we reduced the number of stocks in the portfolio from approximately 200 on Jan. 31, 2004 to 150 at July 31, 2004 in an effort to reduce transaction costs. Other than these moves, we have not made any significant changes to the Fund. In relation to the benchmark, the Fund held higher-than-index positions in consumer discretionary, health care, information technology, telecommunications services, and utilities at the end of the fiscal year. The Fund held lower-than-index positions in energy, materials, industrials, consumer staples, and financials. Q: How do you intend to manage the Fund in the coming months? A: We expect significant volatility in the equity markets ahead. Thus, we intend to continue increasing the quality of the Fund's portfolio over the next months, while still maintaining our style diversification. The Fund's goal is to outpace the performance of the S&P 500 Index over time with less risk and with lower-than-average portfolio turnover. Our focus going forward is to keep using our three 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. Finally, we intend to continue to employ our risk controls, including constraints on market capitalization, price, quality, turnover, transaction costs, and more. - -------------------------------------------------------------------------------- 7 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP Quantitative Large Cap Equity Fund Class A shares (from 5/1/03 to 7/31/04) as compared to the performance of two widely cited performance indices, the Standard & Poor's 500 Index and the Lipper Large-Cap Core Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents the past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current prospectus. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements. Class A Short-term Long-term Fiscal year ended Income capital gains capital gains Total July 31, 2004 $0.02 $0.11 $0.01 $0.14 July 31, 2003(1) -- -- -- -- (1) For the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. - -------------------------------------------------------------------------------- 8 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
[line graph] VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP QUANTITATIVE LARGE CAP EQUITY FUND AXP Quantitative Large Cap Equity Fund Class A (includes sales charge) $ 9,425 $10,254 $10,933 $11,889 $11,580 $11,484 S&P 500 Index(1) $10,000 $10,849 $11,562 $12,501 $12,287 $12,277 Lipper Large-Cap Core Funds Index(2) $10,000 $10,755 $11,351 $12,166 $11,929 $11,831 5/1/03 7/03 10/03 1/04 4/04 7/04
COMPARATIVE RESULTS Results as of July 31, 2004 Since 1 year inception(3) AXP Quantitative Large Cap Equity Fund (includes sales charge) Class A Cumulative value of $10,000 $10,555 $11,484 Average annual total return +5.55% +11.52% S&P 500 Index(1) Cumulative value of $10,000 $11,317 $12,277 Average annual total return +13.17% +17.84% Lipper Large-Cap Core Funds Index(2) Cumulative value of $10,000 $11,001 $11,831 Average annual total return +10.01% +14.40%
Results for other share classes can be found on page 5. (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, an 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. (3) Fund data is from April 24, 2003. Index data is from May 1, 2003. - -------------------------------------------------------------------------------- 9 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Investments in Securities AXP Quantitative Large Cap Equity Fund July 31, 2004 (Percentages represent value of investments compared to net assets) Common stocks (98.7%) Issuer Shares Value(a) Aerospace & defense (1.8%) Boeing 1,999 $101,449 General Dynamics 1,018 100,599 Goodrich 1,437 46,458 Honeywell Intl 3,559 133,854 United Technologies 856 80,036 Total 462,396 Automotive & related (2.4%) Delphi 5,201 49,462 Ford Motor 5,214 76,749 General Motors 7,784 335,801 Johnson Controls 1,248 70,450 Navistar Intl 547(b) 19,665 PACCAR 860 51,566 Total 603,693 Banks and savings & loans (5.1%) Bank of America 6,924 588,609 Bank of New York 3,952 113,541 Comerica 1,646 96,242 First Horizon National 649 28,134 Natl City 4,664 170,236 Washington Mutual 8,000 310,400 Total 1,307,162 Beverages & tobacco (8.5%) Altria Group 32,582 1,550,903 Coca-Cola 7,782 341,319 Coca-Cola Enterprises 4,003 81,661 Pepsi Bottling Group 2,231 62,133 Reynolds American 1,689 121,524 Total 2,157,540 Broker dealers (1.3%) Bear Stearns Companies 560 46,715 J.P. Morgan Chase 4,957 185,045 Schwab (Charles) 11,308 99,284 Total 331,044 Building materials & construction (0.3%) American Standard 1,861(b) 70,513 Cellular telecommunications (1.6%) AT&T Wireless Services 10,184(b) 147,057 Nextel Communications Cl A 11,657(b) 265,313 Total 412,370 Computer hardware (1.2%) Cisco Systems 12,744(b) 265,839 Lexmark Intl Cl A 525(b) 46,463 Total 312,302 Computer software & services (4.6%) Autodesk 1,252 50,330 Automatic Data Processing 3,035 127,409 Computer Associates Intl 3,431 86,598 Electronic Arts 2,105(b) 105,524 Electronic Data Systems 5,613 103,728 First Data 1,603 71,510 NCR 1,614(b) 74,938 Novell 2,825(b) 19,323 Oracle 35,719(b) 375,408 Symantec 2,686(b) 125,597 VERITAS Software 2,236(b) 42,618 Total 1,182,983 Electronics (5.2%) Agilent Technologies 4,942(b) 117,669 Applied Materials 4,099(b) 69,560 Broadcom Cl A 1,589(b) 56,187 Intel 39,445 961,669 Natl Semiconductor 4,068(b) 69,766 Sanmina-SCI 4,941(b) 36,267 Total 1,311,118 Energy (7.6%) Amerada Hess 1,392 116,023 Anadarko Petroleum 2,677 160,058 Ashland 442 23,103 Burlington Resources 2,440 93,135 ChevronTexaco 2,029 194,074 ConocoPhillips 4,396 346,273 Devon Energy 1,532 106,459 ExxonMobil 10,803 500,178 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Energy (cont.) Marathon Oil 1,837 $69,200 Occidental Petroleum 4,651 229,155 Sunoco 486 33,131 Valero Energy 965 72,298 Total 1,943,087 Finance companies (0.5%) MGIC Investment 1,629 115,659 Financial services (4.0%) Capital One Financial 636 44,088 Countrywide Financial 2,380 171,598 Fannie Mae 10,228 725,779 MBNA 2,205 54,441 Providian Financial 2,319(b) 32,095 Total 1,028,001 Furniture & appliances (0.2%) Stanley Works 1,095 46,428 Health care products (10.0%) Becton, Dickinson & Co 3,217 151,939 Biogen Idec 1,360(b) 81,600 Bristol-Myers Squibb 2,252 51,571 Forest Laboratories 2,050(b) 103,095 Guidant 1,943 107,487 Johnson & Johnson 16,519 913,005 Medtronic 1,454 72,220 Merck & Co 10,222 463,568 Pfizer 3,247 103,774 Schering-Plough 7,816 152,099 Zimmer Holdings 4,287(b) 327,141 Total 2,527,499 Health care services (1.3%) Anthem 657(b) 54,183 Cardinal Health 1,590 70,755 Humana 1,438(b) 26,042 Tenet Healthcare 6,272(b) 70,121 WellPoint Health Networks 1,011(b) 102,212 Total 323,313 Home building (0.8%) Centex 2,054 87,130 KB HOME 696 44,579 Pulte Homes 1,392 76,045 Total 207,754 Household products (0.6%) Gillette 4,019 156,661 Insurance (3.3%) Allstate 2,946 138,698 Aon 2,594 68,585 CIGNA 2,570 159,366 Jefferson-Pilot 487 23,464 Lincoln Natl 652 28,492 Loews 2,783 157,601 Prudential Financial 2,823 131,439 Torchmark 1,431 74,813 UnumProvident 4,002 63,832 Total 846,290 Leisure time & entertainment (0.5%) Harley-Davidson 2,190 131,115 Lodging & gaming (0.5%) Intl Game Technology 3,838 124,121 Machinery (0.6%) Deere & Co 1,063 66,768 Ingersoll-Rand Cl A 744(c) 51,105 Parker-Hannifin 814 46,707 Total 164,580 Media (1.4%) Cendant 4,208 96,279 eBay 3,438(b) 269,299 Total 365,578 Metals (0.5%) Phelps Dodge 887(b) 69,133 United States Steel 1,413 53,892 Total 123,025 Multi-industry (6.9%) 3M 3,490 287,436 Eastman Kodak 5,690 150,728 Emerson Electric 1,346 81,702 Monsanto 3,520 127,635 Textron 1,148 70,372 Tyco Intl 33,124(c) 1,026,845 Total 1,744,718 Paper & packaging (0.6%) Georgia-Pacific 4,349 146,126 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 11 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Precious metals (1.1%) Freeport McMoRan Copper & Gold Cl B 1,754 $61,127 Newmont Mining 5,519 223,354 Total 284,481 Restaurants (1.3%) McDonald's 10,097 277,667 Starbucks 977(b) 45,880 Total 323,547 Retail -- drugstores (0.5%) CVS 2,909 121,800 Retail -- general (7.7%) Best Buy 1,780 85,725 Dollar General 1,016 19,609 Federated Dept Stores 1,618 77,535 Gap 3,605 81,834 Home Depot 16,663 561,875 Lowe's Companies 803 39,122 May Dept Stores 2,545 67,519 Nordstrom 2,151 94,429 Penney (JC) 3,073 122,920 Sears, Roebuck & Co 8,380 307,378 Toys "R" Us 2,214(b) 36,442 Wal-Mart Stores 8,763 464,527 Total 1,958,915 Retail -- grocery (1.5%) Albertson's 4,620 112,682 Kroger 7,142(b) 112,844 Safeway 5,541(b) 117,081 SUPERVALU 1,805 51,551 Total 394,158 Telecom equipment & services (5.5%) Avaya 2,364(b) 34,633 Motorola 39,983 636,929 QUALCOMM 10,392 717,879 Scientific-Atlanta 647 19,895 Total 1,409,336 Textiles & apparel (0.4%) Nike Cl B 1,297 94,305 Utilities -- electric (3.6%) American Electric Power 1,769 55,034 CenterPoint Energy 14,746 171,201 Duke Energy 5,086 109,349 Edison Intl 6,459 173,101 PG&E 8,116(b) 231,630 Public Service Enterprise Group 1,311 51,129 TECO Energy 2,771 35,746 TXU 2,151 85,309 Total 912,499 Utilities -- telephone (5.8%) AT&T 6,645 100,340 BellSouth 18,476 500,515 SBC Communications 20,949 530,847 Sprint (FON Group) 10,994 205,368 Verizon Communications 3,591 138,397 Total 1,475,467 Total common stocks (Cost: $24,415,395) $25,119,584 Short-term security (10.2%) Issuer Effective Amount Value(a) yield payable at maturity U.S. government agency Federal Home Loan Mtge Corp Disc Nt 08-26-04 1.32% $2,600,000 $2,597,426 Total short-term security (Cost: $2,597,521) $2,597,426 Total investments in securities (Cost: $27,012,916)(d) $27,717,010 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 12 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. As of July 31, 2004, the value of foreign securities represented 4.2% of net assets. (d) At July 31, 2004, the cost of securities for federal income tax purposes was $27,014,489 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,471,494 Unrealized depreciation (768,973) -------- Net unrealized appreciation $ 702,521 ---------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 13 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Quantitative Large Cap Equity Fund July 31, 2004 Assets Investments in securities, at value (Note 1) (identified cost $27,012,916) $27,717,010 Cash in bank on demand deposit 163,036 Dividends and accrued interest receivable 28,840 ------ Total assets 27,908,886 ---------- Liabilities Capital shares payable 5,588 Payable for investment securities purchased 2,398,291 Accrued investment management services fee 414 Accrued distribution fee 166 Accrued transfer agency fee 59 Accrued administrative services fee 34 Other accrued expenses 54,550 ------ Total liabilities 2,459,102 --------- Net assets applicable to outstanding capital stock $25,449,784 =========== Represented by Capital stock -- $.01 par value (Note 1) $ 42,813 Additional paid-in capital 23,963,335 Undistributed net investment income 52,439 Accumulated net realized gain (loss) 687,103 Unrealized appreciation (depreciation) on investments 704,094 ------- Total -- representing net assets applicable to outstanding capital stock $25,449,784 =========== Net assets applicable to outstanding shares: Class A $13,464,768 Class B $ 2,609,382 Class C $ 139,132 Class I $ 9,213,408 Class Y $ 23,094 Net asset value per share of outstanding capital stock: Class A shares 2,264,572 $ 5.95 Class B shares 442,220 $ 5.90 Class C shares 23,572 $ 5.90 Class I shares 1,547,057 $ 5.96 Class Y shares 3,879 $ 5.95 ----- -----------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Statement of operations AXP Quantitative Large Cap Equity Fund Year ended July 31, 2004 Investment income Income: Dividends $ 232,296 Interest 2,289 ----- Total income 234,585 ------- Expenses (Note 2): Investment management services fee 83,580 Distribution fee Class A 26,959 Class B 20,361 Class C 1,308 Transfer agency fee 14,838 Incremental transfer agency fee Class A 1,119 Class B 788 Class C 54 Service fee -- Class Y 23 Administrative services fees and expenses 6,521 Custodian fees 22,200 Printing and postage 29,905 Registration fees 39,509 Audit fees 18,000 ------ Total expenses 265,165 Expenses waived/reimbursed by AEFC (Note 2) (100,431) -------- 164,734 Earnings credits on cash balances (Note 2) (1,073) ------ Total net expenses 163,661 ------- Investment income (loss) -- net 70,924 ------ Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 830,429 Futures contracts (5,819) ------ Net realized gain (loss) on investments 824,610 Net change in unrealized appreciation (depreciation) on investments 335,658 ------- Net gain (loss) on investments 1,160,268 --------- Net increase (decrease) in net assets resulting from operations $1,231,192 ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets AXP Quantitative Large Cap Equity Fund For the period from July 31, 2004 April 24, 2003* to Year ended July 31, 2003 Operations and distributions Investment income (loss) -- net $ 70,924 $ 14,024 Net realized gain (loss) on investments 824,610 105,405 Net change in unrealized appreciation (depreciation) on investments 335,658 368,601 ------- ------- Net increase (decrease) in net assets resulting from operations 1,231,192 488,030 --------- ------- Distributions to shareholders from: Net investment income Class A (32,550) -- Class B (921) -- Class C (88) -- Class Y (94) -- Net realized gain Class A (204,671) -- Class B (35,467) -- Class C (2,669) -- Class Y (461) -- --------- ------- Total distributions (276,921) -- --------- ------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 6,113,596 2,122,213 Class B shares 2,111,340 985,940 Class C shares 99,094 49,247 Class I shares 9,070,761 -- Class Y shares -- 10,000 Reinvestment of distributions at net asset value Class A shares 96,546 -- Class B shares 34,783 -- Class C shares 2,508 -- Class Y shares 257 -- Payments for redemptions Class A shares (1,001,408) (18,491) Class B shares (Note 2) (582,132) (53,851) Class C shares (Note 2) (31,819) -- Class I shares (701) -- --------- ------- Increase (decrease) in net assets from capital share transactions 15,912,825 3,095,058 ---------- --------- Total increase (decrease) in net assets 16,867,096 3,583,088 Net assets at beginning of period 8,582,688 4,999,600** --------- --------- Net assets at end of period $25,449,784 $8,582,688 =========== ========== Undistributed net investment income $ 52,439 $ 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. - -------------------------------------------------------------------------------- 16 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Notes to Financial Statements AXP Quantitative Large Cap Equity Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund invests primarily in equity securities of companies listed on U.S. exchanges with market capitalizations greater than $5 billion at the time of purchase. On April 17, 2003, American Express Financial Corporation (AEFC) invested $5,000,000 in the Fund (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. 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 July 15, 2004, the Fund offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. As of July 31, 2004, AEFC and the AXP Portfolio Builder Series Funds owned 100% of Class I shares, which represents 36.20% of the Fund's net assets. 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. - -------------------------------------------------------------------------------- 17 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Directors of the funds, AEFC utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair NAV. 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. - -------------------------------------------------------------------------------- 18 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Futures transactions To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes 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. - -------------------------------------------------------------------------------- 19 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $220 and accumulated net realized gain has been increased by $220. The tax character of distributions paid for the periods indicated is as follows: For the year ended For the period from July 31, 2004 April 24, 2003* to July 31, 2003 Class A Distributions paid from: Ordinary income $228,642 $-- Long-term capital gain 8,579 -- Class B Distributions paid from: Ordinary income 34,902 -- Long-term capital gain 1,486 -- Class C Distributions paid from: Ordinary income 2,645 -- Long-term capital gain 112 -- Class I** Distributions paid from: Ordinary income -- N/A Long-term capital gain -- N/A Class Y Distributions paid from: Ordinary income 536 -- Long-term capital gain 19 -- * When shares became publicly available. ** Inception date was July 15, 2004. As of July 31, 2004, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $545,425 Accumulated long-term gain (loss) $195,690 Unrealized appreciation (depreciation) $702,521 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. - -------------------------------------------------------------------------------- 20 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment increased the fee by $5,326 for the year ended July 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. Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. 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. - -------------------------------------------------------------------------------- 21 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT 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 $62,838 for Class A, $2,029 for Class B and $90 for Class C for the year ended July 31, 2004. For the year ended July 31, 2004, AEFC and its affiliates waived certain fees and expenses to 1.13% for Class A, 1.95% for Class B, 1.95% for Class C, 0.93% for Class I and 0.98% for Class Y. In addition, AEFC and its affiliates have agreed to waive certain fees and expenses until July 31, 2005. Under this agreement, net expenses will not exceed 1.25% for Class A, 2.04% for Class B, 2.06% for Class C, 0.93% for Class I and 1.06% for Class Y of the Fund's average daily net assets. During the year ended July 31, 2004, the Fund's custodian and transfer agency fees were reduced by $1,073 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 $23,947,224 and $8,520,633 respectively, for the year ended July 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:
Year ended July 31, 2004 Class A Class B Class C Class I* Class Y Sold 1,028,744 358,722 17,252 1,547,177 -- Issued for reinvested distributions 16,447 5,946 429 -- 45 Redeemed (166,966) (99,601) (5,323) (120) -- --------- ------- ------ --------- ----- Net increase (decrease) 878,225 265,067 12,358 1,547,057 45 --------- ------- ------ --------- ----- * Inception date was July 15, 2004. April 24, 2003** to July 31, 2003 Class A Class B Class C Class I Class Y Sold 395,711 184,979 9,214 N/A 1,834 Issued for reinvested distributions -- -- -- N/A -- Redeemed (3,364) (9,826) -- N/A -- --------- ------- ------ --------- ----- Net increase (decrease) 392,347 175,153 9,214 N/A 1,834 --------- ------- ------ --------- ----- ** When shares became publicly available.
- -------------------------------------------------------------------------------- 22 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. The Fund had no borrowings outstanding during the year ended July 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 2003(b) Net asset value, beginning of period $5.44 $5.00 Income from investment operations: Net investment income (loss) .02 .01 Net gains (losses) (both realized and unrealized) .63 .43 Total from investment operations .65 .44 Less distributions: Dividends from net investment income (.02) -- Distributions from realized gains (.12) -- Total distributions (.14) -- Net asset value, end of period $5.95 $5.44 Ratios/supplemental data Net assets, end of period (in millions) $13 $8 Ratio of expenses to average daily net assets(c),(e) 1.13% 1.22%(d) Ratio of net investment income (loss) to average daily net assets .65% .81%(d) Portfolio turnover rate (excluding short-term securities) 64% 17% Total return(f) 11.99% 8.80%(g)
(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 1.91% and 7.39% for the periods ended July 31, 2004 and 2003, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 23 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2004 2003(b) Net asset value, beginning of period $5.43 $5.00 Income from investment operations: Net investment income (loss) (.02) -- Net gains (losses) (both realized and unrealized) .61 .43 Total from investment operations .59 .43 Less distributions: Distributions from realized gains (.12) -- Net asset value, end of period $5.90 $5.43 Ratios/supplemental data Net assets, end of period (in millions) $3 $1 Ratio of expenses to average daily net assets(c),(e) 1.95% 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.16%) (.08%)(d) Portfolio turnover rate (excluding short-term securities) 64% 17% Total return(f) 10.95% 8.60%(g)
(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 B would have been 2.73% and 8.18% for the periods ended July 31, 2004 and 2003, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 24 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2004 2003(b) Net asset value, beginning of period $5.43 $5.00 Income from investment operations: Net investment income (loss) (.02) -- Net gains (losses) (both realized and unrealized) .61 .43 Total from investment operations .59 .43 Less distributions: Distributions from realized gains (.12) -- Net asset value, end of period $5.90 $5.43 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- Ratio of expenses to average daily net assets(c),(e) 1.95% 2.01%(d) Ratio of net investment income (loss) to average daily net assets (.17%) (.05%)(d) Portfolio turnover rate (excluding short-term securities) 64% 17% Total return(f) 10.96% 8.60%(g)
(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 C would have been 2.73% and 8.20% for the periods ended July 31, 2004 and 2003, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 25 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Class I Per share income and capital changes(a) Fiscal period ended July 31, 2004(b) Net asset value, beginning of period $5.99 Income from investment operations: Net investment income (loss) .02 Net gains (losses) (both realized and unrealized) (.05) Total from investment operations (.03) Net asset value, end of period $5.96 Ratios/supplemental data Net assets, end of period (in millions) $9 Ratio of expenses to average daily net assets(c),(e) .93%(d) Ratio of net investment income (loss) to average daily net assets 5.35%(d) Portfolio turnover rate (excluding short-term securities) 64% Total return(f) (.50%)(g) (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was July 15, 2004. (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 I would have been 1.27% for the period ended July 31, 2004. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 26 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2004 2003(b) Net asset value, beginning of period $5.45 $5.00 Income from investment operations: Net investment income (loss) .03 .01 Net gains (losses) (both realized and unrealized) .61 .44 Total from investment operations .64 .45 Less distributions: Dividends from net investment income (.02) -- Distributions from realized gains (.12) -- Total distributions (.14) -- Net asset value, end of period $5.95 $5.45 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- Ratio of expenses to average daily net assets(c),(e) .98% 1.01%(d) Ratio of net investment income (loss) to average daily net assets .78% .90%(d) Portfolio turnover rate (excluding short-term securities) 64% 17% Total return(f) 11.87% 9.00%(g)
(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 Y would have been 1.76% and 7.20% for the periods ended July 31, 2004 and 2003, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 27 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD AND SHAREHOLDERS AXP GROWTH SERIES, INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of AXP Quantitative Large Cap Equity Fund (a series of AXP Growth Series, Inc.) as of July 31, 2004, and the related statements of operations for the year then ended and the statements of changes in net assets and the financial highlights for the year ended July 31, 2004, and for the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Quantitative Large Cap Equity Fund as of July 31, 2004, and the results of its operations, changes in its net assets and the financial highlights for the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota September 20, 2004 - -------------------------------------------------------------------------------- 28 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Federal Income Tax Information (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. AXP Quantitative Large Cap Equity Fund Fiscal year ended July 31, 2004 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 38.48% Dividends Received Deduction for corporations 32.40% Payable date Per share Dec. 18, 2003 $0.13516 Capital gain distributions -- taxable as long-term capital gain. Payable date Per share Dec. 18, 2003 $0.00504 Total distributions $0.14020 Class B Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 38.48% Dividends Received Deduction for corporations 32.40% Payable date Per share Dec. 18, 2003 $0.11838 Capital gain distributions -- taxable as long-term capital gain. Payable date Per share Dec. 18, 2003 $0.00504 Total distributions $0.12342 - -------------------------------------------------------------------------------- 29 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Class C Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 38.48% Dividends Received Deduction for corporations 32.40% Payable date Per share Dec. 18, 2003 $0.11920 Capital gain distributions -- taxable as long-term capital gain. Payable date Per share Dec. 18, 2003 $0.00504 Total distributions $0.12424 Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 38.48% Dividends Received Deduction for corporations 32.40% Payable date Per share Dec. 18, 2003 $0.13970 Capital gain distributions -- taxable as long-term capital gain. Payable date Per share Dec. 18, 2003 $0.00504 Total distributions $0.14474 - -------------------------------------------------------------------------------- 30 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Fund Expenses Example (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended July 31, 2004. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 31 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Beginning Ending Expenses paid account value account value during the period Feb. 1, 2004 July 31, 2004 Feb. 1, 2004-July 31, 2004 Class A Actual(e) $1,000 $965.90 $5.03(a) Hypothetical (5% return before expenses) $1,000 $1,019.74 $5.17(a) Class B Actual(e) $1,000 $960.90 $9.21(b) Hypothetical (5% return before expenses) $1,000 $1,015.47 $9.47(b) Class C Actual(e) $1,000 $959.40 $9.21(c) Hypothetical (5% return before expenses) $1,000 $1,015.47 $9.47(c) Class I(f) Actual N/A N/A N/A Hypothetical (5% return before expenses) N/A N/A N/A Class Y Actual(e) $1,000 $964.30 $4.44(d) Hypothetical (5% return before expenses) $1,000 $1,020.34 $4.57(d)
(a) Expenses are equal to the Fund's Class A annualized expense ratio of 1.03%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) Expenses are equal to the Fund's Class B annualized expense ratio of 1.89%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (c) Expenses are equal to the Fund's Class C annualized expense ratio of 1.89%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (d) Expenses are equal to the Fund's Class Y annualized expense ratio of 0.91%, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (e) Based on the actual return for the six months ended July 31, 2004: (3.41%) for Class A, (3.91%) for Class B, (4.06%) for Class C and (3.57%) for Class Y. (f) The values and expenses paid are not presented because Class I does not have a full six months of history. The inception date for Class I was July 15, 2004. - -------------------------------------------------------------------------------- 32 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT Board Members and Officers Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. Each member oversees 14 Master Trust portfolios and 87 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Arne H. Carlson Board member since 1999 Chair, Board Services 901 S. Marquette Ave. Corporation (provides Minneapolis, MN 55402 administrative services to Age 69 boards). Former Governor of Minnesota - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Fluor Scottish Power PLC, 901 S. Marquette Ave. Corporation (engineering and Vulcan Materials Company, Minneapolis, MN 55402 construction) since 1998 Inc. (construction Age 66 materials/chemicals) - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Livio D. DeSimone Board member since 2001 Retired Chair of the Board and Cargill, Incorporated 0 Seventh Street East Chief Executive Officer, (commodity merchants and Suite 3050 Minnesota Mining and processors), General St. Paul, MN 55101-4901 Manufacturing (3M) Mills, Inc. (consumer Age 70 foods), Vulcan Materials Company (construction materials/chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Anne P. Jones Board member since 1985 Attorney and Consultant 901 S. Marquette Ave. Minneapolis, MN 55402 Age 69 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Stephen R. Lewis, Jr.* Board member since 2002 Retired President and Professor Valmont Industries, Inc. 901 S. Marquette Ave. of Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 65 - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
* Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Columbia Wanger Asset Management, L.P., one of the fund's subadvisers. - -------------------------------------------------------------------------------- 33 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Alan K. Simpson Board member since 1997 Former three-term United States 1201 Sunshine Ave. Senator for Wyoming Cody, WY 82414 Age 72 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Alison Taunton-Rigby Board member since 2002 Founder and Chief Executive 901 S. Marquette Ave. Officer, RiboNovix, Inc. since Minneapolis, MN 55402 2004; President, Forester Age 60 Biotech since 2000; prior to that, President and CEO, Aquila Biopharmaceuticals, Inc. - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Board Member Affiliated with AEFC** Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- William F. Truscott Board member since Senior Vice President - Chief 53600 AXP Financial Center 2001, Vice President Investment Officer of AEFC since Minneapolis, MN 55474 since 2002 2001. Former Chief Investment Age 43 Officer and Managing Director, Zurich Scudder Investments - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
** Interested person by reason of being an officer, director and/or employee of AEFC. - -------------------------------------------------------------------------------- 34 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held with Fund Principal occupation during past Other directorships and length of service five years - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Jeffrey P. Fox Treasurer since 2002 Vice President - Investment 50005 AXP Financial Center Accounting, AEFC, since 2002; Minneapolis, MN 55474 Vice President - Finance, Age 49 American Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Paula R. Meyer President since 2002 Senior Vice President and 596 AXP Financial Center General Manager - Mutual Funds, Minneapolis, MN 55474 AEFC, since 2002; Vice President Age 50 and Managing Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 - -------------------------------------- ------------------------- ---------------------------------- --------------------------- Leslie L. Ogg Vice President, General President of Board Services 901 S. Marquette Ave. Counsel, and Secretary Corporation Minneapolis, MN 55402 since 1978 Age 65 - -------------------------------------- ------------------------- ---------------------------------- ---------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the Web site americanexpress.com/funds; or by searching the Web site of the Securities and Exchange Commission http://www.sec.gov. You may view the Fund's voting record for all portfolio companies whose shareholders meetings were completed the previous quarter on americanexpress.com/funds or obtain a copy by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283. In addition, 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. - -------------------------------------------------------------------------------- 35 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Livio D. DeSimone and Anne P. Jones, each qualify as audit committee financial experts. Item 4. Principal Accountant Fees and Services Fund - Related Fees* (a) Audit Fees. The fees paid for the years ended July 31, to KPMG LLP for professional services rendered for the audits of the annual financial statements for AXP Growth Series, Inc. were as follows: 2004 - $67,007; 2003 - $40,789 (b) Audit - Related Fees. The fees paid for the years ended July 31, to KPMG LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 for AXP Growth Series, Inc. were as follows: 2004 - $845; 2003 - $648 (c) Tax Fees. The fees paid for the years ended July 31, to KPMG LLP for tax compliance related services for AXP Growth Series, Inc. were as follows: 2004 - $11,375; 2003 - $8,600 (d) All Other Fees. The fees paid for the years ended July 31, to KPMG LLP for additional professional services rendered in connection to proxy filing for AXP Growth Series, Inc. were as follows: 2004 - None; 2003 - $46 (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by KPMG LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2004 and 2003 were pre-approved by the audit committee with the exception of the 2003 tax fees. (f) Not applicable. (g) Non-Audit Fees. The fees paid for the years ended July 31, by the registrant for non-audit services to KPMG LLP were as follows: 2004 - None; 2003 - None The fees paid for the years ended July 31, to KPMG LLP by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2004 - $88,450; 2003 - $184,000 (h) For the fees disclosed in item (g) above, 100% and 97% of the fees for services performed during 2004 and 2003, respectively, were pre-approved by the audit committee. The exception was a 2003 tax research request by the adviser on defaulted securities for $5,000. The amounts not pre-approved are compatible with maintaining KPMG LLP's independence. * 2003 represents bills paid 8/1/02 - 7/31/03 2004 represents bills paid 8/1/03 - 7/31/04 Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. 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) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last 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. Item 11. Exhibits. (a)(1) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (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 October 1, 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 October 1, 2004 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date October 1, 2004 EX-99.CODE ETH 2 code-ethics.txt CODE OF ETHICS AMERICAN EXPRESS FUNDS PREFERRED MASTER TRUST GROUP (THE AXP FUNDS) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Purpose of the Code; Covered Officers This code of ethics ("Code") for the AXP Funds (collectively, "Funds," and each, "Fund") applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers," each of whom is identified in Exhibit A) for the purpose of promoting, in connection with his or her duties: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; o compliance with laws and governmental rules and regulations applicable to the conduct of the Funds' business and their financial reporting; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions, such as the purchase or sale of securities or other property, with the Funds because of their status as "affiliated persons" of the Funds. The compliance programs and -1- procedures of the Funds and of American Express Financial Corporation ("AEFC"), the investment adviser to the Funds, are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and AEFC, of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, whether formally for the Funds or for AEFC, or for both, be involved in establishing policies and implementing decisions that will have different effects on AEFC and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and AEFC and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds. Each Covered Officer must: o not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds; o not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Funds; o not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; III. Disclosure and Compliance o Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including to the Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and AEFC with the goal of promoting full, fair, accurate, timely, and understandable disclosure in the reports -2- and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules, and regulations. IV. Reporting and Accountability Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he or she has received, read, and understands the Code; o annually thereafter affirm to the Board that he or she has complied with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of AEFC or its affiliated persons for reports of potential violations that are made in good faith; and o notify the general counsel of the Funds ("Funds General Counsel") promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. The Funds General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers sought by a Covered Officers will be considered by the Board Effectiveness Committees (the "Committees"). The Funds will follow these procedures in investigating and enforcing this Code: o The Funds General Counsel will take all appropriate action to investigate any potential violations reported to him; o If, after such investigation, the Funds General Counsel believes that no violation has occurred, he or she is not required to take any further action; o Any matter that the Funds General Counsel believes is a violation will be reported to the Committees; o If the Committees concur that a violation has occurred, they will inform the Board, and the Board will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Committees will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, AEFC, or any -3- affiliate of AEFC govern or purport to govern the activities of the Covered Officers, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. AEFC's code of ethics under Rule 17j-1 under the Investment Company Act is a separate requirement applying to the Covered Officers and others, and is not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Fund's Board, including a majority of its independent directors. Date: July, 2003 -4- Exhibit A Persons Covered by this Code of Ethics Paula R. Meyer President Jeffrey P. Fox Treasurer -5- EX-99.CERT 3 ex99-cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 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-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) 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; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this 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: September 24, 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-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) 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; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this 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: September 24, 2004 /s/ Jeffrey P. Fox -------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 4 ex99-906cert.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 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: September 24, 2004 /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Chief Executive Officer Date: September 24, 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. -----END PRIVACY-ENHANCED MESSAGE-----