N-CSRS 1 growth-ncsrs.txt AXP GROWTH SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-2111 ------------ AXP GROWTH SERIES, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 AXP Financial Center, Minneapolis, Minnesota 55474 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 7/31 -------------- Date of reporting period: 1/31 -------------- AXP(R) Growth Fund Semiannual Report for the Period Ended Jan. 31, 2005 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 Performance Summary 4 Questions & Answers with Portfolio Management 5 Investments in Securities 10 Financial Statements (Portfolio) 14 Notes to Financial Statements (Portfolio) 17 Financial Statements (Fund) 21 Notes to Financial Statements (Fund) 24 Fund Expenses Example 33 Proxy Voting 35 CORPORATE REORGANIZATION On Feb. 1, 2005, American Express Company, the parent company of the Fund's investment manager, American Express Financial Corporation (AEFC), announced plans to pursue a spin-off of 100% of the common stock of AEFC to shareholders of American Express Company. The transaction, expected to be completed in the third quarter of 2005, is subject to certain regulatory and other approvals, as well as final approval by the board of directors of American Express Company. Upon completion of the transaction AEFC will be a publicly traded company separate from American Express Company. The current agreements between the Fund and AEFC and its affiliates will remain in place. No changes in operations or personnel, including the portfolio manager or managers of the Fund, are anticipated. (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. -------------------------------------------------------------------------------- 2 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Fund Snapshot AT JAN. 31, 2005 PORTFOLIO MANAGER Portfolio manager Since Years in industry Nick Thakore 4/02 12 FUND OBJECTIVE For investors seeking long term capital growth. Inception dates by class A: 3/1/72 B: 3/20/95 C: 6/26/00 I: 3/4/04 Y: 3/20/95 Ticker symbols by class A: INIDX B: IGRBX C: AXGCX I: AGWIX Y: IGRYX Total net assets $3.020 billion Number of holdings 123 STYLE MATRIX STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL Shading within the style matrix indicates areas in which the Fund generally invests. SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Information technology 20.0% Health care 19.0% Consumer discretionary 14.3% Telecommunications 11.2% Financials 9.0% Consumer staples 7.8% Short-term securities* 6.5% Energy 4.1% Industrials 3.4% Telecommunication services 3.1% Materials 1.5% Other 0.1% *2.4% of portfolio assers is due to security lending activity. 4.1% of portfolio assets is the Portfolio's cash equivalent position. TOP TEN HOLDINGS Percentage of portfolio assets NTL (Cable) 7.6% Nextel Communications Cl A (Cellular telecommunications) 7.5 Nokia ADR (Telecom equipment & services) 3.1 Sprint (Utilities -- telephone) 3.1 Johnson & Johnson (Health care products) 3.0 Motorola (Telecom equipment & services) 2.5 Dell (Computer hardware) 2.3 Pfizer (Health care products) 1.9 Intel (Electronics) 1.8 Procter & Gamble (Household products) 1.8 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Stock prices of established companies that pay dividends may be less volatile than the stock market as a whole. There are special risk considerations associated with international investing related to market, currency, political, economica and other factors. Fund holdings are subject to change. -------------------------------------------------------------------------------- 3 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Performance Summary PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2005 +9.86% +6.01% +7.92% +9.86% = AXP Growth Fund Class A (excluding sales charge) +6.01% = Russell 1000(R) Growth Index(1) (unmanaged) +7.92% = Lipper Large-Cap Growth Funds Index(2) The performance information shown represents 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 (800) 862-7919 or visiting www.americanexpress.com/funds. (1) The Russell 1000(R) Growth Index, an unmanaged index, measures the performance of those companies among the 1,000 largest companies included in the Russell 3000(R) Index with higher price-to-book ratios and higher forecasted growth values. (2) The Lipper Large-Cap Growth Funds Index includes the 30 largest large-cap growth funds tracked by Lipper Inc. The index's returns include net reinvested dividends. 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 other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. -------------------------------------------------------------------------------- 4 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Nick Thakore discusses the Fund's positioning and results for the first half of the 2005 fiscal year. Q: How did AXP Growth Fund perform for the six-month period ended Jan. 31, 2005? A: AXP Growth Fund's Class A shares rose 9.86%, excluding sales charge, for the six-month period ended Jan. 31, 2005. The Fund outperformed the 7.92% return of its peer group as represented by the Lipper Large-Cap Growth Funds Index as well as its benchmark, the Russell 1000(R) Growth Index (Russell Index), which advanced 6.01% for the same period. Q: What factors affected performance? A: Favorable sector allocations and strong stock selection helped the Fund outperform the Russell Index and its peer group by a strong margin for the fiscal period. Several of the dominant themes in
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class I Class Y (Inception dates) (3/1/72) (3/20/95) (6/26/00) (3/4/04) (3/20/95) NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) at Jan. 31, 2005 6 months* +9.86% +3.54% +9.43% +5.43% +9.43% +8.43% +10.17% +10.01% 1 year +6.02% -0.08% +5.17% +1.17% +5.17% +5.17% N/A +6.17% 3 years -0.42% -2.36% -1.21% -2.20% -1.21% -1.21% N/A -0.25% 5 years -11.10% -12.15% -11.79% -11.96% N/A N/A N/A -10.95% 10 years +7.00% +6.37% N/A N/A N/A N/A N/A N/A Since inception +11.96% +11.96% +5.48% +5.48% -14.55% -14.55% +3.67%* +6.45% at Dec. 31, 2004 6 months* +6.88% +0.73% +6.47% +1.47% +6.47% +5.47% +7.13% +6.93% 1 year +8.49% +2.25% +7.69% +3.69% +7.69% +7.69% N/A +8.70% 3 years -0.19% -2.14% -0.96% -1.96% -0.96% -0.96% N/A -0.01% 5 years -11.17% -12.21% -11.85% -12.02% N/A N/A N/A -11.02% 10 years +7.20% +6.57% N/A N/A N/A N/A N/A N/A Since inception +12.06% +12.06% +5.75% +5.75% -14.42% -14.42% +5.66%* +6.72%
* Not annualized (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to eligible investors only, currently limited to AXP Portfolio Builder Series funds, six affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. -------------------------------------------------------------------------------- 5 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> Favorable sector allocations and strong stock selection helped the Fund outperform the Russell Index and its peer group by a strong margin for the fiscal period. (end callout quote) the portfolio -- including an emphasis on cable stocks and wireless telecommunications companies -- were particularly advantageous for our results. Regarding the Fund's sector allocations, the results were almost uniformly positive. A higher-than-Russell Index position in telecommunications services was a major contributor. In addition, a number of individual telecommunications stocks added to relative return, including Vodafone, Nextel Partners, Nextel and Western Wireless. These stocks benefited from strong fundamentals during the period. Mergers also contributed to the strong results within the sector. Western Wireless benefited from the announcement that it would be acquired by Alltel, while Nextel and Nextel Partners both advanced on news of the intended merger between Sprint and Nextel. The Fund's cable holdings advanced during the period, driven by cheap valuations and value-unlocking catalysts. In particular, NTL, a U.K. cable stock that we have held for some time, added to relative return. The company announced the sale of its tower business during the period for an attractive price. Speculation related to a possible merger with Telewest Global, another U.K. cable company, also helped NTL's stock. The Fund's technology position added to relative return, as did our lower-than-Russell Index positions in some weaker performing technology stocks such as Cisco and Intel. Cell phone maker Nokia was the largest positive contributor within the technology sector. After Nokia declined on earnings difficulties last year, we aggressively bought the stock. Since then the company has begun to deliver strong earnings and its stock price has rebounded. -------------------------------------------------------------------------------- 6 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Questions & Answers Stock selection among health care holdings was a modest positive contributor. The Fund benefited from larger-than-Russell Index positions in Aetna, a well-known HMO, and Medco Health Solutions, a pharmacy benefits management company. The Fund's position in the energy sector was also advantageous as energy stocks continued to benefit from high global energy prices. Pharmaceutical giant Merck was the only individual stock to have a significant negative impact on relative return for the fiscal period. Merck's stock declined sharply in the fall of 2004 after the company removed its leading arthritis drug Vioxx from the market due to evidence that long-term use significantly increased the risk of stroke and heart attack. From a sector allocation perspective, lower-than-benchmark positions in the industrials and consumer discretionary sectors had a marginal negative impact. Q: What changes did you make during the six-month period? A: Telecommunications services remained an important emphasis for the Fund, but within the sector, we adjusted some holdings, largely due to strong performance from selected stocks. For example, we sold Western Wireless, which advanced strongly during the period. We increased the Fund's holdings of Sprint and Nextel due to optimism about the prospects for the combined Nextel/Sprint entity in 2005. We are impressed by the prospect of a positive growth rate, attractive valuation and the potential power which could be created by putting these two companies together. -------------------------------------------------------------------------------- 7 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Questions & Answers We slightly reduced our energy exposure when oil prices rose to such high levels that we thought any subsequent price decline would hurt the stocks. Still, the portfolio's energy position remains larger than that of the Russell Index. We have preferred energy over industrial stocks because we would rather emphasize sectors where growth is not decelerating and not so dependant on the economy. We think growth rates on industrials are decelerating and that valuations already discount very strong forward growth. During the fiscal period, we also sold a few health care stocks. Q: How do you plan to manage the Fund in the coming months given current market conditions? A: We believe 2005 will be a year with lower growth rates overall, resulting in an environment where the market is likely to reward strong growth that is viewed as sustainable. We believe the growth rates on the stocks we own are very good. Although some stocks may be facing decelerating growth, in general, the stocks we have emphasized still have better growth rates than the market, as well as good valuations. In addition, we have favored stocks with growth stories that are more company-specific than dependant on economic growth, particularly those with identifiable catalysts for future appreciation. What are Growth and Value Funds? Growth Funds: Funds that seek growth of capital by investing in growing companies that are expected to have above-average increases in earnings or sales. Value Funds: Funds that seek growth of capital by investing in companies that are believed to be temporarily undervalued in the market and may show promise for the future. -------------------------------------------------------------------------------- 8 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> Value stocks have outpaced growth stocks since 2000, making this cycle of outperformance longer and more substantial than any other during the last 20 years. History tells us that such an imbalance in the equity market must correct itself at some point. (end callout quote) Since small-cap stocks have performed better than large-caps for some time, we see an opportunity for larger-cap stocks to reclaim the market leadership. Consequently, we have been actively looking for large-cap stocks that are positioned to do well, with a goal of increasing the Fund's average market capitalization. Similarly, we are optimistic about the prospects for growth stocks. Value stocks have outpaced growth stocks since 2000, making this cycle of outperformance longer and more substantial than any other during the last 20 years. History tells us that such an imbalance in the equity market must correct itself at some point. This far into such a prolonged cycle, we believe investors should maintain their exposure to growth stocks. Otherwise, they may not benefit when the market again begins to favor growth. To illustrate the difference in performance between large-cap growth and large-cap value stocks in recent years, the chart below compares the returns of the Russell 1000 Growth Index, the Russell 1000 Value Index and the Standard & Poor's 500 Index, an unmanaged index containing both growth and value stocks. COMPARISON OF RETURNS At Jan. 31, 2005 Is a Growth Style Investment Recovery on the Horizon? 1 yr 3 yr 5 yr 10 yr Russell 1000 Growth Index +0.70% -0.71% -9.04% +8.99% Russell 1000 Value Index +12.45% +8.20% +5.59% +13.28% S&P 500 Index +6.22% +3.24% -1.77% +11.51% Past performance does not guarantee future results. The Russell 1000(R) Growth Index is an unmanaged market capitalization weighted index of those Russell 1000 Index companies with higher forecasted growth values The Russell 1000(R) Value Index is an unmanaged market capitalization weighted index of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. None of the Index figures reflect any deduction for fees or expenses. -------------------------------------------------------------------------------- 9 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Investments in Securities Growth Portfolio Jan. 31, 2005 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (95.5%) Issuer Shares Value(a) Aerospace & defense (1.1%) Lockheed Martin 466,000(d) $26,939,460 United Technologies 74,200 7,470,456 Total 34,409,916 Banks and savings & loans (1.9%) Commerce Bancorp 271,800(d) 15,639,372 First Marblehead 43,450(b) 2,795,139 HDFC Bank ADR 75,100(c) 3,341,950 Investors Financial Services 513,100 25,865,371 Wachovia 168,000 9,214,800 Total 56,856,632 Beverages & tobacco (2.2%) Altria Group 170,150 10,860,675 Coca-Cola 119,800 4,970,502 PepsiCo 958,800 51,487,560 Total 67,318,737 Broker dealers (0.2%) Merrill Lynch & Co 100,800 6,055,056 Cable (9.4%) NTL 3,464,296(b) 235,676,057 RCN 249,100(b,d) 4,857,450 Telewest Global 2,583,100(b,c) 43,525,235 Total 284,058,742 Cellular telecommunications (11.5%) Nextel Communications Cl A 8,053,500(b) 231,054,914 NTT DoCoMo 6,600(c) 11,429,254 Telesystem Intl Wireless 3,531,749(b,c) 49,832,978 Vodafone Group ADR 2,057,200(c) 53,446,056 Total 345,763,202 Computer hardware (4.9%) Cisco Systems 2,430,000(b) 43,837,200 Dell 1,685,300(b) 70,378,128 EMC 1,392,600(b) 18,243,060 Sun Microsystems 3,376,900(b) 14,723,284 Total 147,181,672 Computer software & services (2.9%) Google Cl A 78,900(b,d) 15,435,207 Microsoft 1,051,600 27,636,048 Oracle 1,696,000(b) 23,353,920 Symantec 968,000(b) 22,602,800 Total 89,027,975 Electronics (4.4%) ASML Holding 599,500(b,c) 9,849,785 Freescale Semiconductor Cl A 664,100(b) 11,356,110 Freescale Semiconductor Cl B 302,062(b) 5,277,023 Intel 2,539,400 57,009,530 Linear Technology 346,400 13,073,136 Marvell Technology Group 135,200(b,c) 4,522,440 Maxim Integrated Products 324,700 12,666,547 Texas Instruments 772,000 17,918,120 Total 131,672,691 Energy (1.7%) Anadarko Petroleum 285,700 18,916,197 ChevronTexaco 288,200 15,678,080 ConocoPhillips 166,300 15,430,977 Total 50,025,254 Energy equipment & services (2.5%) Baker Hughes 147,900 6,404,070 Halliburton 1,006,000 41,376,780 Schlumberger 282,000 19,187,280 Transocean 187,300(b) 8,241,200 Total 75,209,330 Finance companies (0.2%) Citigroup 136,900 6,714,945 Financial services (3.0%) Capital One Financial 177,100 13,863,388 Countrywide Financial 417,500 15,447,500 Fannie Mae 536,400 34,640,712 Freddie Mac 317,900 20,755,691 Nomura Holdings 534,700(c) 7,021,475 Total 91,728,766 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 10 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Food (1.1%) Kellogg 630,350 $28,138,824 Sara Lee 192,700 4,524,596 Total 32,663,420 Health care products (14.9%) Allergan 57,300 4,351,935 Amgen 210,500(b) 13,101,520 Baxter Intl 224,400 7,575,744 Biogen Idec 702,200(b) 45,614,912 Bristol-Myers Squibb 843,600 19,773,984 Elan ADR 631,400(b,c,d) 17,003,602 Forest Laboratories 71,300(b) 2,961,089 Genentech 578,000(b) 27,576,380 Gilead Sciences 181,100(b) 5,994,410 GlaxoSmithKline ADR 447,700(c,d) 19,953,989 Johnson & Johnson 1,450,300 93,834,409 Medco Health Solutions 719,400(b) 30,624,858 Medtronic 383,900 20,150,911 Merck & Co 337,600 9,469,680 Novartis ADR 582,300(c,d) 27,880,524 OSI Pharmaceuticals 335,500(b) 21,841,050 Pfizer 2,385,800 57,640,928 Schering Plough 992,300 18,417,088 Wyeth 168,900 6,693,507 Total 450,460,520 Health care services (4.5%) Aetna 172,850 21,960,593 Cardinal Health 327,500 18,444,800 Caremark Rx 116,800(b) 4,566,880 Community Health Systems 111,600(b) 3,234,168 HCA 882,700 39,297,804 HealthSouth 1,687,100(b) 9,869,535 Lincare Holdings 33,500(b) 1,390,250 Magellan Health Services 412,550(b) 15,322,107 Tenet Healthcare 118,800(b) 1,179,684 WellPoint 176,700(b) 21,469,050 Total 136,734,871 Household products (4.5%) Avon Products 405,800 17,132,876 Colgate-Palmolive 218,000 11,453,720 Gillette 973,000 49,350,560 Kimberly-Clark 46,700 3,059,317 Procter & Gamble 1,044,100 55,577,443 Total 136,573,916 Insurance (3.8%) ACE 357,400(c) 15,511,160 Allstate 230,500 11,626,420 American Intl Group 815,100 54,032,979 Chubb 323,000 24,057,040 Prudential Financial 191,600 10,329,156 Total 115,556,755 Leisure time & entertainment (0.5%) Viacom Cl B 366,412 13,681,824 Media (1.5%) eBay 275,300(b) 22,436,950 Walt Disney 749,200 21,449,596 Total 43,886,546 Multi-industry (2.4%) Monsanto 216,000 11,692,080 Sony 199,300(c) 7,385,043 Tyco Intl 1,060,900(c) 38,340,926 Vivendi Universal ADR 441,000(b,c) 13,953,240 Total 71,371,289 Precious metals (1.5%) Coeur d'Alene Mines 4,860,300(b,d) 17,156,859 Newmont Mining 694,200 28,871,778 Total 46,028,637 Retail -- general (3.3%) Gap 588,800 12,959,488 Home Depot 318,400 13,137,184 Lowe's Companies 108,000 6,154,920 Target 570,900 28,984,593 Wal-Mart Stores 758,700 39,755,880 Total 100,992,065 Retail -- grocery (0.2%) Safeway 244,500(b) 4,608,825 Telecom equipment & services (8.3%) Hutchison Telecommunications Intl ADR 1,493,800(b,c) 20,016,920 Indonesian Satellite 12,009,500(c) 7,470,079 Leap Wireless Intl 250,900(b) 6,837,025 Motorola 4,977,000 78,337,980 Nextel Partners Cl A 1,991,750(b) 39,615,908 Nokia ADR 6,359,000(c) 97,165,519 Total 249,443,431 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 11 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Utilities -- natural gas (--%) Kinder Morgan Management LLC --(b) $14 Utilities -- telephone (3.1%) Sprint 3,973,000 94,676,590 Total common stocks (Cost: $2,633,889,214) $2,882,701,621 Option purchased (0.2%) Issuer Contracts Exercise Expiration Value(a) price date Put S&P 500 Index 5,140 $1,075 June 2005 $4,600,300 Total option purchased (Cost: $14,860,350) $4,600,300 Short-term securities (6.6%)(e) Issuer Effective Amount Value(a) yield payable at maturity U.S. government agency (4.1%) Federal Natl Mtge Assn Disc Nts 02-07-05 2.23% $24,500,000 $24,489,365 02-08-05 2.22 20,000,000 19,990,119 02-10-05 2.22 4,400,000 4,397,293 03-02-05 2.38 25,000,000 24,950,416 04-13-05 2.47 50,000,000 49,754,450 Total 123,581,643 Commercial paper (2.5%) Fairway Finance 02-28-05 2.50 2,800,000 2,794,556 General Electric Capital 02-01-05 2.48 5,100,000 5,099,649 Harrier Finance Funding (US) LLC 03-01-05 2.43 11,200,000 11,178,076 Jupiter Securitization 02-22-05 2.45 20,000,000 19,970,056 Ranger Funding LLC 02-23-05 2.50 25,000,000 24,960,069 UBS Finance LLC 02-14-05 2.35 11,600,000 11,589,399 Total 75,591,805 Total short-term securities (Cost: $199,178,212) $199,173,448 Total investments in securities (Cost: $2,847,927,776)(f) $3,086,475,369 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 12 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At Jan. 31, 2005, the value of foreign securities represented 14.8% of net assets. (d) At Jan. 31, 2005, security was partially or fully on loan. (e) Cash collateral received from security lending activity is invested in short-term securities and represents 2.5% of net assets. 4.1% of the net assets is the Portfolio's cash equivalent position. (f) At Jan. 31, 2005, the cost of securities for federal income tax purposes was approximately $2,847,928,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $306,178,000 Unrealized depreciation (67,631,000) ----------- Net unrealized appreciation $238,547,000 ------------ 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 -- 2005 SEMIANNUAL REPORT Financial Statements Statement of assets and liabilities Growth Portfolio Jan. 31, 2005 (Unaudited) Assets Investments in securities, at value (Note 1)* (identified cost $2,847,927,776) $3,086,475,369 Dividends and accrued interest receivable 2,219,445 Receivable for investment securities sold 131,535,152 ----------- Total assets 3,220,229,966 ------------- Liabilities Disbursements in excess of cash on demand deposit 800,778 Payable for investment securities purchased 125,775,104 Payable upon return of securities loaned (Note 4) 74,303,800 Accrued investment management services fee 141,575 Other accrued expenses 101,093 ------- Total liabilities 201,122,350 ----------- Net assets $3,019,107,616 ============== * Including securities on loan, at value (Note 4) 72,106,966 ---------- See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT
Statement of operations Growth Portfolio Six months ended Jan. 31, 2005 (Unaudited) Investment income Income: Dividends $ 19,927,428 Interest 1,277,347 Fee income from securities lending (Note 4) 103,565 Less foreign taxes withheld (97,376) ------- Total income 21,210,964 ---------- Expenses (Note 2): Investment management services fee 9,118,775 Compensation of board members 8,935 Custodian fees 117,226 Audit fees 15,750 Other 68,539 ------ Total expenses 9,329,225 Earnings credits on cash balances (Note 2) (618) ---- Total net expenses 9,328,607 --------- Investment income (loss) -- net 11,882,357 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 128,785,637 Foreign currency transactions (53,516) ------- Net realized gain (loss) on investments 128,732,121 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 156,110,748 ----------- Net gain (loss) on investments and foreign currencies 284,842,869 ----------- Net increase (decrease) in net assets resulting from operations $296,725,226 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 15 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT
Statements of changes in net assets Growth Portfolio Jan. 31, 2005 July 31, 2004 Six months ended Year ended (Unaudited) Operations Investment income (loss) -- net $ 11,882,357 $ 21,150,217 Net realized gain (loss) on investments 128,732,121 362,598,800 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 156,110,748 (210,306,341) ----------- ------------ Net increase (decrease) in net assets resulting from operations 296,725,226 173,442,676 ----------- ----------- Proceeds from contributions 6,933,553 20,257,382 Fair value of withdrawals (380,867,730) (544,632,609) ------------ ------------ Net contributions (withdrawals) from partners (373,934,177) (524,375,227) ------------ ------------ Total increase (decrease) in net assets (77,208,951) (350,932,551) Net assets at beginning of period 3,096,316,567 3,447,249,118 ------------- ------------- Net assets at end of period $3,019,107,616 $3,096,316,567 ============== ==============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 16 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Notes to Financial Statements Growth Portfolio (Unaudited as to Jan. 31, 2005) 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 net asset value (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 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. -------------------------------------------------------------------------------- 17 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT 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. 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. -------------------------------------------------------------------------------- 18 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Guarantees and indemnifications Under the Portfolio's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Portfolio. In addition, certain of the Portfolio's contracts with its service providers contain general indemnification clauses. The Portfolio's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Portfolio cannot be determined and the Portfolio has no historical basis for predicting the likelihood of any such claims. 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 that declines from 0.60% to 0.48% annually as the Portfolio's assets increase. 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. In certain circumstances, the board may approve a change in the 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 $243,840 for the six months ended Jan. 31, 2005. 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 -- 2005 SEMIANNUAL REPORT During the six months ended Jan. 31, 2005, the Portfolio's custodian fees were reduced by $618 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 $1,972,187,516 and $2,441,023,206, respectively, for the six months ended Jan. 31, 2005. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $13,720 for the six months ended Jan. 31, 2005. 4. LENDING OF PORTFOLIO SECURITIES At Jan. 31, 2005, securities valued at $72,106,966 were on loan to brokers. For collateral, the Portfolio received $74,303,800 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 $103,565 for six months ended Jan. 31, 2005. 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, 2005(e) 2004 2003 2002 2001 Ratio of expenses to average daily net assets(a) .60%(b) .49% .62% .47% .55% Ratio of net investment income (loss) to average daily net assets .77%(b) .61% .59% .37% .09% Portfolio turnover rate (excluding short-term securities) 68% 171% 205% 225% 41% Total return(c) 10.22%(d) 4.65% 9.73% (29.17%) (41.87%)
Notes to financial highlights (a) Expense ratio is based on total expenses of the Portfolio before reduction of earnings credits on cash balances. The ratio does not include feeder fund expenses. (b) Adjusted to an annual basis. (c) Total return is based on a calculated Portfolio NAV and does not reflect payment of a sales charge. (d) Not annualized. (e) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 20 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Growth Fund Jan. 31, 2005 (Unaudited) Assets Investment in Portfolio (Note 1) $ 3,019,058,417 Capital shares receivable 1,953,536 --------- Total assets 3,021,011,953 ------------- Liabilities Capital shares payable 668,552 Accrued distribution fee 88,705 Accrued service fee 2,693 Accrued transfer agency fee 49,275 Accrued administrative services fee 11,076 Other accrued expenses 290,046 ------- Total liabilities 1,110,347 --------- Net assets applicable to outstanding capital stock $ 3,019,901,606 =============== Represented by Capital stock -- $.01 par value (Note 1) $ 1,174,744 Additional paid-in capital 3,877,363,157 Undistributed net investment income 1,399,128 Accumulated net realized gain (loss) (Note 5) (1,098,607,776) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 238,572,353 ----------- Total -- representing net assets applicable to outstanding capital stock $ 3,019,901,606 =============== Net assets applicable to outstanding shares: Class A $ 2,030,912,554 Class B $ 567,352,001 Class C $ 12,637,366 Class I $ 77,021,553 Class Y $ 331,978,132 Net asset value per share of outstanding capital stock: Class A shares 77,891,887 $ 26.07 Class B shares 23,618,372 $ 24.02 Class C shares 526,070 $ 24.02 Class I shares 2,900,906 $ 26.55 Class Y shares 12,537,171 $ 26.48 ---------- ---------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 21 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT
Statement of operations AXP Growth Fund Six months ended Jan. 31, 2005 (Unaudited) Investment income Income: Dividends $ 19,927,123 Interest 1,277,328 Fee income from securities lending 103,563 Less foreign taxes withheld (97,374) ------- Total income 21,210,640 ---------- Expenses (Note 2): Expenses allocated from Portfolio 9,328,464 Distribution fee Class A 2,620,635 Class B 2,946,274 Class C 64,321 Transfer agency fee 3,098,416 Incremental transfer agency fee Class A 227,904 Class B 153,279 Class C 3,218 Service fee -- Class Y 178,242 Administrative services fees and expenses 705,807 Compensation of board members 6,269 Printing and postage 440,750 Registration fees 42,850 Audit fees 5,250 Other 23,188 ------ Total expenses 19,844,867 Earnings credits on cash balances (Note 2) (33,355) ------- Total net expenses 19,811,512 ---------- Investment income (loss) -- net 1,399,128 --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 128,783,899 Foreign currency transactions (53,514) ------- Net realized gain (loss) on investments 128,730,385 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 156,108,108 ----------- Net gain (loss) on investments and foreign currencies 284,838,493 ----------- Net increase (decrease) in net assets resulting from operations $286,237,621 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 22 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT
Statements of changes in net assets AXP Growth Fund Jan. 31, 2005 July 31, 2004 Six months ended Year ended (Unaudited) Operations Investment income (loss) -- net $ 1,399,128 $ (2,970,542) Net realized gain (loss) on investments 128,730,385 362,594,443 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 156,108,108 (210,303,690) ----------- ------------ Net increase (decrease) in net assets resulting from operations 286,237,621 149,320,211 ----------- ----------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 55,812,089 285,165,756 Class B shares 20,915,687 80,166,420 Class C shares 1,054,956 4,297,146 Class I shares 56,059,772 18,579,557 Class Y shares 27,548,396 110,428,653 Payments for redemptions Class A shares (337,182,567) (533,084,922) Class B shares (Note 2) (103,724,302) (286,628,598) Class C shares (Note 2) (2,500,000) (3,709,528) Class I shares (40,151) (7,079) Class Y shares (79,775,262) (176,524,688) ----------- ------------ Increase (decrease) in net assets from capital share transactions (361,831,382) (501,317,283) ------------ ------------ Total increase (decrease) in net assets (75,593,761) (351,997,072) Net assets at beginning of period 3,095,495,367 3,447,492,439 ------------- ------------- Net assets at end of period $3,019,901,606 $3,095,495,367 ============== ============== Undistributed net investment income $ 1,399,128 $ -- -------------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 23 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Notes to Financial Statements AXP Growth Fund (Unaudited as to Jan. 31, 2005) 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. 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. At Jan. 31, 2005, AEFC and the AXP Portfolio Builder Series funds owned 100% of Class I shares, which represents 2.55% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees 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 at Jan. 31, 2005 was 99.99%. 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 -------------------------------------------------------------------------------- 24 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT 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 net asset value (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. Guarantees and indemnifications Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. -------------------------------------------------------------------------------- 25 -- AXP GROWTH FUND -- 2005 SEMIANNUAL 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 that declines from 0.05% to 0.02% annually as the Fund's assets increase. 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 pursuant to Rule 12b-1, 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. -------------------------------------------------------------------------------- 26 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Sales charges received by the Distributor for distributing Fund shares were $1,202,067 for Class A, $435,732 for Class B and $1,423 for Class C for the six months ended Jan. 31, 2005. During the six months ended Jan. 31, 2005, the Fund's transfer agency fees were reduced by $33,355 as a result of earnings credits from overnight cash balances. 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Jan. 31, 2005 Class A Class B Class C Class I Class Y Sold 2,222,409 903,262 45,865 2,151,583 1,103,191 Issued for reinvested distributions -- -- -- -- -- Redeemed (13,548,479) (4,516,419) (109,356) (1,609) (3,105,111) ----------- ---------- -------- ------ ---------- Net increase (decrease) (11,326,070) (3,613,157) (63,491) 2,149,974 (2,001,920) ----------- ---------- ------- --------- ---------- 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. 4. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by The Bank of New York, whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 21, 2004. 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 higher of the Federal Funds Effective Rate plus 0.50% or the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with Deutsche Bank. The Fund had no borrowings outstanding during the six months ended Jan. 31, 2005. 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $1,205,376,835 at 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. -------------------------------------------------------------------------------- 27 -- AXP GROWTH FUND -- 2005 SEMIANNUAL 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, 2005(f) 2004 2003 2002 2001 Net asset value, beginning of period $23.73 $22.80 $20.88 $29.68 $ 54.36 ------ ------ ------ ------ ------- Income from investment operations: Net investment income (loss) .03 .02 -- (.04) (.14) Net gains (losses) (both realized and unrealized) 2.31 .91 1.92 (8.74) (22.34) ------ ------ ------ ------ ------- Total from investment operations 2.34 .93 1.92 (8.78) (22.48) ------ ------ ------ ------ ------- Less distributions: Distributions from realized gains -- -- -- (.02) (2.20) ------ ------ ------ ------ ------- Net asset value, end of period $26.07 $23.73 $22.80 $20.88 $ 29.68 ------ ------ ------ ------ ------- Ratios/supplemental data Net assets, end of period (in millions) $2,031 $2,117 $2,263 $2,213 $3,851 Ratio of expenses to average daily net assets(b) 1.15%(c) 1.03% 1.21% .99% .99% Ratio of net investment income (loss) to average daily net assets .22%(c) .07% --% (.15%) (.34%) Portfolio turnover rate (excluding short-term securities) 68% 171% 205% 225% 41% Total return(d) 9.86%(e) 4.08% 9.20% (29.59%) (42.14%)
(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) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 28 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2005(f) 2004 2003 2002 2001 Net asset value, beginning of period $21.95 $21.25 $19.61 $28.11 $ 52.02 ------ ------ ------ ------ ------- Income from investment operations: Net investment income (loss) (.07) (.16) (.17) (.25) (.42) Net gains (losses) (both realized and unrealized) 2.14 .86 1.81 (8.23) (21.29) ------ ------ ------ ------ ------- Total from investment operations 2.07 .70 1.64 (8.48) (21.71) ------ ------ ------ ------ ------- Less distributions: Distributions from realized gains -- -- -- (.02) (2.20) ------ ------ ------ ------ ------- Net asset value, end of period $24.02 $21.95 $21.25 $19.61 $ 28.11 ------ ------ ------ ------ ------- Ratios/supplemental data Net assets, end of period (in millions) $567 $598 $775 $845 $1,510 Ratio of expenses to average daily net assets(b) 1.93%(c) 1.81% 1.99% 1.77% 1.75% Ratio of net investment income (loss) to average daily net assets (.56%)(c) (.71%) (.77%) (.93%) (1.11%) Portfolio turnover rate (excluding short-term securities) 68% 171% 205% 225% 41% Total return(d) 9.43%(e) 3.29% 8.36% (30.18%) (42.57%)
(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) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 29 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2005(f) 2004 2003 2002 2001 Net asset value, beginning of period $21.95 $21.25 $19.62 $28.12 $ 52.03 ------ ------ ------ ------ ------- Income from investment operations: Net investment income (loss) (.07) (.16) (.17) (.21) (.42) Net gains (losses) (both realized and unrealized) 2.14 .86 1.80 (8.27) (21.29) ------ ------ ------ ------ ------- Total from investment operations 2.07 .70 1.63 (8.48) (21.71) ------ ------ ------ ------ ------- Less distributions: Distributions from realized gains -- -- -- (.02) (2.20) ------ ------ ------ ------ ------- Net asset value, end of period $24.02 $21.95 $21.25 $19.62 $ 28.12 ------ ------ ------ ------ ------- Ratios/supplemental data Net assets, end of period (in millions) $13 $13 $12 $7 $9 Ratio of expenses to average daily net assets(b) 1.93%(c) 1.81% 2.01% 1.80% 1.75% Ratio of net investment income (loss) to average daily net assets (.56%)(c) (.71%) (.81%) (.96%) (1.10%) Portfolio turnover rate (excluding short-term securities) 68% 171% 205% 225% 41% Total return(d) 9.43%(e) 3.29% 8.31% (30.17%) (42.56%)
(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) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 30 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT
Class I Per share income and capital changes(a) Fiscal period ended July 31, 2005(g) 2004(b) Net asset value, beginning of period $24.10 $25.61 ------ ------ Income from investment operations: Net investment income (loss) .07 .09 Net gains (losses) (both realized and unrealized) 2.38 (1.60) ------ ------ Total from investment operations 2.45 (1.51) ------ ------ Net asset value, end of period $26.55 $24.10 ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $77 $18 Ratio of expenses to average daily net assets(c) .70%(d) .57%(d) Ratio of net investment income (loss) to average daily net assets .58%(d) .43%(d) Portfolio turnover rate (excluding short-term securities) 68% 171% Total return(e) 10.17%(f) (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. (g) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 31 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2005(f) 2004 2003 2002 2001 Net asset value, beginning of period $24.07 $23.09 $21.11 $29.96 $ 54.75 ------ ------ ------ ------ ------- Income from investment operations: Net investment income (loss) .05 .07 .04 -- (.07) Net gains (losses) (both realized and unrealized) 2.36 .91 1.94 (8.83) (22.52) ------ ------ ------ ------ ------- Total from investment operations 2.41 .98 1.98 (8.83) (22.59) ------ ------ ------ ------ ------- Less distributions: Distributions from realized gains -- -- -- (.02) (2.20) ------ ------ ------ ------ ------- Net asset value, end of period $26.48 $24.07 $23.09 $21.11 $ 29.96 ------ ------ ------ ------ ------- Ratios/supplemental data Net assets, end of period (in millions) $332 $350 $398 $481 $974 Ratio of expenses to average daily net assets(b) .98%(c) .86% 1.03% .82% .83% Ratio of net investment income (loss) to average daily net assets .40%(c) .25% .18% .02% (.18%) Portfolio turnover rate (excluding short-term securities) 68% 171% 205% 225% 41% Total return(d) 10.01%(e) 4.24% 9.38% (29.48%) (42.04%)
(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) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 32 -- AXP GROWTH FUND -- 2005 SEMIANNUAL 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 Jan. 31, 2005. Actual Expenses The first line of the table 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 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 GROWTH FUND -- 2005 SEMIANNUAL REPORT
Beginning Ending Expenses account value account value paid during Annualized Aug. 1, 2004 Jan. 31, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,098.60 $6.12 1.15% Hypothetical (5% return before expenses) $1,000 $1,019.51 $5.89 1.15% Class B Actual(b) $1,000 $1,094.30 $10.24 1.93% Hypothetical (5% return before expenses) $1,000 $1,015.56 $9.86 1.93% Class C Actual(b) $1,000 $1,094.30 $10.24 1.93% Hypothetical (5% return before expenses) $1,000 $1,015.56 $9.86 1.93% Class I Actual(b) $1,000 $1,101.70 $3.73 0.70% Hypothetical (5% return before expenses) $1,000 $1,021.79 $3.59 0.70% Class Y Actual(b) $1,000 $1,100.10 $5.22 0.98% Hypothetical (5% return before expenses) $1,000 $1,020.38 $5.02 0.98%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 185/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Jan. 31, 2005: +9.86% for Class A, +9.43% for Class B, +9.43% for Class C, +10.17% for Class I and +10.01% for Class Y. -------------------------------------------------------------------------------- 34 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website americanexpress.com/funds; or by searching the website 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 is available at http://www.sec.gov. -------------------------------------------------------------------------------- 35 -- AXP GROWTH FUND -- 2005 SEMIANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Large Cap Equity Fund Semiannual Report for the Period Ended Jan. 31, 2005 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 Performance Summary 4 Questions & Answers with Portfolio Management 5 Investments in Securities 9 Financial Statements 13 Notes to Financial Statements 17 Fund Expenses Example 29 Proxy Voting 31 CORPORATE REORGANIZATION On Feb. 1, 2005, American Express Company, the parent company of the Fund's investment manager, American Express Financial Corporation (AEFC), announced plans to pursue a spin-off of 100% of the common stock of AEFC to shareholders of American Express Company. The transaction, expected to be completed in the third quarter of 2005, is subject to certain regulatory and other approvals, as well as final approval by the board of directors of American Express Company. Upon completion of the transaction AEFC will be a publicly traded company separate from American Express Company. The current agreements between the Fund and AEFC and its affiliates will remain in place. No changes in operations or personnel, including the portfolio manager or managers of the Fund, are anticipated. (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. -------------------------------------------------------------------------------- 2 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Fund Snapshot AT JAN. 31, 2005 PORTFOLIO MANAGERS Portfolio managers Since Years in industry Bob Ewing 1/05 15 Nick Thakore 1/05 10 FUND OBJECTIVE The Fund seeks to provide shareholders with long-term growth of capital. Inception dates by class A: 3/28/02 B: 3/28/02 C: 3/28/02 I: 3/4/04 Y: 3/28/02 Ticker symbols by class A: ALEAX B: ALEBX C: ARQCX I: -- Y: ALEYX Total net assets $1.755 billion Number of holdings 136 STYLE MATRIX STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL Shading within the style matrix indicates areas in which the Fund generally invests. SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Financials 19.9% Health care 15.3% Consumer discretionary 14.5% Information technology 14.4% Consumer staples 9.2% Industrials 5.9% Energy 5.8% Telecommunications 5.0% Utilities 2.8% Investment companies 1.9% Materials 1.9% Short-term securities* 1.9% Telecommunication services 1.5% * 0.8% of portfolio assets is due to security lending activity. 1.1% of portfolio assets is the Fund's cash equivalent position. TOP TEN HOLDINGS Percentage of portfolio assets Cendant (Leisure time & entertainment) 6.1% Citigroup (Finance companies) 3.7 Nextel Communications Cl A (Cellular telecommunications) 3.7 Exxon Mobil (Energy) 3.5 General Electric (Multi-industry) 2.7 NTL (Cable) 2.5 PepsiCo (Beverages & tobacco) 2.3 Colgate-Palmolive (Household products) 2.3 Bank of America (Banks and savings & loans) 2.0 Wal-Mart Stores (Retail -- general) 2.0 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 -- 2005 SEMIANNUAL REPORT Performance Summary (bar chart) PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2005 (bar 1) (bar 2) (bar 3) +7.70% +8.92% +7.32% (bar 1) AXP Large Cap Equity Fund Class A (excluding sales charge) (bar 2) Russell 1000(R) Index(1) (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index(2) The performance information shown represents 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 (800) 862-7919 or visiting www.americanexpress.com/funds. (1) The Russell 1000(R) Index, an unmanaged index, measures the performance of the 1,000 largest companies in the Russell 3000(R) Index, a broad measure of equity market performance. (2) The Lipper Large-Cap Core Funds Index includes the 30 largest large cap core funds tracked by Lipper Inc. The index's returns include net reinvested dividends. 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 other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes.
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class I Class Y (Inception dates) (3/28/02) (3/28/02) (3/28/02) (3/4/04) (3/28/02) After After NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) at Jan. 31, 2005 6 months* +7.70% +1.51% +7.16% +3.16% +7.14% +6.14% +7.95% +7.58% 1 year +3.22% -2.72% +2.41% -1.57% +2.40% +2.40% N/A +3.33% Since inception +1.62% -0.47% +0.78% -0.24% +0.85% +0.85% +1.85%* +1.75% at Dec. 31, 2004 6 months* +4.06% -1.92% +3.48% -1.52% +3.47% +2.47% +4.32% +3.96% 1 year +5.52% -0.55% +4.73% +0.73% +4.72% +4.72% N/A +5.63% Since inception +2.19% +0.02% +1.32% -0.09% +1.40% +1.40% +3.27%* +2.32%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to eligible investors only, currently limited to AXP Portfolio Builder Series funds, six affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. -------------------------------------------------------------------------------- 4 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Performance Summary AXP Large Cap Equity Fund's Class A shares advanced 7.70%, excluding sales charge, for the six months ended Jan. 31, 2005. The Fund lagged its benchmark, the Russell 1000(R) Index (Russell Index), which advanced 8.92%, but outperformed its peers as represented by the Lipper Large-Cap Core Funds Index, which gained 7.32% over the same time frame. On Oct. 1, 2004, Bob Ewing and Nick Thakore began managing the Fund on a temporary basis for Doug Chase, the Fund's portfolio manager, who took a leave of absence. Mr. Chase subsequently decided to leave American Express and on Jan. 3, 2005, Mr. Ewing and Mr. Thakore were named portfolio managers of the Fund. Together, they manage the Fund in conjunction with a team of equity analysts. Below, Mr. Ewing and Mr. Thakore discuss the Fund's results for the first half of fiscal year 2005. Q: What factors significantly affected performance? A: The portfolio's sector allocations were primarily responsible for its underperformance compared to the Russell Index for the fiscal period. Strong stock selection, however, helped to mitigate this negative impact. Our stock selections in the telecommunications services sector were particularly effective. Among our telecommunications holdings, Western Wireless was a significant individual contributor. The stock benefited from the announcement of Alltel's acquisition plans. The Fund also benefited from stock selection in the health care sector. Within health care, the Fund had lower-than-Russell Index weightings in pharmaceutical stocks and a focus on medical device makers and health services firms. The health services industry provided strong results during the fiscal period. Among our health care holdings, Medco Health Solutions, a pharmacy benefits management company, was a significant positive contributor. In the technology sector, cell phone maker Nokia was also a leading contributor to relative return. Stock selection in the industrials sector detracted from relative return. Based on our expectations for the economy and for earnings growth in the industrial sector, we have focused on industrial stocks that are likely to be less sensitive to changes in economic activity. However, during the six-month period, economically sensitive industrial stocks were the strongest performers. A smaller-than-Russell Index position in technology was the only sector decision that added value during the six-month period, as technology stocks suffered from over abundant inventories and concerns about the sustainability of -------------------------------------------------------------------------------- 5 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> The portfolio's sector allocations were primarily responsible for its underperformance compared to the Russell Index for the fiscal period. Strong stock selection, however, helped to mitigate this negative impact. (end callout quote) increased corporate spending. The Fund's cash position was the largest detractor, as is often the case during a rising stock market. Nonetheless, maintaining a cash position is essential since it enables us to take advantage of emerging opportunities and respond to other liquidity needs. A larger-than-Russell Index position in telecommunications services also detracted from relative performance. Individual holdings that detracted most from relative return were generally strong performing stocks where the Fund's weightings were too small or where the Fund had no exposure. For example, we had only a small position in Motorola because we had been concerned about the company's array of products and whether or not it could compete in the fragmented cell phone industry. However, the stock performed well during the period and we have been pleased by the growing popularity of Motorola's RAZR phone. We have since added to the portfolio's holdings in Motorola. Similarly, we did not own Home Depot during the period. We consider the stock to be a little more expensive than normal and believe its current valuation implies a continuation of domestic growth that we are not sure will unfold. We also did not own Apple Computer during the fiscal period, and this hurt our results. In our view, Apple has done an exceptional job with its current product cycle, but the stock was quite expensive. We believed there was a substantial amount of good news already reflected in Apple's price, which did not leave any margin for error in the company's future earnings and product news. Q: What changes did you make to the portfolio during the period? A: Since Oct. 1, 2004, when we began to manage the Fund, we have added more stocks to the portfolio and made some positioning changes. Previously, the Fund's sector weightings were sometimes substantially different from those of the -------------------------------------------------------------------------------- 6 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> We remain careful in the current environment given prevailing market risks and the reality that this is the fourth year of the U.S. economic recovery. (end callout quote) Russell Index. We have aligned the Fund's sector weightings more closely with those of the Russell Index. An example is our reduction of the Fund's health care weighting. We also slightly lowered the Fund's average market capitalization by trimming our holdings of very large capitalization stocks. In terms of sector allocations, we added most significantly to telecommunications services, financials and utilities. Conversely, we made the most substantial reductions in health care, consumer discretionary and consumer staples. The outcome of this repositioning is that the Fund is now more focused on adding value through our choice of individual stocks rather than through top down decisions about which sectors might perform better or worse than the Russell Index. There have also been some changes to individual stock positions over the course of the six month period. The three largest purchases were wireless telecommunications company Nextel, cell phone maker Nokia, and U.K. cable company NTL. We are optimistic about the prospects for the combined Nextel/Sprint entity in 2005. We are impressed by the great growth rate, attractive valuation and the potential power created by merging Nextel and Sprint. Since Nokia declined on earnings difficulties last year, the company has begun to deliver strong earnings and its stock price has rebounded. We believe NTL remains a promising story for 2005, as the stock appears cheap with solid growth prospects. We also anticipate that NTL may join with another U.K. cable company, which could spur further appreciation. -------------------------------------------------------------------------------- 7 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Questions & Answers Pharmaceutical firm Pfizer had been a large position for the Fund and we significantly reduced that, although the stock remained a major holding at the end of the period. We also eliminated AmerisourceBergen, a pharmaceutical services firm, from the portfolio. This had been one of the Fund's biggest positions and we were concerned with how large the position was. AmerisourceBergen stock had a very strong month in November, which gave us an opportunity to sell our holdings at a strong profit. We consider the Fund's current portfolio to be representative of the best ideas generated by our team. Even with the changes we made to the Fund during the six months ended Jan. 31, 2005, the Fund's portfolio turnover rate was only 56%, less than the 99% turnover in the prior fiscal year. Q: How will you manage the Fund in the coming months? A: Although this Fund essentially uses a fundamentally driven, bottom-up strategy, we are cognizant of market trends and potential risks. We remain careful in the current environment given prevailing market risks and the reality that this is the fourth year of the U.S. economic recovery. In general, this outlook leads us to incorporate certain themes into our management of the Fund. For instance, we have emphasized higher quality stocks over lower quality stocks that have high amounts of leverage on their balance sheets or exhibit volatile earnings. We have also begun to extend our time horizon, striving to anticipate which stocks are best positioned for the next market and economic phases. Specifically, we see potential opportunities in telecommunications, particularly providers of wireless services. There is an attractive growth dimension in this sector, with potential for additional mergers, yet these stocks are still inexpensive in our view. Based on stock-by-stock assessments, we are also still finding health care stocks with attractive fundamentals. At the end of the period, we were substantially underweighted in the consumer discretionary sector (relative to the Russell Index), based on our negative view of retail and some cable stocks. This stems from our cautious view of consumer activity in 2005. Consumers have been aggressive spenders for some years and we think this spending fervor will have to decelerate at some point. -------------------------------------------------------------------------------- 8 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Investments in Securities AXP Large Cap Equity Fund Jan. 31, 2005 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (100.4%) Issuer Shares Value(a) Aerospace & defense (1.6%) Empresa Brasileira de Aeronautica ADR 334,314(c) $10,647,901 Lockheed Martin 122,860 7,102,537 Northrop Grumman 210,028 10,896,252 Total 28,646,690 Banks and savings & loans (6.6%) Bank of America 789,400 36,604,478 Commerce Bancorp 162,700(d) 9,361,758 First Marblehead 23,350(b) 1,502,106 HDFC Bank ADR 87,050(c) 3,873,725 Investors Financial Services 309,500 15,601,895 State Street 38,300 1,716,223 US Bancorp 347,100 10,430,355 Wachovia 268,000 14,699,800 Washington Mutual 108,300 4,369,905 Wells Fargo & Co 281,800 17,274,340 Total 115,434,585 Beverages & tobacco (3.5%) Altria Group 220,300 14,061,749 Coca-Cola 45,550 1,889,870 Coca-Cola Enterprises 205,300 4,506,335 PepsiCo 772,124 41,463,058 Total 61,921,012 Broker dealers (2.2%) Franklin Resources 71,800 4,872,348 JPMorgan Chase & Co 648,700 24,215,971 Morgan Stanley 174,500 9,765,020 Total 38,853,339 Cable (3.1%) NTL 661,569(b) 45,006,539 Telewest Global 574,100(b,c) 9,673,585 Total 54,680,124 Cellular telecommunications (5.1%) China Unicom 4,778,000(c) 3,889,882 Nextel Communications Cl A 2,311,300(b) 66,311,196 Telesystem Intl Wireless 391,700(b,c) 5,526,887 Vodafone Group ADR 314,400(c) 8,168,112 Western Wireless Cl A 140,025(b) 5,290,145 Total 89,186,222 Chemicals (1.0%) Dow Chemical 352,545 17,521,487 Computer hardware (3.1%) Cisco Systems 1,004,100(b) 18,113,964 Dell 618,000(b) 25,807,680 EMC 665,500(b) 8,718,050 Gateway 38,750(b) 183,288 Sun Microsystems 338,300(b) 1,474,988 Total 54,297,970 Computer software & services (3.8%) Affiliated Computer Services Cl A 190,200(b) 10,306,938 Business Objects ADR 25,400(b,c,d) 619,506 Citrix Systems 168,700(b) 3,618,615 Juniper Networks 33,600(b) 844,368 Macromedia 115,800(b) 3,964,992 Microsoft 611,400 16,067,592 Oracle 1,599,200(b) 22,020,984 Paychex 168,200 5,128,418 Symantec 139,100(b) 3,247,985 Total 65,819,398 Electronics (3.5%) Analog Devices 49,100 1,762,199 ASML Holding 181,200(b,c) 2,977,116 Broadcom Cl A 279,400(b) 8,893,302 Freescale Semiconductor Cl B 96,585(b) 1,687,340 Intel 741,000 16,635,450 Linear Technology 91,700 3,460,758 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 9 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Electronics (cont.) Maxim Integrated Products 86,600 $3,378,266 Micron Technology 705,800(b) 7,347,378 Texas Instruments 582,100 13,510,541 Xilinx 56,800 1,657,992 Total 61,310,342 Energy (6.0%) ChevronTexaco 522,600 28,429,440 ConocoPhillips 140,573 13,043,769 Exxon Mobil 1,229,746 63,454,893 Total 104,928,102 Finance companies (3.8%) Citigroup 1,363,308 66,870,257 Financial services (3.2%) Capital One Financial 160,000 12,524,800 Countrywide Financial 236,596 8,754,052 Fannie Mae 542,097 35,008,624 PHH 1(b) 17 Total 56,287,493 Food (0.3%) Kellogg 77,700 3,468,528 Sara Lee 112,300 2,636,804 Total 6,105,332 Health care products (10.7%) Baxter Intl 244,200 8,244,192 Biogen Idec 199,000(b) 12,927,040 Bristol-Myers Squibb 515,600 12,085,664 Elan ADR 590,100(b,c,d) 15,891,393 Genentech 275,124(b) 13,126,166 Guidant 117,900 8,546,571 Johnson & Johnson 273,650 17,705,155 Medco Health Solutions 701,900(b) 29,879,883 Medtronic 81,100 4,256,939 Merck & Co 507,200 14,226,960 Momenta Pharmaceuticals 138,850(b) 981,670 Novartis ADR 599,850(c) 28,720,818 OSI Pharmaceuticals 61,600(b) 4,010,160 Pfizer 749,300 18,103,088 Total 188,705,699 Health care services (4.9%) Aetna 85,900 10,913,595 Cardinal Health 59,900 3,373,568 Caremark Rx 353,600(b) 13,825,760 Fisher Scientific Intl 136,000(b) 8,588,400 HCA 522,600 23,266,152 HealthSouth 601,100(b) 3,516,435 Hospira 211,000(b) 6,095,790 Lincare Holdings 22,600(b) 937,900 Magellan Health Services 204,900(b) 7,609,986 Tenet Healthcare 788,900(b) 7,833,777 Total 85,961,363 Household products (5.2%) Avon Products 231,100 9,757,042 Colgate-Palmolive 782,400 41,107,296 Gillette 358,500 18,183,120 Kimberly-Clark 54,400 3,563,744 Procter & Gamble 305,808 16,278,160 Rayovac 43,200(b) 1,623,024 Total 90,512,386 Insurance (4.6%) ACE 457,347(c) 19,848,860 Allstate 141,600 7,142,304 American Intl Group 473,594 31,394,546 Chubb 228,900 17,048,472 Prudential Financial 91,500 4,932,765 Total 80,366,947 Investment companies (1.9%) iShares Dow Jones US Utilities Sector Index Fund 69,900 4,870,632 Utilities Select Sector SPDR Fund 1,006,200(d) 28,616,328 Total 33,486,960 Leisure time & entertainment (6.9%) Blockbuster Cl A 1 9 Blockbuster Cl B 1 9 Cendant 2,373,235 55,889,684 Cendant 2,373,235(b) 53,160,464 Viacom Cl B 366,618 13,689,516 Total 122,739,682 Lodging & gaming (0.2%) GTECH Holdings 175,400 4,100,852 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 10 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Machinery (0.9%) Caterpillar 107,156 $9,547,600 Ingersoll-Rand Cl A 72,300(c) 5,377,674 Total 14,925,274 Media (0.6%) Walt Disney 344,500 9,863,035 Metals (0.3%) Phelps Dodge 52,900 5,094,270 Multi-industry (3.6%) General Electric 1,358,156 49,070,176 Tyco Intl 384,600(c) 13,899,444 Total 62,969,620 Paper & packaging (0.4%) Weyerhaeuser 98,600 6,152,640 Precious metals (0.3%) Freeport-McMoRan Copper & Gold Cl B 140,041 5,154,909 Restaurants (0.2%) Domino's Pizza 205,700 3,431,076 Retail -- drugstores (0.4%) CVS 149,500 6,929,325 Retail -- general (3.7%) Dollar General 493,000 9,963,530 Home Depot 110,300 4,550,978 Lowe's Companies 78,500 4,473,715 Target 201,700 10,240,309 Wal-Mart Stores 696,300 36,486,120 Total 65,714,652 Telecom equipment & services (4.4%) Hutchison Telecommunications Intl ADR 621,700(b,c) 8,330,780 Indonesian Satellite 3,488,000(c) 2,169,585 Motorola 1,416,100 22,289,414 Nextel Partners Cl A 538,600(b) 10,712,754 Nokia ADR 2,201,400(c) 33,637,392 Total 77,139,925 Utilities -- electric (2.9%) American Electric Power 107,100 3,775,275 Entergy 206,600 14,362,832 Exelon 226,400 10,018,200 FPL Group 50,600 3,877,984 PPL 139,500 7,533,000 Southern 330,600 11,164,362 Total 50,731,653 Utilities -- telephone (1.5%) Citizens Communications 304,600 4,109,054 Sprint 917,300 21,859,259 Total 25,968,313 Total common stocks (Cost: $1,648,643,217) $1,761,810,934 Short-term securities (1.9%)(e) Issuer Effective Amount Value(a) yield payable at maturity U.S. government agency (1.6%) Federal Natl Mtge Assn Disc Nts 02-16-05 2.44% $20,000,000 $19,978,311 03-17-05 2.33 7,500,000 7,478,250 Total 27,456,561 Commercial paper (0.3%) Banque Nationale de Paris North America 02-01-05 2.49 6,000,000 5,999,585 Total short-term securities (Cost: $33,457,758) $33,456,146 Total investments in securities (Cost: $1,682,100,975)(f) $1,795,267,080 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 11 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At Jan. 31, 2005, the value of foreign securities represented 9.9% of net assets. (d) At Jan. 31, 2005, security was partially or fully on loan. See Note 5 to the financial statements. (e) Cash collateral received from security lending activity is invested in short-term securities and represents 0.8% of net assets. See Note 5 to the financial statements. 1.1% of net assets is the Fund's cash equivalent position. (f) At Jan. 31, 2005, the cost of securities for federal income tax purposes was approximately $1,682,101,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $153,039,000 Unrealized depreciation (39,873,000) ----------- Net unrealized appreciation $113,166,000 ------------ 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 -- 2005 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Large Cap Equity Fund Jan. 31, 2005 (Unaudited) Assets Investments in securities, at value (Note 1)* (identified cost $1,682,100,975) $ 1,795,267,080 Capital shares receivable 78,714 Dividends and accrued interest receivable 1,347,214 Receivable for investment securities sold 33,432,217 ---------- Total assets 1,830,125,225 ------------- Liabilities Disbursements in excess of cash on demand deposit 492,074 Capital shares payable 302,945 Payable for investment securities purchased 59,202,947 Payable upon return of securities loaned (Note 5) 14,527,500 Accrued investment management services fee 84,061 Accrued distribution fee 69,182 Accrued service fee 8 Accrued transfer agency fee 29,895 Accrued administrative services fee 6,832 Other accrued expenses 270,521 ------- Total liabilities 74,985,965 ---------- Net assets applicable to outstanding capital stock $ 1,755,139,260 =============== Represented by Capital stock -- $.01 par value (Note 1) $ 3,543,742 Additional paid-in capital 2,715,148,060 Excess of distributions over net investment income (821,948) Accumulated net realized gain (loss) (Note 8) (1,075,896,699) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 113,166,105 ----------- Total -- representing net assets applicable to outstanding capital stock $ 1,755,139,260 =============== Net assets applicable to outstanding shares: Class A $ 1,177,340,217 Class B $ 545,943,618 Class C $ 10,554,439 Class I $ 20,290,335 Class Y $ 1,010,651 Net asset value per share of outstanding capital stock: Class A shares 236,421,584 $ 4.98 Class B shares 111,550,654 $ 4.89 Class C shares 2,152,618 $ 4.90 Class I shares 4,047,126 $ 5.01 Class Y shares 202,210 $ 5.00 ------- --------------- * Including securities on loan, at value (Note 5) $ 14,264,225 ---------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Statement of operations AXP Large Cap Equity Fund Six months ended Jan. 31, 2005 (Unaudited) Investment income Income: Dividends $ 16,863,397 Interest 339,234 Fee income from securities lending (Note 5) 3,066 Less foreign taxes withheld (134,421) -------- Total income 17,071,276 ---------- Expenses (Note 2): Investment management services fee 5,107,141 Distribution fee Class A 1,539,654 Class B 2,832,718 Class C 53,985 Transfer agency fee 1,922,698 Incremental transfer agency fee Class A 138,519 Class B 117,755 Class C 2,278 Service fee -- Class Y 3,390 Administrative services fees and expenses 463,469 Compensation of board members 8,077 Custodian fees 177,610 Printing and postage 227,900 Registration fees 138,895 Audit fees 11,500 Other 31,503 ------ Total expenses 12,777,092 Earnings credits on cash balances (Note 2) (22,698) ------- Total net expenses 12,754,394 ---------- Investment income (loss) -- net 4,316,882 --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (12,547,530) Foreign currency transactions (2,212) ------ Net realized gain (loss) on investments (12,549,742) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 143,989,531 ----------- Net gain (loss) on investments and foreign currencies 131,439,789 ----------- Net increase (decrease) in net assets resulting from operations $135,756,671 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Statements of changes in net assets AXP Large Cap Equity Fund Jan. 31, 2005 July 31, 2004 Six months ended Year ended (Unaudited) Operations and distributions Investment income (loss) -- net $ 4,316,882 $ 401,719 Net realized gain (loss) on investments (12,549,742) 12,441,166 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 143,989,531 (66,709,001) ----------- ----------- Net increase (decrease) in net assets resulting from operations 135,756,671 (53,866,116) ----------- ----------- Distributions to shareholders from: Net investment income Class A (5,100,572) (190,447) Class B (140) -- Class C (4) -- Class I (205,016) -- Class Y (42,646) (99) Net realized gain Class A (1,579,848) (10,249,150) Class B (746,323) (4,251,044) Class C (14,219) (267,748) Class I (38,374) (411,555) Class Y (10,290) (29,079) ------- ------- Total distributions (7,737,432) (15,399,122) ---------- -----------
-------------------------------------------------------------------------------- 15 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Statements of changes in net assets (continued) AXP Large Cap Equity Fund Jan. 31, 2005 July 31, 2004 Six months ended Year ended (Unaudited) Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) $ 44,174,407 $ 303,658,868 Class B shares 19,716,181 83,846,079 Class C shares 1,025,125 5,258,048 Class I shares 14,607,731 20,944,518 Class Y shares 486,812 8,142,956 Fund merger (Note 7) 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 6,566,031 10,345,503 Class B shares 737,501 4,192,636 Class C shares 13,860 257,935 Class I shares 243,352 411,300 Class Y shares 52,860 28,728 Payments for redemptions Class A shares (206,656,519) (50,748,072) Class B shares (Note 2) (85,623,341) (115,514,441) Class C shares (Note 2) (2,150,315) (911,625) Class I shares (10,805,090) (5,803,591) Class Y shares (7,601,093) (413,179) ---------- -------- Increase (decrease) in net assets from capital share transactions (225,212,498) 1,800,675,713 ------------ ------------- Total increase (decrease) in net assets (97,193,259) 1,731,410,475 Net assets at beginning of period 1,852,332,519 120,922,044 ------------- ----------- Net assets at end of period $1,755,139,260 $1,852,332,519 ============== ============== Undistributed (excess of distributions over) net investment income $ (821,948) $ 209,548 -------------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 16 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Notes to Financial Statements AXP Large Cap Equity Fund (Unaudited as to Jan. 31, 2005) 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. 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. At Jan. 31, 2005, American Express Financial Corporation (AEFC) and the AXP Portfolio Builder Series funds owned 100% of Class I shares, which represents 1.16% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees 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 -- 2005 SEMIANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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 net asset value (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 -- 2005 SEMIANNUAL 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. Guarantees and indemnifications Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. -------------------------------------------------------------------------------- 19 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 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 that declines from 0.60% to 0.48% annually as the Fund's assets increase. 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. In certain circumstances, the board may approve a change in the 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 $330,081 for the six months ended Jan. 31, 2005. 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 that declines from 0.05% to 0.02% annually as the Fund's assets increase. 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. -------------------------------------------------------------------------------- 20 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT 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 pursuant to Rule 12b-1, 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 $764,629 for Class A, $253,277 for Class B and $1,142 for Class C for the six months ended Jan. 31, 2005. During the six months ended Jan. 31, 2005, the Fund's custodian and transfer agency fees were reduced by $22,698 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 $999,995,078 and $1,196,547,830, respectively, for the six months ended Jan. 31, 2005. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $10,214 for the six months ended Jan. 31, 2005. -------------------------------------------------------------------------------- 21 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Jan. 31, 2005 Class A Class B Class C Class I Class Y Sold 9,315,147 4,229,922 219,644 3,058,975 101,078 Issued for reinvested distributions 1,331,849 152,062 2,852 49,063 10,678 Redeemed (43,069,676) (18,196,891) (456,806) (2,155,191) (1,519,094) ----------- ----------- -------- ---------- ---------- Net increase (decrease) (32,422,680) (13,814,907) (234,310) 952,847 (1,407,338) ----------- ----------- -------- ------- ---------- 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. 5. LENDING OF PORTFOLIO SECURITIES At Jan. 31, 2005, securities valued at $14,264,225 were on loan to brokers. For collateral, the Fund received $14,527,500 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 $3,066 for the six months ended Jan. 31, 2005. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 6. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by The Bank of New York, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The agreement went into effect Sept. 21, 2004. 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 higher of the Federal Funds Effective Rate plus 0.50% or the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with Deutsche Bank. The Fund had no borrowings outstanding during the six months ended Jan. 31, 2005. -------------------------------------------------------------------------------- 22 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT 7. 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, accumulated net realized loss.
Total Capital Unrealized Accumulated net 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)
8. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had 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 7). 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. -------------------------------------------------------------------------------- 23 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT 9. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
Class A Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003 2002(b) Net asset value, beginning of period $4.64 $4.53 $4.11 $5.00 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .02 .01 .01 -- Net gains (losses) (both realized and unrealized) .35 .32 .41 (.89) ----- ----- ----- ----- Total from investment operations .37 .33 .42 (.89) ----- ----- ----- ----- Less distributions: Dividends from net investment income (.02) -- -- -- Distributions from realized gains (.01) (.22) -- -- ----- ----- ----- ----- Total distributions (.03) (.22) -- -- ----- ----- ----- ----- Net asset value, end of period $4.98 $4.64 $4.53 $4.11 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $1,177 $1,248 $83 $11 Ratio of expenses to average daily net assets(c) 1.15%(d) 1.20%(e) 1.25%(e) 1.25%(d),(e) Ratio of net investment income (loss) to average daily net assets .70%(d) .36% .24% (.11%)(d) Portfolio turnover rate (excluding short-term securities) 56% 99% 135% 88% Total return(f) 7.70%(g) 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. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 24 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003 2002(b) Net asset value, beginning of period $4.56 $4.48 $4.10 $5.00 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) -- (.01) (.01) (.01) Net gains (losses) (both realized and unrealized) .34 .31 .39 (.89) ----- ----- ----- ----- Total from investment operations .34 .30 .38 (.90) ----- ----- ----- ----- Less distributions: Distributions from realized gains (.01) (.22) -- -- ----- ----- ----- ----- Net asset value, end of period $4.89 $4.56 $4.48 $4.10 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $546 $572 $36 $5 Ratio of expenses to average daily net assets(c) 1.92%(d) 1.95%(e) 2.01%(e) 2.01%(d),(e) Ratio of net investment income (loss) to average daily net assets (.07%)(d) (.46%) (.52%) (.86%)(d) Portfolio turnover rate (excluding short-term securities) 56% 99% 135% 88% Total return(f) 7.16%(g) 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. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 25 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003 2002(b) Net asset value, beginning of period $4.57 $4.49 $4.10 $5.00 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) -- (.01) (.01) (.01) Net gains (losses) (both realized and unrealized) .34 .31 .40 (.89) ----- ----- ----- ----- Total from investment operations .34 .30 .39 (.90) ----- ----- ----- ----- Less distributions: Distributions from realized gains (.01) (.22) -- -- ----- ----- ----- ----- Net asset value, end of period $4.90 $4.57 $4.49 $4.10 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $11 $11 $2 $-- Ratio of expenses to average daily net assets(c) 1.92%(d) 1.98%(e) 2.01%(e) 2.01%(d),(e) Ratio of net investment income (loss) to average daily net assets (.07%)(d) (.43%) (.53%) (.92%)(d) Portfolio turnover rate (excluding short-term securities) 56% 99% 135% 88% Total return(f) 7.14%(g) 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. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 26 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Class I Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004(b) Net asset value, beginning of period $4.67 $5.08 ----- ----- Income from investment operations: Net investment income (loss) .03 -- Net gains (losses) (both realized and unrealized) .35 (.28) ----- ----- Total from investment operations .38 (.28) ----- ----- Less distributions: Dividends from net investment income (.03) -- Distributions from realized gains (.01) (.13) ----- ----- Total distributions (.04) (.13) ----- ----- Net asset value, end of period $5.01 $4.67 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $20 $14 Ratio of expenses to average daily net assets(c) .67%(d) .71%(d),(e) Ratio of net investment income (loss) to average daily net assets 1.23%(d) .74%(d) Portfolio turnover rate (excluding short-term securities) 56% 99% Total return(f) 7.95%(g) (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. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 27 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003 2002(b) Net asset value, beginning of period $4.66 $4.54 $4.11 $5.00 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .02 .01 .01 -- Net gains (losses) (both realized and unrealized) .35 .34 .42 (.89) ----- ----- ----- ----- Total from investment operations .37 .35 .43 (.89) ----- ----- ----- ----- Less distributions: Dividends from net investment income (.02) (.01) -- -- Distributions from realized gains (.01) (.22) -- -- ----- ----- ----- ----- Total distributions (.03) (.23) -- -- ----- ----- ----- ----- Net asset value, end of period $5.00 $4.66 $4.54 $4.11 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $1 $8 $-- $-- Ratio of expenses to average daily net assets(c) .96%(d) 1.00%(e) 1.07%(e) 1.07%(d),(e) Ratio of net investment income (loss) to average daily net assets 1.01%(d) .50% .45% .09%(d) Portfolio turnover rate (excluding short-term securities) 56% 99% 135% 88% Total return(f) 7.58%(g) 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. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 28 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL 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 Jan. 31, 2005. Actual Expenses The first line of the table 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 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. -------------------------------------------------------------------------------- 29 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Beginning Ending Expenses account value account value paid during Annualized Aug. 1, 2004 Jan. 31, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,077.00 $6.05 1.15% Hypothetical (5% return before expenses) $1,000 $1,019.51 $5.89 1.15% Class B Actual(b) $1,000 $1,071.60 $10.08 1.92% Hypothetical (5% return before expenses) $1,000 $1,015.61 $9.81 1.92% Class C Actual(b) $1,000 $1,071.40 $10.08 1.92% Hypothetical (5% return before expenses) $1,000 $1,015.61 $9.81 1.92% Class I Actual(b) $1,000 $1,079.50 $3.53 .67% Hypothetical (5% return before expenses) $1,000 $1,021.95 $3.43 .67% Class Y Actual(b) $1,000 $1,075.80 $5.05 .96% Hypothetical (5% return before expenses) $1,000 $1,020.48 $4.92 .96%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 185/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Jan. 31, 2005: +7.70% for Class A, +7.16% for Class B, +7.14% for Class C, +7.95% for Class I and +7.58% for Class Y. -------------------------------------------------------------------------------- 30 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website americanexpress.com/funds; or by searching the website 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 is available at http://www.sec.gov. -------------------------------------------------------------------------------- 31 -- AXP LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Large Cap Value Fund Semiannual Report for the Period Ended Jan. 31, 2005 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 Performance Summary 4 Questions & Answers with Portfolio Management 5 Investments in Securities 9 Financial Statements 13 Notes to Financial Statements 16 Fund Expenses Example 27 Proxy Voting 29 CORPORATE REORGANIZATION On Feb. 1, 2005, American Express Company, the parent company of the Fund's investment manager, American Express Financial Corporation (AEFC), announced plans to pursue a spin-off of 100% of the common stock of AEFC to shareholders of American Express Company. The transaction, expected to be completed in the third quarter of 2005, is subject to certain regulatory and other approvals, as well as final approval by the board of directors of American Express Company. Upon completion of the transaction AEFC will be a publicly traded company separate from American Express Company. The current agreements between the Fund and AEFC and its affiliates will remain in place. No changes in operations or personnel, including the portfolio manager or managers of the Fund, are anticipated. (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. -------------------------------------------------------------------------------- 2 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Fund Snapshot AT JAN. 31, 2005 PORTFOLIO MANAGER Portfolio manager Since Years in industry Bob Ewing, CFA 6/02 17 FUND OBJECTIVE The Fund seeks to provide shareholders with long-term growth of capital. Inception dates by class A: 6/27/02 B: 6/27/02 C: 6/27/02 I: 3/4/04 Y: 6/27/02 Ticker symbols by class A: ALVAX B: ALVBX C: -- I: ALCIX Y: -- Total net assets $144.0 million Number of holdings 174 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 31.2% Consumer discretionary 12.3% Energy 11.5% Consumer staples 7.5% Information technology 7.0% Health care 6.4% Industrials 6.0% Materials 5.9% Utilities 4.2% Telecommunication services 3.7% Short-term securities 2.6% Telecommunications 1.7% TOP TEN HOLDINGS Percentage of portfolio assets Citigroup (Finance companies) 3.9% Bank of America (Banks and savings & loans) 3.3 Exxon Mobil (Energy) 2.8 JPMorgan Chase & Co (Broker dealers) 2.4 ConocoPhillips (Energy) 2.2 ChevronTexaco (Energy) 1.8 American Intl Group (Insurance) 1.8 Altria Group (Beverages & tobacco) 1.8 Cendant (Leisure time & entertainment) 1.5 Morgan Stanley (Broker dealers) 1.5 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 -- 2005 SEMIANNUAL REPORT Performance Summary PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2005 (bar 1) (bar 2) (bar 3) +9.40% +11.67% +8.74% (bar 1) AXP Large Cap Value Fund Class A (excluding sales charge) (bar 2) Russell 1000 Value Index(1) (unmanaged) (bar 3) Lipper Large-Cap Value Funds Index(2) The performance information shown represents 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 (800) 862-7919 or visiting www.americanexpress.com/funds. (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 includes the 30 largest large-cap value funds tracked by Lipper Inc. The index's returns include net reinvested dividends. 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 other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes.
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class I Class Y (Inception dates) (6/27/02) (6/27/02) (6/27/02) (3/4/04) (6/27/02) After After NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) at Jan. 31, 2005 6 months* +9.40% +3.12% +8.93% +4.93% +8.89% +7.89% +9.67% +9.56% 1 year +7.60% +1.41% +6.91% +2.91% +6.87% +6.87% N/A +7.76% Since inception +9.19% +6.73% +8.43% +7.41% +8.43% +8.43% +5.35%* +9.45% at Dec. 31. 2004 6 months* +8.73% +2.47% +8.24% +3.24% +8.40% +7.40% +9.19% +8.89% 1 year +11.37% +4.96% +10.48% +6.48% +10.44% +10.44% N/A +11.54% Since inception +10.37% +7.80% +9.51% +8.11% +9.51% +9.51% +7.43%* +10.57%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to eligible investors only, currently limited to AXP Portfolio Builder Series funds, six affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. -------------------------------------------------------------------------------- 4 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT AXP Large Cap Value Fund's Class A shares advanced 9.40%, excluding sales charge, for the six months ended Jan. 31, 2005. The Fund outperformed its peer group, as represented by the Lipper Large-Cap Value Funds Index, which advanced 8.74% for the period. The Fund's benchmark, the Russell 1000(R) Value Index (Russell Index), gained 11.67%. Below, Portfolio Manager Bob Ewing discusses the Fund's positioning and results for the first half of the 2005 fiscal year. At Jan. 31, 2005, approximately 26.11% of the Fund's shares were owned in aggregate by AXP Portfolio Builder Series funds, a group of six asset allocation funds managed by American Express Financial Corporation (AEFC). As a result, it is possible AXP Large Cap Value Fund may experience relatively large purchases or redemptions from AXP Portfolio Builder Funds (see page 15, Class I capital share transactions for related activity during the most recent fiscal period). AEFC seeks to minimize the impact of these transactions, which may include structuring them over a reasonable period of time. AXP Large Cap Value Fund may experience increased expenses as it buys and sells securities to satisfy subscriptions and redemptions in AXP Portfolio Builder Series funds. For more information on the Fund's expenses, see the discussions beginning on pages 22 and 27. Q: What factors had a significant effect on performance? A: At the start of our fiscal year, U.S. equities faced a period of lackluster performance as high oil prices, election concerns, global politics and economic worries plagued market sentiment. However, as uncertainties such as the presidential election were resolved and oil prices moderated, investors began to refocus on the positive U.S. economic environment. Results in the latter part of the past six months were quite strong. Given the substantial rise in the overall equity market during the six month period, the Fund's relatively conservative positioning created some challenges. Nonetheless, we are pleased the Fund was able to outpace its peers. Both sector allocations and stock selection detracted from performance. The Fund's cash position had the most significant negative effect compared to the Russell Index, which has no cash. Such a result is typical for many mutual funds in a rising equity market. However, the challenge was somewhat greater for the Fund as its assets have continued to grow at a steady pace. We worked diligently to invest excess cash during the period. -------------------------------------------------------------------------------- 5 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> In the industrial sector, we de-emphasized companies with high financial leverage and greater sensitivity to economic activity. (end callout quote) A larger-than-Russell Index position in health care also detracted from relative return, as did an underweight in the strong performing utilities sector. Stock selection was favorable in some sectors, while detrimental in others. Stock selection among consumer staples stocks was hurt by weak performance from specific holdings such as Colgate-Palmolive and Coca-Cola, stocks that would ordinarily be considered less volatile. In the industrial sector, we de-emphasized companies with high financial leverage and greater sensitivity to economic activity because we believe they are too expensive and likely to show decelerating growth. Unfortunately, those industrial companies performed best during the period. In terms of individual contributors, the Fund had a higher-than-Russell Index position in Lyondell Chemical, which was the most significant positive contributor during the six-month period. The company has been the beneficiary of an improving environment for chemical firms. A meaningful position in Disney also helped as investors became more comfortable with the performance of Disney's economically sensitive businesses. The Fund's positioning in oil company ConocoPhillips was advantageous, as was our positioning in cell phone maker Nokia. Individual detractors from relative performance included the portfolio's lower-than-Russell Index positions in General Electric and Exxon Mobil. Though we hold GE in the portfolio, it represents a very large percentage of the benchmark and we do not consider such a large position appropriate. GE stock performed well as investors became more confident in the durability of the strong economy. Exxon Mobil was also a strong performer and a large benchmark position. Though we were underweight in Exxon Mobil, we also held a basket of other oil stocks (including ConocoPhillips cited above as a top performer). Our positioning in Pfizer also detracted as the company continued to struggle along with most branded pharmaceutical companies. -------------------------------------------------------------------------------- 6 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> We have also sought to keep Fund volatility lower than that of the Russell Index, which we believe may position the Fund to perform well in a flat or down market. (end callout quote) Q: What changes did you make to the portfolio during the period? A: In general, we have been placing greater emphasis on more stable, higher quality companies, those that have more predictable profitability at this point in the economic cycle. We increased the Fund's technology and telecommunications services allocations during the past six months, while also adding to our consumer discretionary position. These areas have some degree of exposure to economic activity, but, in our view, they are generally cheaper than areas of the market with the greatest sensitivity to economic cycles. We reduced allocations to both industrials and health care stocks over the fiscal period, although the Fund's health care position remained larger than that of the Russell Index. We also reduced the Fund's holdings of financial stocks. The Fund's allocation to the consumer staples sector was larger than that of the Russell Index. This is somewhat unusual since value-oriented funds traditionally don't get a chance to own high quality consumer staples stocks. However, because the market has embraced stocks with economic sensitivity, less cyclical consumer staples stocks, such as Colgate-Palmolive and Procter & Gamble, are relatively inexpensive at this time. The portfolio has a lower-than-Russell Index weighting in the industrials group. Although our bottom-up analysis suggests that these companies have strong fundamentals, their high valuations seem to leave no room for error, so we believe it is prudent to be cautious in our exposure to the sector. Our utility holdings are also modest. We consider the utility sector to be expensive compared to where it traditionally trades. In addition, we believe interest rates are more likely to go up than down, which would be problematic for utility stocks. Nokia was our single largest purchase during the time period. After the cell phone maker declined on earnings difficulties last year, we eagerly bought the stock. Since then the company has begun to deliver strong earnings and as noted above, Nokia was one of the largest positive contributors during the period. -------------------------------------------------------------------------------- 7 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Questions & Answers We eliminated the Fund's holdings of well-known HMO Aetna. HMOs and, in particular, Aetna, have performed very well. As a result, the stock no longer suited the value orientation of the Fund. Q: How do you plan to manage the Fund in the coming months? A: Although this Fund essentially follows a fundamentally-driven, bottom-up equity strategy, we are cognizant of market trends and potential risks. We believe it is prudent to be careful in the current environment due to elevated risk and the reality that this is the fourth year of the economic recovery. In general, this outlook has led us to incorporate certain themes into our management. We have emphasized higher quality stocks over lower quality stocks that have high amounts of leverage or exhibit volatile earnings. We have tried to keep the average price/earnings ratio of our holdings below that of the Russell Index. We have focused on larger stocks because they tend to be more stable companies, but also because they have been more attractively valued than mid-cap and small-cap stocks. We have also sought to keep Fund volatility lower than that of the Russell Index, which we believe may position the Fund to perform well in a flat or down market. Although it is worth noting that value has outperformed growth for some time and may be susceptible to a market reversal, we consider it much more pertinent that small- and mid-cap stocks have outperformed large-caps for a prolonged period. We are finding more opportunities among large-cap stocks and, therefore, the Fund's average market capitalization has increased. At this stage of the cycle, we expect economic and corporate growth to decelerate a bit and deceleration tends to favor bigger, more stable companies. Q: What is a stock's price earnings (P/E) ratio? A: A P/E ratio is the price of a stock divided by its earnings per share. For a fund, it is the weighted average P/E of the stocks it holds. The price/earnings ratio, also known as the multiple, gives investors an idea of how much they are paying for a company's earnings power. -------------------------------------------------------------------------------- 8 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Investments in Securities AXP Large Cap Value Fund Jan. 31, 2005 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (98.2%) Issuer Shares Value(a) Aerospace & defense (3.3%) Boeing 5,555 $281,083 Empresa Brasileira de Aeronautica ADR 27,832(c) 886,449 General Dynamics 5,579 576,032 Goodrich 6,700 229,810 Lockheed Martin 11,310 653,831 Northrop Grumman 22,732 1,179,336 United Technologies 9,785 985,154 Total 4,791,695 Automotive & related (0.4%) General Motors 14,184 522,113 Banks and savings & loans (10.2%) Bank of America 104,820 4,860,503 Bank of New York 30,301 900,243 Commerce Bancorp 3,600 207,144 Investors Financial Services 16,275 820,423 PNC Financial Services Group 12,684 683,287 Regions Financial 10,837 346,784 Sovereign Bancorp 21,800 495,732 State Street 16,150 723,682 US Bancorp 45,150 1,356,758 Wachovia 26,838 1,472,064 Washington Mutual 20,701 835,285 Wells Fargo & Co 33,463 2,051,282 Total 14,753,187 Beverages & tobacco (3.3%) Altria Group 40,284 2,571,327 Coca-Cola 7,300 302,877 Coca-Cola Enterprises 17,950 394,003 PepsiCo 27,804 1,493,075 Total 4,761,282 Broker dealers (5.7%) Franklin Resources 5,893 399,899 JPMorgan Chase & Co 91,824 3,427,790 Legg Mason 1,900 146,737 Merrill Lynch & Co 34,619 2,079,563 Morgan Stanley 39,256 2,196,766 Total 8,250,755 Building materials & construction (0.7%) American Standard Companies 11,045(b) 442,242 Masco 16,984 625,011 Total 1,067,253 Cable (2.4%) Comcast Cl A 21,255(b) 684,198 Comcast Special Cl A 25,100(b) 793,411 EchoStar Communications Cl A 17,669 539,081 NTL 20,787(b) 1,414,140 Total 3,430,830 Cellular telecommunications (1.7%) China Unicom 186,000(c) 151,427 Nextel Communications Cl A 45,300(b) 1,299,657 Vodafone Group ADR 37,238(c) 967,443 Total 2,418,527 Chemicals (2.7%) Dow Chemical 43,484 2,161,155 Eastman Chemical 8,789 475,924 Lyondell Chemical 33,152 975,332 RPM Intl 16,700 294,421 Total 3,906,832 Computer hardware (1.9%) Cisco Systems 22,655(b) 408,696 Dell 20,650(b) 862,344 EMC 14,200(b) 186,020 Hewlett-Packard 63,683 1,247,550 Total 2,704,610 Computer software & services (2.5%) Affiliated Computer Services Cl A 19,309(b) 1,046,355 Cadence Design Systems 33,300(b) 443,889 Intl Business Machines 12,655 1,182,230 Microsoft 25,398 667,459 VERITAS Software 8,000(b) 205,760 Total 3,545,693 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 9 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Electronics (1.1%) Broadcom Cl A 5,191(b) $165,230 Credence Systems 15,700(b) 125,600 Cypress Semiconductor 28,600(b) 326,040 Freescale Semiconductor Cl B 3,239(b) 56,585 Intel 26,550 596,047 Texas Instruments 12,941 300,361 Total 1,569,863 Energy (9.7%) Anadarko Petroleum 18,319 1,212,901 BP ADR 19,864(c) 1,184,292 ChevronTexaco 48,164 2,620,122 ConocoPhillips 34,140 3,167,851 Devon Energy 14,794 601,672 Exxon Mobil 78,996 4,076,193 Newfield Exploration 11,582(b) 708,818 Royal Dutch Petroleum 6,142(c) 359,123 Total 13,930,972 Energy equipment & services (2.0%) Cooper Cameron 14,445(b) 814,842 Schlumberger 4,831 328,701 Transocean 15,177(b) 667,788 Weatherford Intl 18,771(b) 1,018,703 Total 2,830,034 Finance companies (4.0%) Citigroup 116,891 5,733,504 Financial services (4.3%) Capital One Financial 13,033 1,020,223 Countrywide Financial 23,301 862,137 Fannie Mae 28,599 1,846,923 Freddie Mac 30,700 2,004,404 MBNA 17,635 468,738 Total 6,202,425 Food (1.8%) General Mills 14,249 755,055 Hain Celestial Group 7,500(b) 150,900 HJ Heinz 25,130 950,164 Kellogg 6,500 290,160 Sara Lee 21,641 508,131 Total 2,654,410 Furniture & appliances (0.1%) Leggett & Platt 6,036 172,026 Health care products (4.4%) Baxter Intl 12,802 432,196 Biogen Idec 9,697(b) 629,917 Bristol-Myers Squibb 16,306 382,213 GlaxoSmithKline ADR 7,744(c) 345,150 Guidant 2,620 189,924 Johnson & Johnson 11,175 723,023 Medco Health Solutions 14,710(b) 626,205 Merck & Co 25,374 711,741 Novartis ADR 10,291(c) 492,733 Pfizer 44,253 1,069,151 Schering Plough 19,523 362,347 Wyeth 8,089 320,567 Total 6,285,167 Health care services (2.0%) Cardinal Health 5,200 292,864 HCA 28,437 1,266,015 Hospira 11,443(b) 330,588 Lincare Holdings 13,063(b) 542,115 Tenet Healthcare 51,700(b) 513,381 Total 2,944,963 Household products (2.2%) Avon Products 5,737 242,216 Colgate-Palmolive 27,350 1,436,969 Gillette 7,700 390,544 Kimberly-Clark 2,250 147,398 Procter & Gamble 9,528 507,175 Rayovac 11,700(b) 439,569 Total 3,163,871 Industrial transportation (0.2%) Burlington Northern Santa Fe 4,700 226,446 Insurance (6.4%) ACE 35,219(c) 1,528,505 Allstate 17,261 870,645 American Intl Group 39,143 2,594,789 Assurant 5,989 194,822 Chubb 16,317 1,215,290 CIGNA 4,697 376,934 Endurance Specialty Holdings 22,300(c) 767,120 First American 11,968 442,577 Hartford Financial Services Group 5,022 337,930 Montpelier Re Holdings 3,431(c) 128,491 Prudential Financial 13,900 749,349 Total 9,206,452 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 10 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Leisure time & entertainment (3.0%) Cendant 48,600(b) $1,088,640 Cendant 48,600 1,144,530 Mattel 20,398 396,741 Multimedia Games 2,850(b) 25,109 Viacom Cl B 42,708 1,594,716 Total 4,249,736 Machinery (0.7%) AGCO 7,440(b) 152,743 Caterpillar 4,509 401,752 Illinois Tool Works 3,025 263,115 Ingersoll-Rand Cl A 3,324(c) 247,239 Total 1,064,849 Media (4.1%) EW Scripps Cl A 7,900 366,244 Liberty Media Cl A 135,748(b) 1,417,209 Liberty Media Intl Cl A 10,000(b) 452,800 Reader's Digest Assn 9,575 154,349 Time Warner 42,300(b) 761,400 Tribune 16,399 655,632 Walt Disney 71,920 2,059,070 Total 5,866,704 Metals (0.5%) Alcan 8,857(c) 352,243 Alcoa 11,504 339,483 Novelis 1,771(b,c) 39,697 Total 731,423 Multi-industry (1.8%) General Electric 29,573 1,068,472 ITT Inds 2,492 212,543 Tyco Intl 37,316(c) 1,348,600 Total 2,629,615 Paper & packaging (2.0%) Avery Dennison 5,721 343,775 Bowater 14,224 540,512 Intl Paper 21,164 828,571 Temple-Inland 10,799 686,816 Weyerhaeuser 6,811 425,006 Total 2,824,680 Real estate investment trust (0.8%) Apartment Investment & Management Cl A 8,996 322,956 Equity Office Properties Trust 28,133 787,162 Total 1,110,118 Restaurants (0.4%) Domino's Pizza 19,700 328,596 McDonald's 6,129 198,518 Total 527,114 Retail -- drugstores (0.2%) CVS 6,732 312,028 Retail -- general (2.2%) Dollar General 7,500 151,575 Home Depot 17,926 739,627 Sonic Automotive 20,262 473,320 Target 18,676 948,181 Wal-Mart Stores 16,000 838,400 Total 3,151,103 Telecom equipment & services (1.7%) Motorola 65,434 1,029,931 Nokia ADR 90,900(c) 1,388,952 Total 2,418,883 Utilities -- electric (3.8%) Dominion Resources 17,561 1,218,382 Entergy 13,959 970,430 Exelon 28,762 1,272,719 FPL Group 5,266 403,586 PPL 8,896 480,384 Southern 28,000 945,560 Xcel Energy 13,800 251,022 Total 5,542,083 Utilities -- natural gas (0.4%) ONEOK 18,349 508,267 Utilities -- telephone (3.8%) BellSouth 48,984 1,285,340 Citizens Communications 11,000 148,390 KT ADR 17,898(c) 387,671 SBC Communications 59,773 1,420,206 Sprint 23,600 562,388 Verizon Communications 45,909 1,633,902 Total 5,437,897 Total common stocks (Cost: $129,794,084) $141,447,410 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 11 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Short-term securities (2.6%) Issuer Effective Amount Value(a) yield payable at maturity U.S. government agencies(1.8%) Federal Home Loan Bank Disc Nt 02-18-05 2.34% $600,000 $599,298 Federal Natl Mtge Assn Disc Nts 02-14-05 2.26 300,000 299,736 04-06-05 2.46 700,000 696,901 04-13-05 2.47 1,000,000 995,089 Total 2,591,024 Commercial paper (0.8%) Household Intl Finance 02-01-05 2.48 1,200,000 1,199,917 Total short-term securities (Cost: $3,790,946) $3,790,941 Total investments in securities (Cost: $133,585,030)(d) $145,238,351 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. At Jan. 31, 2005, the value of foreign securities represented 7.3% of net assets. (d) At Jan. 31, 2005, the cost of securities for federal income tax purposes was approximately $133,585,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $13,733,000 Unrealized depreciation (2,080,000) ---------- Net unrealized appreciation $11,653,000 ----------- 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 VALUE FUND -- 2005 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Large Cap Value Fund Jan. 31, 2005 (Unaudited) Assets Investments in securities, at value (Note 1) (identified cost $133,585,030) $145,238,351 Cash in bank on demand deposit 14,813 Capital shares receivable 21,683 Dividends and accrued interest receivable 132,908 Receivable for investment securities sold 856,084 ------- Total assets 146,263,839 ----------- Liabilities Capital shares payable 5,454 Payable for investment securities purchased 2,098,709 Accrued investment management services fee 7,024 Accrued distribution fee 4,000 Accrued service fee 1 Accrued transfer agency fee 1,491 Accrued administrative services fee 585 Other accrued expenses 117,943 ------- Total liabilities 2,235,207 --------- Net assets applicable to outstanding capital stock $144,028,632 ============ Represented by Capital stock -- $.01 par value (Note 1) $ 258,747 Additional paid-in capital 131,261,704 Excess of distributions over net investment income (37,383) Accumulated net realized gain (loss) 892,243 Unrealized appreciation (depreciation) on investments 11,653,321 ---------- Total -- representing net assets applicable to outstanding capital stock $144,028,632 ============ Net assets applicable to outstanding shares: Class A $ 76,139,234 Class B $ 28,703,035 Class C $ 1,446,948 Class I $ 37,606,636 Class Y $ 132,779 Net asset value per share of outstanding capital stock: Class A shares 13,670,054 $ 5.57 Class B shares 5,188,217 $ 5.53 Class C shares 261,572 $ 5.53 Class I shares 6,731,098 $ 5.59 Class Y shares 23,773 $ 5.59 ------ ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT
Statement of operations AXP Large Cap Value Fund Six months ended Jan. 31, 2005 (Unaudited) Investment income Income: Dividends $ 1,463,514 Interest 51,717 Less foreign taxes withheld (4,471) ------ Total income 1,510,760 --------- Expenses (Note 2): Investment management services fee 381,319 Distribution fee Class A 91,443 Class B 137,535 Class C 7,233 Transfer agency fee 85,084 Incremental transfer agency fee Class A 6,392 Class B 4,641 Class C 288 Service fee -- Class Y 55 Administrative services fees and expenses 33,335 Compensation of board members 4,219 Custodian fees 184,700 Printing and postage 17,375 Registration fees 5,629 Audit fees 9,250 Other 6,031 ----- Total expenses 974,529 Expenses waived/reimbursed by AEFC (Note 2) (26,344) ------- 948,185 Earnings credits on cash balances (Note 2) (3,234) ------ Total net expenses 944,951 ------- Investment income (loss) -- net 565,809 ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 3,798,076 Foreign currency transactions 6 - Net realized gain (loss) on investments 3,798,082 Net change in unrealized appreciation (depreciation) on investments 7,303,605 --------- Net gain (loss) on investments and foreign currencies 11,101,687 ---------- Net increase (decrease) in net assets resulting from operations $11,667,496 ===========
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT
Statements of changes in net assets AXP Large Cap Value Fund Jan. 31, 2005 July 31, 2004 Six months ended Year ended (Unaudited) Operations and distributions Investment income (loss) -- net $ 565,809 $ 556,993 Net realized gain (loss) on investments 3,798,082 5,214,984 Net change in unrealized appreciation (depreciation) on investments 7,303,605 1,187,608 --------- --------- Net increase (decrease) in net assets resulting from operations 11,667,496 6,959,585 ---------- --------- Distributions to shareholders from: Net investment income Class A (545,202) (292,557) Class B (10,205) (34,475) Class C -- (1,580) Class I (382,906) -- Class Y (1,186) (292) Net realized gain Class A (3,015,777) (2,044,844) Class B (1,148,833) (923,944) Class C (57,627) (49,121) Class I (1,527,915) -- Class Y (5,242) (1,778) ------ ------ Total distributions (6,694,893) (3,348,591) ---------- ---------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 11,451,752 40,922,272 Class B shares 4,196,983 15,773,087 Class C shares 210,117 859,541 Class I shares 21,238,262 16,471,765 Class Y shares 70,000 46,998 Reinvestment of distributions at net asset value Class A shares 3,502,150 2,313,251 Class B shares 1,145,619 949,778 Class C shares 56,012 49,389 Class I shares 1,910,566 -- Class Y shares 5,863 1,511 Payments for redemptions Class A shares (8,678,274) (9,764,607) Class B shares (Note 2) (2,911,034) (6,087,609) Class C shares (Note 2) (280,797) (329,387) Class I shares (2,704,569) (5,871) Class Y shares (6,973) (17,446) ------ ------- Increase (decrease) in net assets from capital share transactions 29,205,677 61,182,672 ---------- ---------- Total increase (decrease) in net assets 34,178,280 64,793,666 Net assets at beginning of period 109,850,352 45,056,686 ----------- ---------- Net assets at end of period $144,028,632 $109,850,352 ============ ============ Undistributed (excess of distributions over) net investment income $ (37,383) $ 336,307 ------------ ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 15 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Notes to Financial Statements AXP Large Cap Value Fund (Unaudited as to Jan. 31, 2005) 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. Class A shares are sold with a front-end sales charge. 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. Class C shares may be subject to a CDSC. Class Y shares have no sales charge and are offered only to qualifying institutional investors. 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. At Jan. 31, 2005, American Express Financial Corporation (AEFC) and the AXP Portfolio Builder Series funds owned 100% of Class I shares, which represents 26.11% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees 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. -------------------------------------------------------------------------------- 16 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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 net asset value (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. -------------------------------------------------------------------------------- 17 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT 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. Guarantees and indemnifications Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. 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. -------------------------------------------------------------------------------- 18 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.60% to 0.48% annually as the Fund's assets increase. 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. In certain circumstances, the board may approve a change in the 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 $14,354 for the six months ended Jan. 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 that declines from 0.05% to 0.02% annually as the Fund's assets increase. 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. -------------------------------------------------------------------------------- 19 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT 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 pursuant to Rule 12b-1, 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 $100,117 for Class A, $12,205 for Class B and $291 for Class C for the six months ended Jan. 31, 2005. For the six months ended Jan. 31, 2005, AEFC and its affiliates waived certain fees and expenses to 1.35% for Class A, 2.11% for Class B, 2.11% for Class C and 1.17% for Class Y. Of these waived fees and expenses, the transfer agency fees waived for Class A, Class B, Class C and Class Y were $18,345, $7,542, $418 and $39, respectively. 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 1.35% 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 six months ended Jan. 31, 2005, the Fund's custodian and transfer agency fees were reduced by $3,234 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 $59,545,638 and $33,727,515, respectively, for the six months ended Jan. 31, 2005. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $276 for the six months ended Jan. 31, 2005. -------------------------------------------------------------------------------- 20 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Jan. 31, 2005 Class A Class B Class C Class I Class Y Sold 2,069,321 767,493 38,829 3,818,045 12,867 Issued for reinvested distributions 628,752 206,791 10,111 341,783 1,049 Redeemed (1,561,089) (529,038) (51,437) (483,274) (1,282) ---------- -------- ------- -------- ------ Net increase (decrease) 1,136,984 445,246 (2,497) 3,676,554 12,634 --------- ------- ------ --------- ------ 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. 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by The Bank of New York, whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 21, 2004. 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 higher of the Federal Funds Effective Rate plus 0.50% or the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with Deutsche Bank. The Fund had no borrowings outstanding during the six months ended Jan. 31, 2005. -------------------------------------------------------------------------------- 21 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL 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, 2005(h) 2004 2003 2002(b) Net asset value, beginning of period $5.34 $4.98 $4.52 $4.90 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .02 .04 .03 -- Net gains (losses) (both realized and unrealized) .48 .59 .44 (.38) ----- ----- ----- ----- Total from investment operations .50 .63 .47 (.38) ----- ----- ----- ----- Less distributions: Dividends from net investment income (.04) (.03) (.01) -- Distributions from realized gains (.23) (.24) -- -- ----- ----- ----- ----- Total distributions (.27) (.27) (.01) -- ----- ----- ----- ----- Net asset value, end of period $5.57 $5.34 $4.98 $4.52 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $76 $67 $31 $4 Ratio of expenses to average daily net assets(c),(d) 1.35%(e) 1.24% 1.25% 1.19%(e) Ratio of net investment income (loss) to average daily net assets .94%(e) .95% 1.01% .23%(e) Portfolio turnover rate (excluding short-term securities) 27% 59% 77% 9% Total return(f) 9.40%(g) 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 1.40% for the six months ended Jan. 31, 2005 and 1.54%, 2.64% and 20.50% for the periods ended July 31, 2004, 2003 and 2002, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 22 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003 2002(b) Net asset value, beginning of period $5.29 $4.95 $4.52 $4.90 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) -- -- .01 -- Net gains (losses) (both realized and unrealized) .47 .59 .43 (.38) ----- ----- ----- ----- Total from investment operations .47 .59 .44 (.38) ----- ----- ----- ----- Less distributions: Dividends from net investment income -- (.01) (.01) -- Distributions from realized gains (.23) (.24) -- -- ----- ----- ----- ----- Total distributions (.23) (.25) (.01) -- ----- ----- ----- ----- Net asset value, end of period $5.53 $5.29 $4.95 $4.52 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $29 $25 $13 $1 Ratio of expenses to average daily net assets(c),(d) 2.11%(e) 2.00% 2.00% 1.95%(e) Ratio of net investment income (loss) to average daily net assets .18%(e) .16% .25% (.49%)(e) Portfolio turnover rate (excluding short-term securities) 27% 59% 77% 9% Total return(f) 8.93%(g) 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 2.16% for the six months ended Jan. 31, 2005 and 2.30%, 3.40% and 21.26% for the periods ended July 31, 2004, 2003 and 2002, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 23 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003 2002(b) Net asset value, beginning of period $5.29 $4.94 $4.52 $4.90 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) -- -- .01 -- Net gains (losses) (both realized and unrealized) .47 .60 .42 (.38) ----- ----- ----- ----- Total from investment operations .47 .60 .43 (.38) ----- ----- ----- ----- Less distributions: Dividends from net investment income -- (.01) (.01) -- Distributions from realized gains (.23) (.24) -- -- ----- ----- ----- ----- Total distributions (.23) (.25) (.01) -- ----- ----- ----- ----- Net asset value, end of period $5.53 $5.29 $4.94 $4.52 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $1 $1 $1 $-- Ratio of expenses to average daily net assets(c),(d) 2.11%(e) 2.00% 2.00% 1.95%(e) Ratio of net investment income (loss) to average daily net assets .19%(e) .19% .26% (.45%)(e) Portfolio turnover rate (excluding short-term securities) 27% 59% 77% 9% Total return(f) 8.89%(g) 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 2.17% for the six months ended Jan. 31, 2005 and 2.30%, 3.40% and 21.26% for the periods ended July 31, 2004, 2003 and 2002, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 24 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT
Class I Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004(b) Net asset value, beginning of period $5.36 $5.57 ----- ----- Income from investment operations: Net investment income (loss) .03 .03 Net gains (losses) (both realized and unrealized) .49 (.24) ----- ----- Total from investment operations .52 (.21) ----- ----- Less distributions: Dividends from net investment income (.06) -- Distributions from realized gains (.23) -- ----- ----- Total distributions (.29) -- ----- ----- Net asset value, end of period $5.59 $5.36 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $38 $16 Ratio of expenses to average daily net assets(c) .99%(d) .93%(d),(e) Ratio of net investment income (loss) to average daily net assets 1.30%(d) 1.33%(d) Portfolio turnover rate (excluding short-term securities) 27% 59% Total return(f) 9.67%(g) (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 ratio 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. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 25 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003 2002(b) Net asset value, beginning of period $5.36 $4.99 $4.52 $4.90 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .03 .04 .03 -- Net gains (losses) (both realized and unrealized) .48 .61 .45 (.38) ----- ----- ----- ----- Total from investment operations .51 .65 .48 (.38) ----- ----- ----- ----- Less distributions: Dividends from net investment income (.05) (.04) (.01) -- Distributions from realized gains (.23) (.24) -- -- ----- ----- ----- ----- Total distributions (.28) (.28) (.01) -- ----- ----- ----- ----- Net asset value, end of period $5.59 $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),(d) 1.17%(e) 1.06% .95% 1.01%(e) Ratio of net investment income (loss) to average daily net assets 1.14%(e) 1.12% 1.30% .31%(e) Portfolio turnover rate (excluding short-term securities) 27% 59% 77% 9% Total return(f) 9.56%(g) 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class Y would have been 1.24% for the six months ended Jan. 31, 2005 and 1.36%, 2.46% and 20.32% for the periods ended July 31, 2004, 2003 and 2002, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 26 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL 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 Jan. 31, 2005. Actual Expenses The first line of the table 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 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. -------------------------------------------------------------------------------- 27 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT
Beginning Ending Expenses account value account value paid during Annualized Aug. 1, 2004 Jan. 31, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,094.00 $7.16 1.35% Hypothetical (5% return before expenses) $1,000 $1,018.50 $6.91 1.35% Class B Actual(b) $1,000 $1,089.30 $11.17 2.11% Hypothetical (5% return before expenses) $1,000 $1,014.65 $10.77 2.11% Class C Actual(b) $1,000 $1,088.90 $11.17 2.11% Hypothetical (5% return before expenses) $1,000 $1,014.65 $10.77 2.11% Class I Actual(b) $1,000 $1,096.70 $5.26 0.99% Hypothetical (5% return before expenses) $1,000 $1,020.32 $5.07 0.99% Class Y Actual(b) $1,000 $1,095.60 $6.21 1.17% Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.99 1.17%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 185/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Jan. 31, 2005: +9.40% for Class A, +8.93% for Class B, +8.89% for Class C, +9.67% for Class I and +9.56% for Class Y. -------------------------------------------------------------------------------- 28 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website americanexpress.com/funds; or by searching the website 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 is available at http://www.sec.gov. -------------------------------------------------------------------------------- 29 -- AXP LARGE CAP VALUE FUND -- 2005 SEMIANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. AXP(R) Quantitative Large Cap Equity Fund Semiannual Report for the Period Ended Jan. 31, 2005 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 Performance Summary 4 Questions & Answers with Portfolio Management 5 Investments in Securities 9 Financial Statements 13 Notes to Financial Statements 16 Fund Expenses Example 26 Proxy Voting 28 CORPORATE REORGANIZATION On Feb. 1, 2005, American Express Company, the parent company of the Fund's investment manager, American Express Financial Corporation (AEFC), announced plans to pursue a spin-off of 100% of the common stock of AEFC to shareholders of American Express Company. The transaction, expected to be completed in the third quarter of 2005, is subject to certain regulatory and other approvals, as well as final approval by the board of directors of American Express Company. Upon completion of the transaction AEFC will be a publicly traded company separate from American Express Company. The current agreements between the Fund and AEFC and its affiliates will remain in place. No changes in operations or personnel, including the portfolio manager or managers of the Fund, are anticipated. -------------------------------------------------------------------------------- 2 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Fund Snapshot AT JAN. 31, 2005 PORTFOLIO MANAGERS Portfolio managers Since Years in industry Dimitris J. Bertsimas 4/03 12 Gina K. Mourtzinou 4/03 8 FUND OBJECTIVE The Fund seeks to provide shareholders with long-term growth of capital. Inception dates by class A: 4/24/03 B: 4/24/03 C: 4/24/03 I: 7/15/04 Y: 4/24/03 Ticker symbols by class A: AQEAX B: -- C: -- I: ALEIX Y: -- Total net assets $61.4 million Number of holdings 162 STYLE MATRIX STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL Shading within the style matrix indicates areas in which the Fund generally invests. SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Financials 18.5% Consumer discretionary 15.0% Energy 12.9% Health care 10.7% Information technology 10.5% Consumer staples 9.4% Industrials 7.7% Telecommunication services 5.7% Utilities 2.9% Investment companies 2.5% Short-term securities 2.4% Materials 1.6% Telecommunications 0.2% TOP TEN HOLDINGS Percentage of portfolio assets Altria Group (Beverages & tobacco) 4.3% Johnson & Johnson (Health care products) 4.0 Exxon Mobil (Energy) 3.4 ConocoPhillips (Energy) 3.2 QUALCOMM (Telecom equipment & services) 3.1 Microsoft (Computer software & services) 2.9 iShares MSCI EAFE Index Fund (Investment companies) 2.5 Fannie Mae (Financial services) 2.5 Wal-Mart Stores (Retail -- general) 2.3 eBay (Media) 2.2 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 -- 2005 SEMIANNUAL REPORT Performance Summary (bar chart) PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2005 +9.02% +8.16% +7.32% +9.02% = AXP Quantitative Large Cap Equity Fund Class A (excluding sales charge) +8.16% = S&P 500 Index(1) (unmanaged) +7.32% = Lipper Large-Cap Core Funds Index(2) The performance information shown represents 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 (800) 862-7919 or visiting www.americanexpress.com/funds. (1) The 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. The S&P 500 companies may be generally larger than those in which the Fund invests. (2) The Lipper Large-Cap Core Funds Index includes the 30 largest large cap core funds tracked by Lipper Inc. The index's returns include net reinvested dividends. 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 other classes may vary from that shown 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 -- 2005 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT AXP Quantitative Large Cap Equity Fund's Class A shares gained 9.02%, excluding sales charge, for the six months ended Jan. 31, 2005. The Fund outperformed the Lipper Large-Cap Core Funds Index, representing the Fund's peer group, which returned 7.32%, as well as the Standard & Poor's 500 Index (S&P 500 Index), which gained 8.16% for the same period. Below, Portfolio Managers Dimitris Bertsimas and Gina Mourtzinou discuss the Fund's positioning and results for the first half of the 2005 fiscal year. At Jan. 31, 2005, approximately 67.26% of the Fund's shares were owned in aggregate by AXP Portfolio Builder Series funds, a group of six asset allocation funds managed by American Express Financial Corporation (AEFC). As a result, it is possible AXP Quantitative Large Cap Equity Fund may experience relatively large purchases or redemptions from AXP Portfolio Builder Series funds (see page 15, Class I capital share transactions for related activity during the most recent fiscal period). AEFC seeks to minimize the impact of these transactions by structuring them over a reasonable period of time. AXP Quantitative Large Cap Equity Fund may experience increased expenses as it buys and sells securities to satisfy subscriptions and redemptions in AXP Portfolio Builder Series funds. For more information on the Fund's expenses, see the discussions beginning on pages 21 and 26.
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class I Class Y (Inception dates) (4/24/03) (4/24/03) (4/24/03) (7/15/04) (4/24/03) NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) at Jan. 31, 2005 6 months* +9.02% +2.75% +8.77% +4.77% +8.77% +7.77% +9.20% +9.32% 1 year +5.31% -0.75% +4.52% +0.52% +4.35% +4.35% N/A +5.43% Since inception +17.37% +13.52% +16.48% +14.46% +16.49% +16.49% +8.65%* +17.61% at Dec. 31, 2004 6 months* +6.43% +0.31% +6.16% +1.16% +5.99% +4.99% N/A +6.72% 1 year +9.96% +3.64% +9.16% +5.16% +9.16 +9.16% N/A +10.26% Since inception +19.98% +15.85% +19.04% +16.92% +19.05% +19.05% +11.23%* +20.23%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to eligible investors only, currently limited to AXP Portfolio Builder Series funds, six affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. -------------------------------------------------------------------------------- 5 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> We believe the style diversification provided by the Fund's three quantitative investment models played an important role in its outperformance of both the S&P 500 and its peers. (end callout quote) Q: What factors most significantly affected performance? A: We believe the style diversification provided by the Fund's three quantitative investment models played an important role in its outperformance of both the S&P 500 and its peers. Over the course of the period, our value and quality models outperformed the S&P 500 Index, while our momentum model underperformed. However, the momentum model had several very strong months when the stock market advanced sharply in September, October and November, helping us to capitalize on the market's uptrend. Our quality model also performed better in the latter part of the period. Our goal in using these three diverse quantitative models is to help ensure that a portion of the portfolio will be performing well at any given time. The potential positive impact of this strategy was well-demonstrated during the past six months. Throughout the period, our use of risk modeling -- limits on the size of individual holdings and on sector and industry allocations relative to the S&P 500 Index -- also supported the Fund's strong performance. Q: Which equity sectors and securities affected the Fund's performance most during the period? A: The Fund's stock holdings are determined by our quantitative models. The Fund's sector allocations stem from these individual stock selections, rather than any prediction that certain sectors might perform better or worse than the market. The results of the Fund's sector weightings were positive overall during the period. The performance of the Fund's stock holdings added even more significantly to relative return. Stock selection within the consumer staples and health care sectors made the largest positive contributions. Stock selection within information technology had a neutral impact, while selection in the financials and consumer discretionary sectors detracted from relative return. Stocks that had the greatest positive effect on relative return included Altria, a consumer staples/tobacco stock that was -------------------------------------------------------------------------------- 6 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> We will maintain our strategy of monitoring weightings for risk management so that no individual security, industry or sector becomes too large within the Fund's portfolio. (end callout quote) favored by all three of our models and health care company Johnson & Johnson, which was favored by our quality model. Exxon Mobil, an integrated oil company chosen by our quality model, also performed quite well, as did home improvement retailer Home Depot. Stocks that detracted from relative return included large pharmaceutical firm Merck, which faced the recall of its popular arthritis drug Vioxx and semi-conductor firm Intel, which suffered from concerns about excess capacity in the semiconductor industry. Additionally, previous strong performer eBay gave back some of its 2004 gains during the month of January when the internet auction company announced earnings that fell short of analyst expectations. The Fund's holdings of mortgage financer Fannie Mae and telecommunications services company Verizon Communications also detracted from relative performance. Q: What changes did you make to the portfolio and how is it currently positioned? A: During the period, the Fund maintained the following allocation among the three models: o 40% investment in the momentum model o 30% in the value model and o 30% in the quality model. The Fund continued to experience inflows of cash during the period, primarily share purchases by the AXP Portfolio Builder Series asset allocation funds. We managed this influx by purchasing S&P 500 Index futures. The Fund's sector weightings are a by-product of the individual stocks selected by our three models. Over the course of the six months, our models became more negative on stocks in the financial sector. Also during the period, the Fund's position in energy relative to the S&P 500 Index became a bit larger. -------------------------------------------------------------------------------- 7 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Questions & Answers To summarize the Fund's allocations at the end of the period, it had larger-than-S&P 500 Index positions in energy, telecommunications and consumer staples and smaller-than benchmark positions in industrials and financials. Also during the period, our separate asset allocation model pointed to opportunities in international stocks. Consequently, this past autumn we began buying MSCI EAFE iShares, an exchange-traded fund based on the MSCI EAFE Index. As much as 4% of portfolio assets were invested in MSCI EAFE iShares during the period. The position was 2.5% at the end of the semi-annual period. The Fund benefited from this position as international stocks performed well relative to the S&P 500 Index. Q: How do you intend to manage the Fund in the coming months? A: We will continue to use our three well-tested models with a goal of finding attractive stocks regardless of market conditions. We believe the style diversification of these three models has been vital to the relatively consistent performance that has benefited shareholders since the Fund's inception. We will also maintain our strategy of monitoring weightings for risk management so that no individual security, industry or sector becomes too large within the Fund's portfolio. We also intend to continue our use of other risk controls, including constraints on market capitalization, price, quality, turnover, transaction costs, and more. If our asset allocation model shows greater preference for international stocks, we may increase our exposure there. The strong performance of our value model has been a key performance factor for approximately two years now. Considering the relatively weak performance of our momentum model during that time, we believe results from the momentum model may begin to improve. In addition, the quality model typically acts as a defensive position, so if equity markets weaken, we would expect the quality model to help support the Fund's performance. We have become a bit more conservative in our view for the broad equity market going forward, given current valuations and historical averages. Thus, we intend to maintain the high quality of the Fund's portfolio, while at the same time maintaining our style diversification. -------------------------------------------------------------------------------- 8 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Investments in Securities AXP Quantitative Large Cap Equity Fund Jan. 31, 2005 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (99.7%) Issuer Shares Value(a) Aerospace & defense (93.1%) Boeing 11,836 $598,902 General Dynamics 1,018 105,109 Honeywell Intl 2,242 80,667 Lockheed Martin 6,404 370,215 Raytheon 6,787 253,834 Rockwell Collins 1,517 65,079 United Technologies 4,106 413,392 Total 1,887,198 Automotive & related (2.4%) Delphi 9,270 70,359 Ford Motor 27,963 368,273 General Motors 14,147 520,751 Genuine Parts 4,854 205,470 Johnson Controls 2,710 160,324 PACCAR 1,914 135,243 Total 1,460,420 Banks and savings & loans (4.4%) Bank of America 21,635 1,003,215 Bank of New York 2,641 78,464 Comerica 2,928 169,414 First Horizon Natl 1,395 59,385 Natl City 16,249 577,652 Regions Financial 3,058 97,856 Washington Mutual 17,053 688,089 Total 2,674,075 Beverages & tobacco (6.7%) Altria Group 41,974 2,679,201 Coca-Cola 27,383 1,136,121 PepsiCo 1,067 57,298 Reynolds American 2,784 223,889 UST 2,049 103,802 Total 4,200,311 Broker dealers (2.5%) Bear Stearns Companies 2,309 233,348 JPMorgan Chase & Co 25,484 951,317 Lehman Brothers Holdings 3,215 293,176 Merrill Lynch & Co 1,030 61,872 Total 1,539,713 Building materials & construction (0.7%) American Standard Companies 2,670(b) 106,907 Masco 6,349 233,643 Sherwin-Williams 1,430 61,776 Total 402,326 Cellular telecommunications (0.2%) Nextel Communications Cl A 4,062(b) 116,539 Chemicals (0.2%) Eastman Chemical 1,947 105,430 Computer hardware (0.9%) Apple Computer 7,106(b) 546,451 Computer software & services (6.1%) Adobe Systems 2,589 147,314 Autodesk 7,095 208,380 Automatic Data Processing 3,583 155,789 Convergys 4,276(b) 61,104 Electronic Data Systems 5,286 113,226 Microsoft 69,193 1,818,392 NCR 1,760(b) 60,157 Oracle 65,606(b) 903,395 Symantec 11,891(b) 277,655 Total 3,745,412 Energy (12.1%) Anadarko Petroleum 10,368 686,465 Burlington Resources 11,389 497,813 ChevronTexaco 17,104 930,458 ConocoPhillips 21,394 1,985,149 Devon Energy 13,196 536,681 Exxon Mobil 41,661 2,149,708 Occidental Petroleum 11,777 687,541 Total 7,473,815 Energy equipment & services (1.0%) Baker Hughes 4,609 199,570 BJ Services 3,204 153,952 Noble 1,127(b) 60,125 Transocean 4,269(b) 187,836 Total 601,483 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 9 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Finance companies (2.3%) Citigroup 25,879 $1,269,365 MGIC Investment 1,989 127,097 Total 1,396,462 Financial services (4.5%) Countrywide Financial 22,439 830,243 Fannie Mae 24,192 1,562,318 Freddie Mac 3,757 245,295 Providian Financial 3,657(b) 60,999 SLM 1,687 84,671 Total 2,783,526 Furniture & appliances (0.4%) Black & Decker 1,813 149,391 Stanley Works 1,664 79,140 Total 228,531 Health care products (9.4%) Abbott Laboratories 2,836 127,677 Becton, Dickinson & Co 8,363 473,764 Biogen Idec 6,445(b) 418,667 Biomet 2,427 103,099 Bristol-Myers Squibb 2,848 66,757 CR Bard 2,441 165,500 Gilead Sciences 6,206(b) 205,419 Johnson & Johnson 38,320 2,479,303 Medtronic 7,073 371,262 Merck & Co 41,123 1,153,499 Schering Plough 12,534 232,631 Waters 1,221(b) 59,927 Total 5,857,505 Health care services (1.4%) Aetna 475 60,349 Cardinal Health 4,826 271,800 Tenet Healthcare 11,188(b) 111,097 WellPoint 3,362(b) 408,483 Total 851,729 Home building (1.0%) Centex 2,951 180,926 KB HOME 1,880 204,262 Pulte Homes 3,146 207,887 Total 593,075 Household products (1.7%) Avon Products 6,524 275,443 Gillette 14,733 747,258 Total 1,022,701 Industrial transportation (2.1%) Burlington Northern Santa Fe 3,874 186,649 FedEx 4,322 413,399 Norfolk Southern 8,599 300,277 Ryder System 1,330 60,582 United Parcel Service Cl B 4,398 328,443 Total 1,289,350 Insurance (5.0%) ACE 1,740(c) 75,516 Allstate 10,114 510,150 Ambac Financial Group 1,495 114,936 Aon 9,296 211,391 CIGNA 6,573 527,483 Hartford Financial Services Group 2,351 158,199 Jefferson-Pilot 2,029 101,247 Lincoln Natl 2,712 125,132 Loews 4,110 279,480 Marsh & McLennan Companies 4,147 134,778 MBIA 2,489 148,693 Principal Financial Group 2,364 95,931 Prudential Financial 4,085 220,222 Safeco 1,299 60,144 Torchmark 2,377 129,784 UnumProvident 6,129 105,235 XL Capital Cl A 798(c) 59,674 Total 3,057,995 Investment companies (2.6%) iShares MSCI EAFE Index Fund 10,000 1,569,000 Leisure time & entertainment (1.4%) Brunswick 1,032 47,596 Eastman Kodak 10,366 343,011 Harley-Davidson 6,636 398,890 Mattel 3,612 70,253 Total 859,750 Lodging & gaming (0.3%) Marriott Intl Cl A 927 58,568 Starwood Hotels & Resorts Worldwide 2,038 117,980 Total 176,548 Media (2.7%) eBay 16,547(b) 1,348,580 Yahoo! 9,037(b) 318,193 Total 1,666,773 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 10 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Metals (0.4%) Nucor 2,946 $165,448 Phelps Dodge 764 73,573 Total 239,021 Multi-industry (2.7%) 3M 3,534 298,128 Monsanto 3,023 163,635 Textron 1,304 93,862 Tyco Intl 29,189(c) 1,054,890 WW Grainger 1,031 63,108 Total 1,673,623 Paper & packaging (0.4%) Ball 3,016 128,844 Georgia-Pacific 3,144 100,922 Total 229,766 Real estate investment trust (0.3%) Archstone-Smith Trust 1,727 59,236 Plum Creek Timber 1,401 50,044 ProLogis 1,558 59,422 Total 168,702 Restaurants (0.9%) Starbucks 9,693(b) 523,422 Retail -- drugstores (0.1%) CVS 1,670 77,405 Retail -- general (5.8%) Best Buy 2,172 116,832 Circuit City Stores 4,198 60,115 Dollar General 2,935 59,316 Home Depot 29,413 1,213,580 JC Penney 5,725 244,572 May Dept Stores 2,021 68,512 Sears, Roebuck and Co 5,507 276,727 Toys "R" Us 4,712(b) 101,072 Wal-Mart Stores 27,346 1,432,931 Total 3,573,657 Retail -- grocery (1.0%) Albertson's 5,606 128,265 Kroger 15,040(b) 257,184 Safeway 11,080(b) 208,858 Total 594,307 Telecom equipment & services (3.7%) Motorola 20,338 320,120 QUALCOMM 52,999 1,973,683 Total 2,293,803 Textiles & apparel (0.5%) Nike Cl B 2,895 250,794 VF 1,162 61,760 Total 312,554 Utilities -- electric (2.7%) American Electric Power 4,102 144,596 CenterPoint Energy 9,851 110,824 DTE Energy 1,380 60,458 Duke Energy 4,176 111,875 Edison Intl 9,830 319,180 PG&E 8,973(b) 314,055 Public Service Enterprise Group 2,910 153,503 TXU 6,840 473,327 Total 1,687,818 Utilities -- natural gas (0.2%) Sempra Energy 3,333 124,054 Utilities -- telephone (5.9%) AT&T 18,562 356,205 BellSouth 34,568 907,065 CenturyTel 3,807 124,108 SBC Communications 34,434 818,152 Sprint 24,558 585,217 Verizon Communications 22,797 811,345 Total 3,602,092 Total common stocks (Cost: $58,033,786) $61,206,342 Short-term security (2.4%) Issuer Effective Amount Value(a) yield payable at maturity U.S. government agency Federal Natl Mtge Assn Disc Nt 04-06-05 2.46% $1,500,000 $1,493,360 Total short-term security (Cost: $1,493,280) $1,493,360 Total investments in securities (Cost: $59,527,066)(d) $62,699,702 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 11 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At Jan. 31, 2005, the value of foreign securities represented 1.9% of net assets. (d) At Jan. 31, 2005, the cost of securities for federal income tax purposes was approximately $59,527,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 4,435,000 Unrealized depreciation (1,262,000) ---------- Net unrealized appreciation $ 3,173,000 ----------- 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 QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Quantitative Large Cap Equity Fund Jan. 31, 2005 (Unanudited) Assets Investments in securities, at value (Note 1) (identified cost $59,527,066) $62,699,702 Cash in bank on demand deposit 651,418 Capital shares receivable 30,378 Dividends and accrued interest receivable 61,170 Receivable for investment securities sold 1,752,691 --------- Total assets 65,195,359 ---------- Liabilities Capital shares payable 13,736 Payable for investment securities purchased 3,765,064 Accrued investment management services fee 2,992 Accrued distribution fee 705 Accrued transfer agency fee 335 Accrued administrative services fee 249 Other accrued expenses 24,400 ------ Total liabilities 3,807,481 --------- Net assets applicable to outstanding capital stock $61,387,878 =========== Represented by Capital stock -- $.01 par value (Note 1) $ 97,224 Additional paid-in capital 57,710,566 Undistributed net investment income 34,770 Accumulated net realized gain (loss) 372,682 Unrealized appreciation (depreciation) on investments 3,172,636 --------- Total -- representing net assets applicable to outstanding capital stock $61,387,878 =========== Net assets applicable to outstanding shares: Class A $15,221,449 Class B $ 4,712,142 Class C $ 137,752 Class I $41,287,230 Class Y $ 29,305 Net asset value per share of outstanding capital stock: Class A shares 2,414,699 $ 6.30 Class B shares 752,914 $ 6.26 Class C shares 22,003 $ 6.26 Class I shares 6,528,144 $ 6.32 Class Y shares 4,643 $ 6.31 ----- -----------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Statement of operations AXP Quantitative Large Cap Equity Fund Six months ended Jan. 31, 2005 (Unaudited) Investment income Income: Dividends $ 402,405 Interest 17,814 ------ Total income 420,219 ------- Expenses (Note 2): Investment management services fee 131,798 Distribution fee Class A 17,738 Class B 17,981 Class C 670 Transfer agency fee 14,148 Incremental transfer agency fee Class A 1,093 Class B 739 Class C 34 Service fee -- Class Y 14 Administrative services fees and expenses 9,322 Compensation of board members 3,536 Custodian fees 10,170 Printing and postage 10,125 Registration fees 18,424 Audit fees 9,000 Other 1,929 ----- Total expenses 246,721 Expenses waived/reimbursed by AEFC (Note 2) (13,420) ------- 233,301 Earnings credits on cash balances (Note 2) (916) ---- Total net expenses 232,385 ------- Investment income (loss) -- net 187,834 ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 895,958 Futures contracts (52,342) ------- Net realized gain (loss) on investments 843,616 Net change in unrealized appreciation (depreciation) on investments 2,468,542 --------- Net gain (loss) on investments 3,312,158 --------- Net increase (decrease) in net assets resulting from operations $3,499,992 ==========
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Statements of changes in net assets AXP Quantitative Large Cap Equity Fund Jan. 31, 2005 July 31, 2004 Six months ended Year ended (Unaudited) Operations and distributions Investment income (loss) -- net $ 187,834 $ 70,924 Net realized gain (loss) on investments 843,616 824,610 Net change in unrealized appreciation (depreciation) on investments 2,468,542 335,658 --------- ------- Net increase (decrease) in net assets resulting from operations 3,499,992 1,231,192 --------- --------- Distributions to shareholders from: Net investment income Class A (62,837) (32,550) Class B -- (921) Class C -- (88) Class I (142,494) -- Class Y (172) (94) Net realized gain Class A (327,285) (204,671) Class B (102,880) (35,467) Class C (3,213) (2,669) Class I (723,932) -- Class Y (727) (461) ---- ---- Total distributions (1,363,540) (276,921) ---------- -------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 7,609,125 6,113,596 Class B shares 2,103,999 2,111,340 Class C shares 12,380 99,094 Class I shares 30,155,666 9,070,761 Class Y shares 4,000 -- Reinvestment of distributions at net asset value Class A shares 346,177 96,546 Class B shares 100,334 34,783 Class C shares 2,894 2,508 Class I shares 866,108 -- Class Y shares 505 257 Payments for redemptions Class A shares (6,985,867) (1,001,408) Class B shares (Note 2) (278,220) (582,132) Class C shares (Note 2) (24,527) (31,819) Class I shares (110,932) (701) -------- ---- Increase (decrease) in net assets from capital share transactions 33,801,642 15,912,825 ---------- ---------- Total increase (decrease) in net assets 35,938,094 16,867,096 Net assets at beginning of period 25,449,784 8,582,688 ---------- --------- Net assets at end of period $61,387,878 $25,449,784 =========== =========== Undistributed net investment income $ 34,770 $ 52,439 ----------- -----------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 15 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Notes to Financial Statements AXP Quantitative Large Cap Equity Fund (Unaudited as to Jan. 31, 2005) 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. 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. 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. At Jan. 31, 2005, American Express Financial Corporation (AEFC) and the AXP Portfolio Builder Series funds owned 100% of Class I shares, which represents 67.26% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees 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 -------------------------------------------------------------------------------- 16 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT 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 net asset value (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. 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, -------------------------------------------------------------------------------- 17 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT 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. Guarantees and indemnifications Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. Dividends to shareholders An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. -------------------------------------------------------------------------------- 18 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with AEFC to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.60% to 0.48% annually as the Fund's assets increase. 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. In certain circumstances, the board may approve a change in the 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 $4,958 for the six months ended Jan. 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 that declines from 0.05% to 0.02% annually as the Fund's assets increase. 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 pursuant to Rule 12b-1, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. -------------------------------------------------------------------------------- 19 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $41,444 for Class A, $1,875 for Class B and $30 for Class C for the six months ended Jan. 31, 2005. For the six months ended Jan. 31, 2005, AEFC and its affiliates waived certain fees and expenses to 1.22% for Class A, 2.01% for Class B, 2.03% for Class C, 0.89% for Class I and 1.04% for Class Y. Of these waived fees and expenses, the transfer agency fees waived for Class A, Class B, Class C and Class Y were $7,060, $1,408, $50 and $17, respectively, and the management fees waived at the Fund level were $4,885. 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 six months ended Jan. 31, 2005, the Fund's custodian and transfer agency fees were reduced by $916 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 $45,478,239 and $12,755,551, respectively, for the six months ended Jan. 31, 2005. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Jan. 31, 2005 Class A Class B Class C Class I Class Y Sold 1,210,633 339,910 1,997 4,863,531 685 Issued for reinvested distributions 54,345 15,850 457 135,541 79 Redeemed (1,114,851) (45,066) (4,023) (17,985) -- ---------- ------- ------ ------- --- Net increase (decrease) 150,127 310,694 (1,569) 4,981,087 764 ------- ------- ------ --------- --- 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. -------------------------------------------------------------------------------- 20 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT 5. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by The Bank of New York, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The agreement went into effect Sept. 21, 2004. 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 higher of the Federal Funds Effective Rate plus 0.50% or the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with Deutsche Bank. The Fund had no borrowings outstanding during the six months ended Jan. 31, 2005. 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, 2005(h) 2004 2003(b) Net asset value, beginning of period $5.95 $5.44 $5.00 ----- ----- ----- Income from investment operations: Net investment income (loss) .02 .02 .01 Net gains (losses) (both realized and unrealized) .52 .63 .43 ----- ----- ----- Total from investment operations .54 .65 .44 ----- ----- ----- Less distributions: Dividends from net investment income (.03) (.02) -- Distributions from realized gains (.16) (.12) -- ----- ----- ----- Total distributions (.19) (.14) -- ----- ----- ----- Net asset value, end of period $6.30 $5.95 $5.44 ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $15 $13 $8 Ratio of expenses to average daily net assets(c),(d) 1.22%(e) 1.13% 1.22%(e) Ratio of net investment income (loss) to average daily net assets .78%(e) .65% .81%(e) Portfolio turnover rate (excluding short-term securities) 31% 64% 17% Total return(f) 9.02%(g) 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 1.35% for the six months ended Jan. 31, 2005 and 1.91% and 7.39% for the periods ended July 31, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 21 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003(b) Net asset value, beginning of period $5.90 $5.43 $5.00 ----- ----- ----- Income from investment operations: Net investment income (loss) -- (.02) -- Net gains (losses) (both realized and unrealized) .52 .61 .43 ----- ----- ----- Total from investment operations .52 .59 .43 ----- ----- ----- Less distributions: Distributions from realized gains (.16) (.12) -- ----- ----- ----- Net asset value, end of period $6.26 $5.90 $5.43 ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $5 $3 $1 Ratio of expenses to average daily net assets(c),(d) 2.01%(e) 1.95% 2.01%(e) Ratio of net investment income (loss) to average daily net assets (.02%)(e) (.16%) (.08%)(e) Portfolio turnover rate (excluding short-term securities) 31% 64% 17% Total return(f) 8.77%(g) 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 2.12% for the six months ended Jan. 31, 2005 and 2.73% and 8.18% for the periods ended July 31, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 22 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003(b) Net asset value, beginning of period $5.90 $5.43 $5.00 ----- ----- ----- Income from investment operations: Net investment income (loss) -- (.02) -- Net gains (losses) (both realized and unrealized) .52 .61 .43 ----- ----- ----- Total from investment operations .52 .59 .43 ----- ----- ----- Less distributions: Distributions from realized gains (.16) (.12) -- ----- ----- ----- Net asset value, end of period $6.26 $5.90 $5.43 ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- Ratio of expenses to average daily net assets(c),(d) 2.03%(e) 1.95% 2.01%(e) Ratio of net investment income (loss) to average daily net assets (.03%)(e) (.17%) (.05%)(e) Portfolio turnover rate (excluding short-term securities) 31% 64% 17% Total return(f) 8.77%(g) 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 2.13% for the six months ended Jan. 31, 2005 and 2.73% and 8.20% for the periods ended July 31, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 23 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Class I Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004(b) Net asset value, beginning of period $5.96 $5.99 ----- ----- Income from investment operations: Net investment income (loss) .02 .02 Net gains (losses) (both realized and unrealized) .53 (.05) ----- ----- Total from investment operations .55 (.03) ----- ----- Less distributions: Dividends from net investment income (.03) -- Distributions from realized gains (.16) -- ----- ----- Total distributions (.19) -- ----- ----- Net asset value, end of period $6.32 $5.96 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $41 $9 Ratio of expenses to average daily net assets(c) .89%(d) .93%(d),(e) Ratio of net investment income (loss) to average daily net assets 1.09%(d) 5.35%(d) Portfolio turnover rate (excluding short-term securities) 31% 64% Total return(f) 9.20%(g) (.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. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 24 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2005(h) 2004 2003(b) Net asset value, beginning of period $5.95 $5.45 $5.00 ----- ----- ----- Income from investment operations: Net investment income (loss) .02 .03 .01 Net gains (losses) (both realized and unrealized) .54 .61 .44 ----- ----- ----- Total from investment operations .56 .64 .45 ----- ----- ----- Less distributions: Dividends from net investment income (.04) (.02) -- Distributions from realized gains (.16) (.12) -- ----- ----- ----- Total distributions (.20) (.14) -- ----- ----- ----- Net asset value, end of period $6.31 $5.95 $5.45 ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- Ratio of expenses to average daily net assets(c),(d) 1.04%(e) .98% 1.01%(e) Ratio of net investment income (loss) to average daily net assets .97%(e) .78% .90%(e) Portfolio turnover rate (excluding short-term securities) 31% 64% 17% Total return(f) 9.32%(g) 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class Y would have been 1.18% for the six months ended Jan. 31, 2005 and 1.76% and 7.20% for the periods ended July 31, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2005 (Unaudited). -------------------------------------------------------------------------------- 25 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL 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 Jan. 31, 2005. Actual Expenses The first line of the table 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 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. -------------------------------------------------------------------------------- 26 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT
Beginning Ending Expenses account value account value paid during Annualized Aug. 1, 2004 Jan. 31, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,090.20 $ 6.46 1.22% Hypothetical (5% return before expenses) $1,000 $1,019.16 $ 6.24 1.22% Class B Actual(b) $1,000 $1,087.70 $10.63 2.01% Hypothetical (5% return before expenses) $1,000 $1,015.15 $10.26 2.01% Class C Actual(b) $1,000 $1,087.70 $10.74 2.03% Hypothetical (5% return before expenses) $1,000 $1,015.05 $10.37 2.03% Class I Actual(b) $1,000 $1,092.00 $ 4.72 .89% Hypothetical (5% return before expenses) $1,000 $1,020.83 $ 4.56 .89% Class Y Actual(b) $1,000 $1,093.20 $ 5.52 1.04% Hypothetical (5% return before expenses) $1,000 $1,020.07 $ 5.32 1.04%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 185/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Jan. 31, 2005: +9.02% for Class A, +8.77% for Class B, +8.77% for Class C, +9.20% for Class I and +9.32% for Class Y. -------------------------------------------------------------------------------- 27 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website americanexpress.com/funds; or by searching the website 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 is available at http://www.sec.gov. -------------------------------------------------------------------------------- 28 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 SEMIANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. 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. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. 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 12. Exhibits. (a)(1) Not applicable for semi-annual reports. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) AXP Growth Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date March 30, 2005 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 March 30, 2005 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date March 30, 2005