EX-99.17H ANNUAL REP 9 ex17h-focusedgrowth_annual.txt AXP FOCUSED GROWTH FUND-ANNUAL REPORT AXP(R) Focused Growth Fund 2003 ANNUAL REPORT MARCH 31, 2003 AXP Focused Growth Fund seeks to provide shareholders with long-term capital growth. -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) -------------------------------------------------------------------------------- Mutual Funds Can Work for You For more than six decades, American Express(R) Funds has provided investors with attractive investment opportunities. Several of our funds helped pioneer the mutual fund industry in the 1940s. Today, with 61 publicly offered funds and more than $60 billion* in assets, American Express Funds ranks among the largest U.S. fund families. American Express Financial Corporation, the investment manager for American Express Funds, has more than 100 years of experience as a financial services provider -- a claim few other financial firms can make. With investment management offices in Minneapolis, Boston, New York, San Diego, London, Tokyo and Singapore, we strive to provide our shareholders with the high-quality service American Express is known for worldwide. At American Express Funds, we're focused on your success. Our investment managers have the strength and experience that you can count on to help you achieve your financial goals -- now and into the future. * As of March 2003. -------------------------------------------------------------------------------- Table of Contents From the Chairman 3 Economic and Market Update 4 Fund Snapshot 6 Questions & Answers with Portfolio Management 7 The Fund's Long-term Performance 11 Investments in Securities 12 Financial Statements 14 Notes to Financial Statements 17 Independent Auditors' Report 29 Board Members and Officers 30 Results of Meeting of Shareholders 33 -------------------------------------------------------------------------------- 2 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT From the Chairman (photo of) Arne H. Carlson Arne H. Carlson Chairman of the board Dear Shareholders, These are extraordinary times for the American economy as well as the investor. Markets like stability and can respond unfavorably to unsettling events such as war, ethical and legal misbehavior by some corporate executives, and general concerns about corporate profitability. As of early March, the U.S. equity market had completed a third consecutive year of declining stock prices, something that has not happened since 1939-1941. Although the U.S. economy is growing, the job market is stagnant, and many corporations are finding that the only way to increase profits is to engage in vigorous cost cutting. History tells us that the U.S. business cycle will eventually turn. We also have every reason to believe that mutual funds remain one of the most effective and efficient ways to achieve long-term financial goals. To regain trust by investors, however, something more needs to happen on Wall Street. Businesses need to reward ethical behavior, focus on long-term expansion and create value for all shareholders. Oversight and performance measures such as last year's Sarbanes-Oxley Act are in place to help. In my view, this should be coupled with ongoing improvements in leadership and governance. With this in mind, the real question is what should the investor do? I think it is fair to say that most investment experts would suggest that investors remain where they are, believing that the markets will go up. Secondly, I want you to know that American Express Financial Corporation has made significant management changes and these changes are already gaining the public's attention. For instance, the March 2003 issue of Money magazine wrote a positive feature on Ted Truscott, the company's Chief Investment Officer and the work he has been doing in attracting top-flight managers. So far, these efforts are paying off with improved performance. The magazine noted, "Last year, 15 of American Express' 24 domestic-stock funds landed in the top half of their Morningstar categories; a year ago only five out of 20 did." In addition, a similar process of change is underway for fixed-income funds, led by Michelle Keeley, the new Senior Vice President of Fixed-Income Investments. The Board of American Express Funds is focused on continuing both excellence in management and further improvement in fund performance. We encourage you to continue to work closely with your financial advisor to maintain a diversified portfolio that balances risk and reward. As investors, we should not let fear distract us from our long-term goals. On behalf of the Board, Arne H. Carlson -------------------------------------------------------------------------------- 3 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Economic and Market Update FROM CIO WILLIAM F. "TED" TRUSCOTT (photo of) William F. "Ted" Truscott William F. "Ted" Truscott Chief Investment Officer American Express Financial Corporation Dear Shareholders, Equity markets worldwide continued to experience pronounced volatility in the early months of 2003, as war with Iraq and other concerns about geopolitical stability made investors wary. Even with the uncertainty, however, year-to-date results are not uniformly negative. The Dow Jones Industrial Average and S&P 500 Index were down for the year to date as of March 31, while the Nasdaq Composite Index mustered a small gain for the same three-month period. Independent of the situation in Iraq and other trouble spots around the globe, corporations are still wrestling with fundamental issues like profitability and sales growth. Most of the gains in profits we've seen over the past year or so are due to cost cutting. Although necessary after the excesses of the late `90s, cost cutting is a short-term fix; it is not a satisfactory replacement for true growth -- increased demand, sales and capacity. Until old-fashioned growth returns, the outlook for business will continue to be modest. Still, there are some things working in our favor, namely monetary policy. The Federal Reserve has lowered short-term interest rates to their lowest point in more than 40 years, which has helped to keep the economy afloat. KEY POINTS -- The Federal Reserve has lowered short-term interest rates to their lowest point in more than 40 years, which has helped to keep the economy afloat. -- In challenging times, it's especially important to remember that long-term results may be compromised if investors are not willing to take prudent risks. -- In the current environment, investors should proceed rationally, but prudently. -------------------------------------------------------------------------------- 4 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Economic and Market Update When asked how I believe investors should proceed in the current environment, I answer: rationally but prudently. While no one, especially those with long-term goals, should abandon equities, the truth is that stock prices are not especially cheap (when measured against company earnings) even after three years of a bear market. In the short term, what we may see are roughly comparable returns between stocks and bonds. Of course, that could change if inflation became a problem or if interest rates climbed rapidly and steeply. While neither of these risks is currently part of our forecast, investors need to know that bonds would take a larger hit than stocks in this scenario. Diversification is perhaps the best way for bond investors to mitigate these risks. For example, high-yield securities are generally less sensitive to inflation and interest rate fluctuations than U.S. Treasuries (assuming equal maturities). Of course, high-yield bonds also carry considerably more risk, so any specific allocation should reflect your risk tolerance and time horizon. If you have long-term goals, I encourage you to remain focused on them. In challenging times, it's especially important to remember that long-term results may be compromised if investors are not willing to take prudent risks. Just as no two individuals are the same, no two portfolios should be identical either. Your investment strategy should suit your unique circumstances. Contact your American Express financial advisor if you need help developing or refining a plan for meeting your goals. As always, thank you for investing with American Express Funds. Yours truly, Ted Truscott, American Express Financial Corporation CIO This commentary is provided for informational purposes only. It is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. The views expressed may not be suitable for every situation. -------------------------------------------------------------------------------- 5 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Fund Snapshot AS OF MARCH 31, 2003 PORTFOLIO MANAGERS Portfolio manager Dan Rivera Since 6/02 Years in industry 18 Portfolio manager C. Steven Brennaman Since 6/02 Years in industry 7 FUND OBJECTIVE For investors seeking long-term capital growth. Inception dates A: 6/26/00 B: 6/26/00 C: 6/26/00 Y: 6/26/00 Ticker symbols A: AFAFX B: AFTBX C: -- Y: -- Total net assets $45.7 million Number of holdings approximately 50 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE X MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Health care 21.9% Industrials 19.3% Information technology 17.8% Consumer discretionary 17.7% Financials 8.4% Energy and utilities 7.2% Cash and equivalents 3.3% Materials 3.0% Transportation 1.4% TOP TEN HOLDINGS Percentage of portfolio assets Microsoft (Computer software & services) 6.3% Pfizer (Health care) 5.4 Wal-Mart Stores (Retail) 4.6 General Electric (Multi-industry conglomerates) 4.1 Procter & Gamble (Household products) 3.9 Amgen (Health care) 3.9 Medtronic (Health care) 3.3 Citigroup (Financial services) 3.3 Cisco Systems (Computers & office equipment) 3.2 Intel (Electronics) 3.0 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Funds that concentrate investments in a limited number of securities may involve greater risks and more price volatility than more diversified funds. Stock prices of established companies that pay dividends may be less volatile than the stock market as a whole. Stocks of medium-sized companies may be subject to more abrupt or erratic price movements than stocks of larger companies. Fund holdings are subject to change. -------------------------------------------------------------------------------- 6 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Q: How did AXP Focused Growth Fund perform during its fiscal year? A: AXP Focused Growth Fund's returns for the fiscal year were disappointing. For the 12 months ended March 31, 2003, the Fund's Class A shares (excluding sales charge) fell 34.25%, underperforming the Russell 1000(R) Growth Index, which dropped 26.76%, and the Lipper Large-Cap Growth Funds Index, which declined 27.38% for the same period. Most of the underperformance occurred prior to a change in management of the Fund in June 2002. Since then, the Fund's comparative performance has improved. For the quarter ended March 31, 2003, the Fund's Class A shares (excluding sales charge) fell 1.37%, while the Russell 1000 Growth Index dropped 1.07%. The Lipper Large-Cap Growth Funds Index declined 1.11% for the same period. Q: What factors significantly impacted performance? A: There were three major factors affecting performance. First, growth stocks across all equity market capitalizations lagged value stocks for the fiscal year as a whole. This environment hindered the growth-oriented Fund's annual performance. Second, the concentrated nature of the Fund's holdings heightened the impact of negative surprises from individual stocks during a period when equity market volatility was exceptionally high. Third, we had mixed results from our specific stock selection. (bar graph) PERFORMANCE COMPARISON For the year ended March 31, 2003 0% -5% -10% -15% -20% (bar 2) (bar 3) -25% -26.76% -27.38% -30% (bar 1) -35% -34.25% (bar 1) AXP Focused Growth Fund Class A (excluding sales charge) (bar 2) Russell 1000(R) Growth Index (unmanaged) (bar 3) Lipper Large-Cap Growth Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in sales charges and fees. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. -------------------------------------------------------------------------------- 7 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Questions & Answers (begin callout quote) > We intend to continue to focus on owning a select group of growth-oriented stocks that meet our stringent fundamental, quantitative and technical research criteria. (end callout quote) AVERAGE ANNUAL TOTAL RETURNS as of March 31, 2003
Class A Class B Class C Class Y (Inception dates) (6/26/00) (6/26/00) (6/26/00) (6/26/00) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) 1 year -34.25% -38.04% -34.26% -36.89% -34.72% -35.38% -34.09% -34.09% Since inception -36.19% -37.55% -36.56% -37.26% -36.68% -36.68% -36.03% -36.03%
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. The performance shown for each class of shares will vary due to differences in sales charges and fees. Short term performance may be higher or lower than the figures shown. Visit americanexpress.com for current information. -------------------------------------------------------------------------------- 8 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Questions & Answers Q: What changes did you make to the portfolio? A: We have been working steadily to improve the quality of the portfolio by trimming a number of holdings that we felt offered little potential for near-term improvement and by adhering to our strict stock buying and selling disciplines. We also adopted a "scale weighting" for the portfolio versus its benchmark. This means that while allocations approximated the proportionate weightings of the benchmark, they did not exactly replicate those weightings. When we first started managing the Fund in June 2002, we positioned the portfolio in cyclical sectors expecting to benefit most from the widely anticipated economic recovery. However, once it became clear that a rapid rebound was not about to materialize, we reduced the cyclical aspects of the portfolio by cutting its technology exposure and increasing the number of consumer staples stocks and healthcare company stocks, which generally hold up well in uncertain times. During the fourth calendar quarter, we took a rather aggressive approach and this benefited performance. Given a U.S. economy experiencing steady but not spectacular growth, it was our view that a balanced portfolio would be more prudent than one with heavy weightings in selected industries. To accomplish this balance, we boosted the Fund's positions in the healthcare, consumer staples and technology sectors, while cutting back its holdings in industrial growth stocks. We intensified the Fund's "barbell" approach, with the more defensive healthcare and consumer staples holdings on the one side and the more cyclical technology and industrial stocks on the other. The cumulative effect of the changes outlined above since June 2002 was to increase the Fund's annual portfolio turnover rate from 78% a year ago to 275% for the fiscal year ended March 31. Should market conditions remain volatile in the coming months, the Fund's relatively aggressive investment strategy may result in a comparable level of portfolio turnover. For the annual period, the Fund's strongest performers could be found among a wide array of industries. These included Amgen in healthcare, e-Bay and Adobe Software in technology, Lehman Brothers in financial, and Starbuck's Coffee and Columbia Sportswear in consumer cyclical. -------------------------------------------------------------------------------- 9 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Questions & Answers Of course, in such a volatile stock market, there were disappointments as well. Home improvement store chain Fastenal, electronics store chain Best Buy, and credit services corporation Capital One were among the weakest performers for the Fund. We reduced the Fund's positions in each stock. Q: What is your outlook for the coming months? A: We continue to see near-term volatility in the equity markets, especially given continued geopolitical uncertainties and the hesitancy of the U.S. economic expansion. Still, we maintain a cautiously optimistic outlook for the intermediate term. We believe the equity market has experienced a major cyclical bottom. U.S. equities declined for the third consecutive year in calendar year 2002, something that has not occurred for the broad market in over 60 years. However, we believe that such a bear market presents significant opportunities to make money going forward. Indeed, we anticipate corporate earnings growth to reaccelerate later this year, and thus we remain optimistic for positive U.S. equity market returns for 2003. We believe the AXP Focused Growth Fund is particularly well positioned going forward, as growth stocks outperformed value stocks during the first calendar quarter of 2003 for the first time since the fourth quarter of 2001. We intend to continue to focus on owning a select group of growth-oriented stocks that meet our stringent fundamental, quantitative and technical research criteria. -------------------------------------------------------------------------------- 10 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT The Fund's Long-term Performance This chart illustrates the total value of an assumed $10,000 investment in AXP Focused Growth Fund Class A shares (from 7/1/00 to 3/31/03) as compared to the performance of two widely cited performance indices, the Russell 1000(R) Growth Index and the Lipper Large-Cap Growth Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. Past performance is no guarantee of future results. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Returns do not reflect taxes payable on distributions and redemptions. Also see "Past Performance" in the Fund's current prospectus. (line graph) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP FOCUSED GROWTH FUND $20,000 $15,000 (solid line) AXP Focused Growth Fund Class A $10,000 (dotted line) Russell 1000(R) Growth Index(1) $5,000 (dashed line) Lipper Large-Cap Growth Funds Index(2) 7/1/00 3/01 3/02 3/03 (solid line) AXP Focused Growth Fund Class A $2,725 (dotted line) Russell 1000(R) Growth Index(1) $4,225 (dashed line) Lipper Large-Cap Growth Funds Index(2) $4,318 (1) Russell 1000(R) Growth Index, an unmanaged index, measures the performance of the growth subset of the Russell 1000(R) Index, which is composed of the largest 1,000 companies in the U.S. These companies have higher price-to-book ratios and higher forecasted growth values. (2) The Lipper Large-Cap Growth Funds Index, published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. Average Annual Total Returns Class A with Sales Charge as of March 31, 2003 1 year -38.04% Since inception -37.55% Results for other share classes can be found on page 8. -------------------------------------------------------------------------------- 11 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Investments in Securities AXP Focused Growth Fund March 31, 2003 (Percentages represent value of investments compared to net assets) Common stocks (96.3%) Issuer Shares Value(a) Automotive & related (1.3%) Oshkosh Truck 9,700 $604,310 Banks and savings & loans (2.1%) Bank of America 7,600 507,984 Wells Fargo 10,200 458,898 Total 966,882 Building materials & construction (1.6%) Fluor 21,400 720,752 Computer software & services (9.3%) Adobe Systems 28,100 866,323 Microsoft 118,200 2,861,622 Oracle 46,700(b) 506,648 Total 4,234,593 Computers & office equipment (8.4%) Cisco Systems 114,100(b) 1,471,890 Dell Computer 25,650(b) 700,502 EMC 98,800(b) 714,324 Mentor Graphics 42,400(b) 379,056 QLogic 15,700(b) 583,098 Total 3,848,870 Electronics (9.6%) Applied Materials 36,800(b) 462,944 Integrated Circuit Systems 15,400(b) 334,180 Intel 82,900 1,349,612 Linear Technology 17,600 543,312 Maxim Integrated Products 23,600 852,432 Novellus Systems 31,000(b) 845,370 Total 4,387,850 Energy (4.6%) ConocoPhillips 11,500 616,400 Exxon Mobil 21,000 733,950 Valero Energy 17,700 732,426 Total 2,082,776 Financial services (6.3%) Citigroup 43,800 1,508,910 Lehman Brothers Holdings 15,000 866,250 MBNA 32,900 495,145 Total 2,870,305 Health care (20.1%) Amgen 31,000(b,c) 1,784,050 Forest Laboratories 14,500(b) 782,565 IDEC Pharmaceuticals 17,400(b) 598,891 Johnson & Johnson 22,100 1,278,927 MedImmune 10,500(b) 344,715 Medtronic 33,600 1,516,032 Pfizer 78,300 2,439,827 STERIS 18,500(b) 483,960 Total 9,228,967 Health care services (1.6%) UnitedHealth Group 7,850 719,610 Household products (5.5%) Colgate-Palmolive 13,300 724,052 Procter & Gamble 20,100 1,789,905 Total 2,513,957 Industrial equipment & services (2.2%) Caterpillar 9,200 452,640 Clarcor 15,800 571,960 Total 1,024,600 Leisure time & entertainment (1.3%) Harley-Davidson 14,600 579,766 Metals (1.4%) Alcoa 33,000 639,540 Multi-industry conglomerates (6.1%) ARAMARK Cl B 40,800(b) 934,320 General Electric 72,400 1,846,200 Total 2,780,520 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 12 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Retail (10.9%) Best Buy 24,000(b) $647,280 Costco Wholesale 15,200(b) 456,456 Home Depot 48,800 1,188,768 Kohl's 10,150(b) 574,287 Wal-Mart Stores 40,200 2,091,606 Total 4,958,397 Transportation (1.4%) Swift Transportation 40,100(b) 641,600 Utilities -- electric (1.0%) Southern Co 15,700 446,508 Utilities -- gas (1.6%) Equitable Resources 19,400 727,694 Total common stocks (Cost: $43,596,773) $43,977,497 Short-term securities (3.3%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies Federal Home Loan Bank Disc Nt 05-09-03 1.12% $800,000 $799,029 Federal Home Loan Mtge Corp Disc Nt 04-10-03 1.24 300,000 299,903 Federal Natl Mtge Assn Disc Nts 04-09-03 1.24 200,000 199,943 05-28-03 1.23 200,000 199,648 Total short-term securities (Cost: $1,498,517) $1,498,523 Total investments in securities (Cost: $45,095,290)(d) $45,476,020 Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) At March 31, 2003, securities valued at $575,500 were held to cover open call options written as follows (see Note 5 to the financial statements): Issuer Contracts Exercise Expiration Value(a) price date Amgen 100 $55 April 2003 $32,500 (d) At March 31, 2003, the cost of securities for federal income tax purposes was $47,690,640 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 833,587 Unrealized depreciation (3,048,207) ---------- Net unrealized depreciation $(2,214,620) ----------- -------------------------------------------------------------------------------- 13 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Focused Growth Fund March 31, 2003 Assets Investments in securities, at value (Note 1) (identified cost $45,095,290) $ 45,476,020 Cash in bank on demand deposit 7,401 Capital shares receivable 15,700 Dividends and accrued interest receivable 14,995 Receivable for investment securities sold 409,458 ------- Total assets 45,923,574 ---------- Liabilities Payable for investment securities purchased 118,958 Accrued investment management services fee 2,483 Accrued distribution fee 1,984 Accrued transfer agency fee 2,221 Accrued administrative services fee 229 Other accrued expenses 89,252 Options contracts written, at value (premiums received $18,199) (Note 5) 32,500 ------ Total liabilities 247,627 ------- Net assets applicable to outstanding capital stock $ 45,675,947 ============= Represented by Capital stock -- $.01 par value (Note 1) $ 318,351 Additional paid-in capital 152,485,573 Accumulated net realized gain (loss) (Note 7) (107,494,406) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 366,429 ------- Total -- representing net assets applicable to outstanding capital stock $ 45,675,947 ============= Net assets applicable to outstanding shares: Class A $ 29,243,034 Class B $ 15,299,174 Class C $ 1,121,031 Class Y $ 12,708 Net asset value per share of outstanding capital stock: Class A shares 20,245,455 $ 1.44 Class B shares 10,788,480 $ 1.42 Class C shares 792,376 $ 1.41 Class Y shares 8,748 $ 1.45 ----- -------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT
Statement of operations AXP Focused Growth Fund Year ended March 31, 2003 Investment income Income: Dividends $ 382,201 Interest 63,700 Fee income from securities lending -- net (Note 3) 231 Less foreign taxes withheld (3,336) ------ Total income 442,796 ------- Expenses (Note 2): Investment management services fee 329,896 Distribution fee Class A 93,239 Class B 195,108 Class C 13,084 Transfer agency fee 273,838 Incremental transfer agency fee Class A 19,497 Class B 17,649 Class C 1,179 Service fee -- Class Y 15 Administrative services fees and expenses 33,708 Compensation of board members 10,823 Custodian fees 25,349 Printing and postage 51,215 Registration fees 41,057 Audit fees 15,000 Other 4,772 ----- Total expenses 1,125,429 Expenses waived/reimbursed by AEFC (Note 2) (199,942) -------- 925,487 Earnings credits on cash balances (Note 2) (1,678) ------ Total net expenses 923,809 ------- Investment income (loss) -- net (481,013) -------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (33,584,067) Options contracts written (Note 5) 87,015 ------ Net realized gain (loss) on investments (33,497,052) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 6,056,991 --------- Net gain (loss) on investments and foreign currencies (27,440,061) ----------- Net increase (decrease) in net assets resulting from operations $(27,921,074) ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 15 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets AXP Focused Growth Fund Year ended March 31, 2003 2002 Operations Investment income (loss) -- net $ (481,013) $ (802,153) Net realized gain (loss) on investments (33,497,052) $(44,411,318) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 6,056,991 37,706,287 --------- ---------- Net increase (decrease) in net assets resulting from operations (27,921,074) (7,507,184) ----------- ---------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 7,387,292 28,131,727 Class B shares 4,105,248 13,072,961 Class C shares 379,863 910,478 Payments for redemptions Class A shares (15,814,763) (21,315,732) Class B shares (Note 2) (8,743,009) (8,054,639) Class C shares (Note 2) (454,185) (464,754) Class Y shares (24) -- ----------- ---------- Increase (decrease) in net assets from capital share transactions (13,139,578) 12,280,041 ----------- ---------- Total increase (decrease) in net assets (41,060,652) 4,772,857 Net assets at beginning of year 86,736,599 81,963,742 ---------- ---------- Net assets at end of year $ 45,675,947 $ 86,736,599 ============ ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 16 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Notes to Financial Statements AXP Focused Growth Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Strategy Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a non-diversified, open-end management investment company. AXP Strategy 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 medium and large size companies. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth calendar year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. -------------------------------------------------------------------------------- 17 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Option transactions To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. -------------------------------------------------------------------------------- 18 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. -------------------------------------------------------------------------------- 19 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $481,013 resulting in a net reclassification adjustment to decrease paid-in capital by $481,013. The tax character of distributions paid for the years indicated is as follows: Year ended March 31, 2003 2002 Class A Distributions paid from: Ordinary income $-- $-- Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class Y Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- As of March 31, 2003, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ -- Accumulated gain (loss) $(104,899,056) Unrealized appreciation (depreciation) $ (2,228,921) 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 and discount using the effective interest method, is accrued daily. -------------------------------------------------------------------------------- 20 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES The Fund has agreements with American Express Financial Corporation (AEFC) to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets in reducing percentages from 0.65% to 0.50% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Growth Funds Index. Prior to Dec. 1, 2002, the maximum adjustment was 0.12% of the Fund's average daily net assets after deducting 1% from the performance difference. If the performance difference was less than 1%, the adjustment was zero. On Nov. 13, 2002, shareholders approved modification of the performance incentive adjustment calculation by adjusting the performance difference intervals, while retaining the previous maximum adjustment and reducing the amount of the performance difference for which no adjustment is made to 0.50%. The effect of the modifications began Dec. 1, 2002. The adjustment decreased the fee by $47,944 for the year ended March 31, 2003. Under an Administrative Service Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.06% to 0.03% annually. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the board. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. The Fund pays AECSC an annual fee per shareholder account for this service as follows: o Class A $19.00 o Class B $20.00 o Class C $19.50 o Class Y $17.00 The Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. -------------------------------------------------------------------------------- 21 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $134,489 for Class A, $36,381 for Class B and $206 for Class C for the year ended March 31, 2003. For the year ended March 31, 2003, AEFC and American Express Financial Advisors Inc. waived certain fees and expenses to 1.32% for Class A, 2.08% for Class B, 2.08% for Class C and 1.11% for Class Y. In addition, AEFC and American Express Financial Advisors Inc. have agreed to waive certain fees and expenses until March 31, 2004. Under this agreement, total expenses will not exceed 1.32% for Class A, 2.08% for Class B, 2.08% for Class C and 1.16% for Class Y of the Fund's average daily net assets. During the year ended March 31, 2003, the Fund's custodian and transfer agency fees were reduced by $1,678 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 $150,884,157 and $162,827,228, respectively, for the year ended March 31, 2003. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $17,105 for the year ended March 31, 2003. Income from securities lending amounted to $231 for the year ended March 31, 2003. 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. -------------------------------------------------------------------------------- 22 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
Year ended March 31, 2003 Class A Class B Class C Class Y Sold 4,562,678 2,569,701 234,889 -- Issued for reinvested distributions -- -- -- -- Redeemed (9,653,739) (5,399,743) (281,374) (12) ---------- ---------- -------- --- Net increase (decrease) (5,091,061) (2,830,042) (46,485) (12) ---------- ---------- ------- --- Year ended March 31, 2002 Class A Class B Class C Class Y Sold 12,070,711 5,681,941 399,500 -- Issued for reinvested distributions -- -- -- -- Redeemed (9,453,719) (3,643,125) (204,966) -- ---------- ---------- -------- --- Net increase (decrease) 2,616,992 2,038,816 194,534 -- ---------- ---------- -------- ---
5. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows:
Year ended March 31, 2003 Puts Calls Contracts Premiums Contracts Premiums Balance March 31, 2002 -- $ -- -- $ -- Opened 235 29,081 1,575 252,756 Closed (135) (19,320) (1,033) (129,015) Exercised -- -- (442) (105,542) Expired (100) (9,761) -- -- ---- ------- ------ --------- Balance March 31, 2003 -- $ -- 100 $ 18,199 ---- -------- ------ ---------
See "Summary of significant accounting policies." -------------------------------------------------------------------------------- 23 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT 6. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The agreement went into effect Sept. 24, 2002. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $200 million with U.S. Bank, N.A. The Fund had no borrowings outstanding during the year ended March 31, 2003. 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $104,899,056 as of March 31, 2003, that will expire in 2009 through 2012 if not offset by capital gains. It is unlikely the board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. -------------------------------------------------------------------------------- 24 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT 8. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
Class A Per share income and capital changes(a) Fiscal period ended March 31, 2003 2002 2001(b) Net asset value, beginning of period $2.19 $2.35 $ 4.98 Income from investment operations: Net investment income (loss) (.01) (.01) (.01) Net gains (losses) (both realized and unrealized) (.74) (.15) (2.62) Total from investment operations (.75) (.16) (2.63) Net asset value, end of period $1.44 $2.19 $ 2.35 Ratios/supplemental data Net assets, end of period (in millions) $29 $55 $53 Ratio of expenses to average daily net assets(c),(e) 1.32% 1.26% 1.30%(d) Ratio of net investment income (loss) to average daily net assets (.55%) (.65%) (.47%)(d) Portfolio turnover rate (excluding short-term securities) 275% 78% 54% Total return(i) (34.25%) (6.81%) (52.81%)(j)
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 25 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended March 31, 2003 2002 2001(b) Net asset value, beginning of period $2.16 $2.34 $ 4.99 Income from investment operations: Net investment income (loss) (.02) (.03) (.03) Net gains (losses) (both realized and unrealized) (.72) (.15) (2.62) Total from investment operations (.74) (.18) (2.65) Net asset value, end of period $1.42 $2.16 $ 2.34 Ratios/supplemental data Net assets, end of period (in millions) $15 $29 $27 Ratio of expenses to average daily net assets(c),(f) 2.08% 2.04% 2.07%(d) Ratio of net investment income (loss) to average daily net assets (1.32%) (1.43%) (1.25%)(d) Portfolio turnover rate (excluding short-term securities) 275% 78% 54% Total return(i) (34.26%) (7.69%) (53.11%)(j)
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 26 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended March 31, 2003 2002 2001(b) Net asset value, beginning of period $2.16 $2.34 $ 4.98 Income from investment operations: Net investment income (loss) (.02) (.03) (.02) Net gains (losses) (both realized and unrealized) (.73) (.15) (2.62) Total from investment operations (.75) (.18) (2.64) Net asset value, end of period $1.41 $2.16 $ 2.34 Ratios/supplemental data Net assets, end of period (in millions) $1 $2 $2 Ratio of expenses to average daily net assets(c),(g) 2.08% 2.04% 2.07%(d) Ratio of net investment income (loss) to average daily net assets (1.31%) (1.43%) (1.25%)(d) Portfolio turnover rate (excluding short-term securities) 275% 78% 54% Total return(i) (34.72%) (7.69%) (53.01%)(j)
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 27 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended March 31, 2003 2002 2001(b) Net asset value, beginning of period $2.20 $2.35 $ 4.98 Income from investment operations: Net investment income (loss) (.01) (.01) (.01) Net gains (losses) (both realized and unrealized) (.74) (.14) (2.62) Total from investment operations (.75) (.15) (2.63) Net asset value, end of period $1.45 $2.20 $ 2.35 Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- Ratio of expenses to average daily net assets(c),(h) 1.11% 1.06% 1.11%(d) Ratio of net investment income (loss) to average daily net assets (.33%) (.46%) (.34%)(d) Portfolio turnover rate (excluding short-term securities) 275% 78% 54% Total return(i) (34.09%) (6.38%) (52.81%)(j)
Notes to financial highlights (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 26, 2000 (when shares became publicly available) to March 31, 2001. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 1.66%, 1.40% and 1.59% for the periods ended March 31, 2003, 2002 and 2001, respectively. (f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 2.42%, 2.16% and 2.35% for the periods ended March 31, 2003, 2002 and 2001, respectively. (g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 2.42%, 2.16% and 2.35% for the periods ended March 31, 2003, 2002 and 2001, respectively. (h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class Y would have been 1.50%, 1.24% and 1.36% for the periods ended March 31, 2003, 2002 and 2001, respectively. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. -------------------------------------------------------------------------------- 28 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Independent Auditors' Report THE BOARD AND SHAREHOLDERS AXP STRATEGY SERIES, INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of AXP Focused Growth Fund (a series of AXP Strategy Series, Inc.) as of March 31, 2003, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended March 31, 2003, and the financial highlights for each of the years in the two-year period ended March 31, 2003 and for the period from June 26, 2000 (when shares became publicly available) to March 31, 2001. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Focused Growth Fund as of March 31, 2003, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota May 9, 2003 -------------------------------------------------------------------------------- 29 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Board Members and Officers Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. Each member oversees 15 Master Trust portfolios and 80 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, Position held with Fund and Principal occupation Other directorships address, length of service during past five years age -------------------------------------- ------------------------------ --------------------------- ---------------------------- Arne H. Carlson Board member since 1999 Chair, Board Services 901 S. Marquette Ave. Corporation (provides Minneapolis, MN 55402 administrative services Age 68 to boards). Former Governor of Minnesota -------------------------------------- ------------------------------ --------------------------- ---------------------------- Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Scottish Power PLC, Vulcan 901 S. Marquette Ave. Fluor Corporation Materials Company, Inc. Minneapolis, MN 55402 (engineering and (construction Age 65 construction) since 1998 materials/chemicals) -------------------------------------- ------------------------------ --------------------------- ---------------------------- Livio D. DeSimone Board member since 2001 Retired Chair of the Cargill, Incorporated 30 Seventh Street East Board and Chief Executive (commodity merchants and Suite 3050 Officer, Minnesota Mining processors), General St. Paul, MN 55101-4901 and Manufacturing (3M) Mills, Inc. (consumer Age 68 foods), Vulcan Materials Company (construction materials/chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. -------------------------------------- ------------------------------ --------------------------- ---------------------------- Heinz F. Hutter* Board member since 1994 Retired President and P.O. Box 2187 Chief Operating Officer, Minneapolis, MN 55402 Cargill, Incorporated Age 73 (commodity merchants and processors) -------------------------------------- ------------------------------ --------------------------- ---------------------------- Anne P. Jones Board member since 1985 Attorney and Consultant 5716 Bent Branch Rd. Bethesda, MD 20816 Age 68 -------------------------------------- ------------------------------ --------------------------- ---------------------------- Stephen R. Lewis, Jr.** Board member since 2002 Retired President and Valmont Industries, Inc. 222 South 9th Street #440 Professor of Economics, (manufactures irrigation Minneapolis, MN 55402 Carleton College systems) Age 64 -------------------------------------- ------------------------------ --------------------------- ---------------------------- Alan G. Quasha Board member since 2002 President, Quadrant Compagnie Financiere 720 Fifth Avenue Management, Inc. Richemont AG (luxury goods) New York, NY 10019 (management of private Age 53 equities) -------------------------------------- ------------------------------ --------------------------- ----------------------------
* Interested person of AXP Partners International Aggressive Growth Fund and AXP Partners Aggressive Growth Fund by reason of being a security holder of J P Morgan Chase & Co., which has a 45% interest in American Century Companies, Inc., the parent company of one of the Fund's subadvisers, American Century Investment Management, L.P. ** Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Liberty Wanger Asset Management, L.P., one of the fund's subadvisers. -------------------------------------------------------------------------------- 30 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued) Name, Position held with Fund and Principal occupation Other directorships address, length of service during past five years age -------------------------------------- ------------------------------ --------------------------- ---------------------------- Alan K. Simpson Board member since 1997 Former three-term United Biogen, Inc. 1201 Sunshine Ave. States Senator for Wyoming (biopharmaceuticals) Cody, WY 82414 Age 71 -------------------------------------- ------------------------------ --------------------------- ---------------------------- Alison Taunton-Rigby Board member since 2002 President, Forester 901 S. Marquette Ave. Biotech since 2000. Minneapolis, MN 55402 Former President and CEO, Age 58 Aquila Biopharmaceuticals, Inc. -------------------------------------- ------------------------------ --------------------------- ---------------------------- Board Members Affiliated with AEFC*** Name, Position held with Fund and Principal occupation Other directorships address, length of service during past five years age -------------------------------------- ------------------------------ --------------------------- ---------------------------- Barbara H. Fraser Board member since 2002 Executive Vice President 1546 AXP Financial Center - AEFA Products and Minneapolis, MN 55474 Corporate Marketing of Age 53 AEFC since 2002. President - Travelers Check Group, American Express Company, 2001-2002. Management Consultant, Reuters, 2000-2001. Managing Director - International Investments, Citibank Global, 1999-2000. Chairman and CEO, Citicorp Investment Services and Citigroup Insurance Group, U.S., 1998-1999 -------------------------------------- ------------------------------ --------------------------- ---------------------------- Stephen W. Roszell Board member since 2002; Senior Vice President - 50238 AXP Financial Center Vice President since 2002 Institutional Group of Minneapolis, MN 55474 AEFC Age 54 -------------------------------------- ------------------------------ --------------------------- ---------------------------- William F. Truscott Board member since 2001, Senior Vice President - 53600 AXP Financial Center Vice President since 2002 Chief Investment Officer Minneapolis, MN 55474 of AEFC since 2001. Age 42 Former Chief Investment Officer and Managing Director, Zurich Scudder Investments -------------------------------------- ------------------------------ --------------------------- ----------------------------
*** Interested person by reason of being an officer, director and/or employee of AEFC. -------------------------------------------------------------------------------- 31 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Roszell, who is vice president, and Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, Position held with Fund and Principal occupation Other directorships address, length of service during past five years age -------------------------------------- ------------------------------ --------------------------- ---------------------------- Jeffrey P. Fox Treasurer since 2002 Vice President - 50005 AXP Financial Center Investment Accounting, Minneapolis, MN 55474 AEFC, since 2002; Vice Age 47 President - Finance, American Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 -------------------------------------- ------------------------------ --------------------------- ---------------------------- Paula R. Meyer President since 2002 Senior Vice President and 596 AXP Financial Center General Manager - Mutual Minneapolis, MN 55474 Funds, AEFC, since 2002; Age 49 Vice President and Managing Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 -------------------------------------- ------------------------------ --------------------------- ---------------------------- Leslie L. Ogg Vice President, General President of Board 901 S. Marquette Ave. Counsel, and Secretary since Services Corporation Minneapolis, MN 55402 1978 Age 64 -------------------------------------- ------------------------------ --------------------------- ----------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. -------------------------------------------------------------------------------- 32 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Results of Meeting of Shareholders AXP FOCUSED GROWTH FUND REGULAR MEETING OF SHAREHOLDERS HELD ON NOVEMBER 13, 2002 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. Proposal 1 To elect the thirteen nominees specified below as Board members*.
Shares Voted "For" Shares Withholding Authority to Vote Arne H. Carlson 341,557,738.850 17,248,381.599 Philip J. Carroll, Jr. 342,549,023.018 16,257,097.431 Livio D. DeSimone 342,002,063.042 16,804,057.407 Barbara H. Fraser 342,436,055.497 16,370,064.952 Ira D. Hall 342,369,544.114 16,436,576.335 Heinz F. Hutter 341,854,972.447 16,951,148.002 Anne P. Jones 342,174,251.845 16,631,868.604 Stephen R. Lewis, Jr. 342,953,259.508 15,852,860.941 Alan G. Quasha 342,707,517.533 16,098,602.916 Stephen W. Roszell 342,573,586.083 16,232,534.366 Alan K. Simpson 340,861,449.162 17,944,671.287 Alison Taunton-Rigby 342,583,348.847 16,222,771.602 William F. Truscott 342,707,809.291 16,098,311.158
-------------------------------------------------------------------------------- 33 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Proposal 2 To Amend the Articles of Incorporation/Declaration of Trust*: 2(a). To allow one vote/dollar instead of one vote/share. Shares Voted "For" Shares Voted "Against" Abstentions Broker Non-Votes 290,929,766.652 34,855,732.940 11,612,830.857 21,407,790.000 Proposal 3 To approve a policy authorizing American Express Financial Corporation, subject to Board approval, to retain and replace subadvisers, or to modify subadvisory agreements, without shareholder approval. Shares Voted "For" Shares Voted "Against" Abstentions Broker Non-Votes 18,253,400.274 1,844,729.996 632,543.589 2,264,497.000 Proposal 4 To approve changes to the Investment Management Services Agreement: 4(b). To modify the performance incentive adjustment calculation. Shares Voted "For" Shares Voted "Against" Abstentions Broker Non-Votes 17,868,962.254 1,991,740.020 869,971.585 2,264,497.000 * Denotes Registrant-wide proposals and voting results. -------------------------------------------------------------------------------- 34 -- AXP FOCUSED GROWTH FUND -- 2003 ANNUAL REPORT Contact Information and Services Internet Receive 24-hour access to your account information at www.americanexpress.com. Client Service Receive fund performance, fund prices, account values, recent account transactions, and make account inquiries by calling American Express Financial Advisors at (888) 723-8476 or TTY: (800) 846-4852. Telephone Transaction Service For sales and exchange, dividend payments, or reinvestments and automatic payment arrangement contact American Express Financial Advisors at (888) 723-8476. Find an American Express Financial Advisor If you are an existing American Express Financial Advisors client who has recently moved and would like to speak with a new advisor, please call your local Client Service Coordinator at (800) 803-6284. -------------------------------------------------------------------------------- American Express(R) Funds provide investment opportunities for shareholders, all in one place. We've been managing mutual funds for over 60 years. Today, our family of funds includes 61 publicly offered funds in all style categories: growth, blend, value, and income. Our broad selection of funds allows you to build a portfolio diversified across various asset classes. Growth Funds Typically, growth investing seeks to invest in companies with the greatest earnings growth potential. Blend Funds Blend is often regarded as an investment style that incorporates both growth and value considerations in the stock selection process. Value Funds A value investment approach generally seeks to invest in undervalued stocks that are temporarily out of favor. Income/Tax-Exempt Income Funds Involves investing primarily in fixed income securities with the goal of maximizing income and often, but not always, capital appreciation. American Express(R) Funds For more complete information about our funds, including fees and expenses, please call (800) 862-7919 for prospectuses. Read them carefully before you invest. Growth Funds AXP(R) Emerging Markets Fund AXP Equity Select Fund AXP Focused Growth Fund AXP Global Growth Fund AXP Growth Fund AXP Growth Dimensions Fund AXP New Dimensions Fund(R) AXP Partners Aggressive Growth Fund AXP Partners Growth Fund AXP Partners International Aggressive Growth Fund AXP Partners Small Cap Growth Fund AXP Strategy Aggressive Fund Blend Funds AXP Blue Chip Advantage Fund AXP Discovery Fund* AXP European Equity Fund AXP Global Balanced Fund AXP International Fund AXP Large Cap Equity Fund AXP Managed Allocation Fund AXP Mid Cap Index Fund AXP Partners International Core Fund AXP Partners International Small Cap Fund AXP Partners Small Cap Core Fund AXP Quantitative Large Cap Equity Fund AXP Research Opportunities Fund AXP S&P 500 Index Fund AXP Small Cap Advantage Fund AXP Small Company Index Fund AXP Stock Fund Value Funds AXP Diversified Equity Income Fund AXP Equity Value Fund AXP Large Cap Value Fund AXP Mid Cap Value Fund AXP Mutual AXP Partners Fundamental Value Fund AXP Partners International Select Value Fund AXP Partners Select Value Fund AXP Partners Small Cap Value Fund AXP Partners Value Fund AXP Progressive Fund* Income/Tax-Exempt Income Funds AXP Bond Fund AXP Cash Management Fund** AXP Extra Income Fund AXP Federal Income Fund AXP Global Bond Fund AXP High Yield Tax-Exempt Fund AXP Insured Tax-Exempt Fund AXP Intermediate Tax-Exempt Fund AXP Selective Fund AXP State Tax-Exempt Funds AXP Tax-Exempt Bond Fund AXP Tax-Free Money Fund** AXP U.S. Government Mortgage Fund Sector Funds AXP Global Technology Fund AXP Precious Metals Fund AXP Utilities Fund These funds are also listed in the categories above. AXP(R) Partners Funds AXP Partners Aggressive Growth Fund AXP Partners Fundamental Value Fund AXP Partners Growth Fund AXP Partners International Aggressive Growth Fund AXP Partners International Core Fund AXP Partners International Select Value Fund AXP Partners International Small Cap Fund AXP Partners Select Value Fund AXP Partners Small Cap Core Fund AXP Partners Small Cap Growth Fund AXP Partners Small Cap Value Fund AXP Partners Value Fund International Funds AXP Emerging Markets Fund AXP European Equity Fund AXP Global Balanced Fund AXP Global Bond Fund AXP Global Growth Fund AXP International Fund AXP Partners International Aggressive Growth Fund AXP Partners International Core Fund AXP Partners International Select Value Fund AXP Partners International Small Cap Fund * Closed to new investors. ** An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. (5/03) AXP Focused Growth Fund 70100 AXP Financial Center Minneapolis, MN 55474 americanexpress.com -------------------------------------------------------------------------------- (logo) AMERICAN EXPRESS(R) -------------------------------------------------------------------------------- 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. S-6003 E (5/03)