N-30D 1 s6351.txt AXP STOCK FUND-ANNUAL AXP(R) Stock Fund 2001 ANNUAL REPORT (PROSPECTUS ENCLOSED) American Express(R) Funds (icon of) magnifying glass AXP Stock Fund seeks to provide shareholders with current income and growth of capital. (This annual report includes a prospectus that describes in detail the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money.) Big Names, Big Business These are the names you know. They are the movers and shakers of today's business world. Whether representing established U.S. firms or companies that have made their mark overseas, the securities found in AXP Stock Fund make up a veritable who's who in the financial market. These stocks offer a dual benefit of ongoing growth potential along with a steady stream of dividend income. And as we move toward a more global economy, these blue chip, multinational companies are well-positioned to prosper in the 21st century. Table of Contents 2001 ANNUAL REPORT The purpose of this annual report is to tell investors how the Fund performed. From the Chairman 3 From the Portfolio Manager 3 Fund Facts 5 The 10 Largest Holdings 6 Making the Most of the Fund 7 The Fund's Long-term Performance 8 Board Members and Officers 9 Independent Auditors' Report (Fund) 11 Financial Statements (Fund) 12 Notes to Financial Statements (Fund) 15 Independent Auditors' Report (Portfolio) 22 Financial Statements (Portfolio) 23 Notes to Financial Statements (Portfolio) 26 Investments in Securities 29 Federal Income Tax Information 33 -------------------------------------------------------------------------------- 2 AXP STOCK FUND -- ANNUAL REPORT (picture of) Arne H. Carlson Arne H. Carlson Chairman of the board From the Chairman For most of us investors, the past several months proved to be an extremely trying time. More recently, the events of this past September and the prospect of what may follow have added to our collective concern. While nothing can change what has happened, we can control how we respond. In broad terms, I would strongly advise that you keep a focus on your long-term financial goals and not let specific events dictate your investment decisions. Ultimately, it is where you finish, not where you are at the moment, that matters most. Your financial advisor plays an essential role in this process, so please let him or her help you by reviewing your situation and plotting the proper investment course. As I have indicated in the past, the role our Board plays in your financial future is to monitor and confirm that each American Express mutual fund meets its investment objective and that its management style stays on target. We want each fund to be able to deliver to you, the shareholder, the type of performance you expect and the best results that can be obtained. Toward that end, American Express has made significant changes in its investment management capability, and will continue to make changes as it strives to provide a consistent standard of excellence. On behalf of the Board, Arne H. Carlson (picture of) G. Michael Kennedy G. Michael Kennedy Portfolio manager From the Portfolio Manager During a period of dramatic decline for stocks, AXP Stock Fund's Class A shares registered a loss of 24.87% (excluding the sales charge) for the past fiscal year -- October 2000 through September 2001. This compares with a loss of 26.63% for the Standard & Poor's 500 (an unmanaged index of stocks commonly used to measure the performance of the stock market as a whole) and a loss of 27.89% for the Lipper Large-Cap Core Index (a group of mutual funds used to compare the performance of mutual funds such as this one). -------------------------------------------------------------------------------- 3 AXP STOCK FUND -- ANNUAL REPORT The stock market was rapidly losing ground when the period began, as indications of a slowing economy fueled concerns among investors that corporate profits would suffer a similar slump. That reasoning proved correct, and as profits deteriorated, stocks declined. The result was a major market slide that, aside from a brief upturn in January spawned by a surprise interest-rate cut by the Federal Reserve, didn't hit bottom until early April. A BRIEF RESPITE Spring ushered in some optimism to the market, as investors began to look ahead to the possibility that the economy would pick up during second half of 2001. But the resulting rally would again be short-lived. Faced with a rising stream of weak economic and profit data, the market again went into a retreat that was ultimately exacerbated by the horrific events of September 11. Although the Fund was certainly not immune to the market's problems, it did manage to avoid the very worst of them. This was most evident in the case of the technology sector, where a number of leading stocks saw their prices cut in half and, in some cases, much more. To the Fund's benefit, I substantially reduced its tech holdings last December, given what seemed to be unreasonably high prices for many stocks. Still, that didn't prevent technology holdings from having a negative effect on performance. Among other major areas of investment, financial services, capital goods, consumer staples, health care and energy were also disappointing performers for the 12 months, while basic materials, transportation and utilities stocks came in on the plus side. Also working in the Fund's favor was a higher-than-normal level of cash reserves. Looking ahead, I think the terrorist attacks will create increased pressure on the U.S. economy over the next several months. In light of that outlook, I expect to stay with a conservative approach characterized by broad industry diversification, an above-average cash level and a relatively modest amount of holdings in the volatile technology sector. G. Michael Kennedy -------------------------------------------------------------------------------- 4 AXP STOCK FUND -- ANNUAL REPORT Fund Facts Class A -- 12-month performance (All figures per share) Net asset value (NAV) Sept. 30, 2001 $17.86 Sept. 30, 2000 $27.12 Decrease $ 9.26 Distributions -- Oct. 1, 2000 - Sept. 30, 2001 From income $ 1.06 From long-term capital gains $ 1.93 Total distributions $ 2.99 Total return* -24.87% Class B -- 12-month performance (All figures per share) Net asset value (NAV) Sept. 30, 2001 $17.70 Sept. 30, 2000 $26.90 Decrease $ 9.20 Distributions -- Oct. 1, 2000 - Sept. 30, 2001 From income $ 0.89 From long-term capital gains $ 1.93 Total distributions $ 2.82 Total return* -25.48% Class C -- 12-month performance (All figures per share) Net asset value (NAV) Sept. 30, 2001 $17.66 Sept. 30, 2000 $26.88 Decrease $ 9.22 Distributions -- Oct. 1, 2000 - Sept. 30, 2001 From income $ 0.92 From long-term capital gains $ 1.93 Total distributions $ 2.85 Total return* -25.47% Class Y -- 12-month performance (All figures per share) Net asset value (NAV) Sept. 30, 2001 $17.86 Sept. 30, 2000 $27.13 Decrease $ 9.27 Distributions -- Oct. 1, 2000 - Sept. 30, 2001 From income $ 1.10 From long-term capital gains $ 1.93 Total distributions $ 3.03 Total return* -24.77% * The total return is a hypothetical investment in the Fund with all distributions reinvested. Returns do not include sales load. The prospectus discusses the effect of sales charges, if any, on the various classes. -------------------------------------------------------------------------------- 5 AXP STOCK FUND -- ANNUAL REPORT The 10 Largest Holdings Percent Value (of net assets) (as of Sept. 30, 2001) Pfizer 2.8% $93,232,500 General Electric 2.7 89,280,000 Baxter Intl 2.4 77,070,000 McGraw-Hill Companies 2.3 75,660,000 Verizon Communications 2.0 64,932,000 Bank of America 2.0 64,240,000 Exxon Mobil 1.9 63,040,000 Caterpillar 1.9 62,720,000 Minnesota Mining & Mfg 1.8 59,040,000 American Home Products 1.8 58,250,000 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (icon of) pie chart The 10 holdings listed here make up 21.6% of net assets -------------------------------------------------------------------------------- 6 AXP STOCK FUND -- ANNUAL REPORT Making the Most of the Fund BUILD YOUR ASSETS SYSTEMATICALLY One of the best ways to invest in the Fund is by dollar-cost averaging -- a time-tested strategy that can make market fluctuations work for you. To dollar-cost average, simply invest a fixed amount of money regularly. You'll automatically buy more shares when the Fund's share price is low, fewer shares when it is high. The chart below shows how dollar-cost averaging works. In these three hypothetical scenarios, you will see six months of share price fluctuations. This strategy does not ensure a profit or avoid a loss if the market declines. But, if you can continue to invest regularly through changing market conditions even when the price of your shares falls or the market declines, it can be an effective way to accumulate shares to meet your long-term goals. How dollar-cost averaging works Jan Feb Mar Apr May Jun $15 $16 $18 $20 $10 $10 $12 $14 $ 5 Accumulated shares* Average market Your average price per share cost per share 42.25 $15 $14.20 ------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun $15 $10 $10 $10 $ 5 $8 $5 $5 $8 Accumulated shares* Average market Your average price per share cost per share 85.0 $7.66 $7.05 ------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun $15 $10 $10 $ 5 $8 $6 $4 $4 $7 Accumulated shares* Average market Your average price per share cost per share 103.5 $6.50 $5.80 ------------------------------------------------------------------------------- $100 invested per month. Total invested: $600. * Shares purchased is determined by dividing the amount invested per month by the current share price. THREE WAYS TO BENEFIT FROM A MUTUAL FUND: o your shares increase in value when the Fund's investments do well o you receive capital gains when the gains on investments sold by the Fund exceed losses o you receive income when the Fund's stock dividends, interest and short-term gains exceed its expenses. All three make up your total return. You potentially can increase your investment if, like most investors, you reinvest your dividends and capital gain distributions to buy additional shares of the Fund or another fund. -------------------------------------------------------------------------------- 7 AXP STOCK FUND -- ANNUAL REPORT The Fund's Long-term Performance Value of your $10,000 in AXP Stock Fund (line chart) $50,000 $40,000 S&P 500 Index $30,000 Lipper Large-Cap Core Index $24,152 AXP Stock Fund $20,000 Class A $9,425 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 Average Annual Total Returns (as of Sept. 30, 2001) 1 year 5 years 10 years Since inception Class A -29.20% +5.24% +9.22% N/A Class B -28.11% +5.56% N/A +8.88%* Class C -26.13% N/A N/A -20.26%** Class Y -24.77% +6.62% N/A +9.86%* * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 10/1/91 to 9/30/01. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $16,522. Also see "Past Performance" in the Fund's current prospectus. On the graph above you can see the Fund's total return compared to two widely cited unmanaged performance indexes, the Standard & Poor's 500 Index (S&P 500 Index) and the Lipper Large-Cap Core Index. In comparing AXP Stock Fund (Class A) to the two indexes, 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 indexes. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Average annual total return figures reflect the impact of the maximum applicable sales charge. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. S&P 500 Index, an unmanaged list 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. Lipper Large-Cap Core Index, an unmanaged 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. -------------------------------------------------------------------------------- 8 AXP STOCK FUND -- 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 72 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 Principal occupations Other directorships address, Registrant and length of during past five years age service -------------------------------------- ------------------------------ --------------------------- ---------------------------- H. Brewster Atwater, Jr. Board member since 1996 Retired chair and chief 4900 IDS Tower executive officer, Minneapolis, MN 55402 General Mills, Inc. Born in 1931 (consumer foods) -------------------------------------- ------------------------------ --------------------------- ---------------------------- Arne H. Carlson Chair of the Board since 1999 Chair, Board Services 901 S. Marquette Ave. Corporation (provides Minneapolis, MN 55402 administrative services Born in 1934 to boards), former Governor of Minnesota -------------------------------------- ------------------------------ --------------------------- ---------------------------- Lynne V. Cheney Board member since 1994 Distinguished Fellow, AEI The Reader's Digest American Enterprise Institute for Association Inc. Public Policy Research (AEI) 1150 17th St., N.W. Washington, D.C. 20036 Born in 1941 -------------------------------------- ------------------------------ --------------------------- ---------------------------- 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), Target St. Paul, MN 55101-4901 and Manufacturing (3M) Corporation (department Born in 1936 stores), General Mills, Inc. (consumer foods), Vulcan Materials Company (construction materials/chemicals) and Milliken & Company (textiles and chemicals) -------------------------------------- ------------------------------ --------------------------- ---------------------------- Ira D. Hall Board member since 2001 Treasurer, Texaco Inc. Texaco, Inc. since 1998. Prior to 2000 Westchester Avenue that, director, White Plains, NY 10650 International Operations Born in 1944 IBM Corp. -------------------------------------- ------------------------------ --------------------------- ---------------------------- Heinz F. Hutter Board member since 1994 Retired president and P.O. Box 2187 chief operating officer, Minneapolis, MN 55402 Cargill, Incorporated Born in 1929 (commodity merchants and processors) -------------------------------------- ------------------------------ --------------------------- ---------------------------- Anne P. Jones Board member since 1985 Attorney and consultant Motorola, Inc. 5716 Bent Branch Rd. (electronics) Bethesda, MD 20816 Born in 1935 -------------------------------------- ------------------------------ --------------------------- ---------------------------- William R. Pearce Board member since 1980 RII Weyerhaeuser World 2050 One Financial Plaza Timberfund, L.P. Minneapolis, MN 55402 (develops timber Born in 1927 resources) - management committee; former chair, American Express Funds -------------------------------------- ------------------------------ --------------------------- ----------------------------
-------------------------------------------------------------------------------- 9 AXP STOCK FUND -- ANNUAL REPORT
Independent Board Members Name, Position held with Principal occupations Other directorships address, Registrant and length of during past five years age service -------------------------------------- ------------------------------ --------------------------- ---------------------------- Alan K. Simpson Board member since 1997 Former three-term United Biogen, Inc. 1201 Sunshine Ave. States Senator for Wyoming (bio-pharmaceuticals) Cody, WY 82414 Born in 1931 -------------------------------------- ------------------------------ --------------------------- ---------------------------- C. Angus Wurtele Board member since 1994 Retired chair of the Bemis Corporation 4900 IDS Tower board and chief executive (packaging) Minneapolis, MN 55402 officer, The Valspar Born in 1934 Corporation -------------------------------------- ------------------------------ --------------------------- ----------------------------
Board Members Affiliated with American Express Financial Corporation (AEFC) Name, Position held with Principal occupations Other directorships address, Registrant and length of during past five years age service -------------------------------------- ------------------------------ --------------------------- ---------------------------- David R. Hubers Board member since 1993 Retired chief executive Chronimed Inc. (specialty 50643 AXP Financial Center officer and director of pharmaceutical Minneapolis, MN 55474 AEFC distribution), RTW Inc. Born in 1943 (manages workers compensation programs), Lawson Software, Inc. (technology based business applications) -------------------------------------- ------------------------------ --------------------------- ---------------------------- John R. Thomas Board member since 1987, Senior vice president - 50652 AXP Financial Center president since 1997 information and Minneapolis, MN 55474 technology of AEFC Born in 1937 -------------------------------------- ------------------------------ --------------------------- ----------------------------
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. Thomas, who is president, the Fund's other officers are:
Other Officers Name, Position held with Principal occupations Other directorships address, Registrant and length of during past five years age service -------------------------------------- ------------------------------ --------------------------- ---------------------------- John M. Knight Treasurer since 1999 Vice president - 50005 AXP Financial Center investment accounting of Minneapolis, MN 55474 AEFC Born in 1952 -------------------------------------- ------------------------------ --------------------------- ---------------------------- Leslie L. Ogg Vice president, general President of Board 901 S. Marquette Ave. counsel and secretary since Services Corporation Minneapolis, MN 55402 1978 Born in 1938 -------------------------------------- ------------------------------ --------------------------- ---------------------------- Frederick C. Quirsfeld Vice president since 1998 Senior vice president - 53609 AXP Financial Center fixed income of AEFC Minneapolis, MN 55474 Born in 1947 -------------------------------------- ------------------------------ --------------------------- ----------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. -------------------------------------------------------------------------------- 10 AXP STOCK FUND -- ANNUAL REPORT Independent Auditors' Report THE BOARD AND SHAREHOLDERS AXP STOCK FUND, INC. We have audited the accompanying statement of assets and liabilities of AXP Stock Fund, Inc. as of September 30, 2001, 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 September 30, 2001, and the financial highlights for each of the years in the five-year period ended September 30, 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AXP Stock Fund, Inc. as of September 30, 2001, 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 November 2, 2001 -------------------------------------------------------------------------------- 11 AXP STOCK FUND -- ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Stock Fund, Inc. Sept. 30, 2001 Assets Investment in Equity Portfolio (Note 1) $3,278,703,601 Capital shares receivable 6,050 ----- Total assets 3,278,709,651 ------------- Liabilities Capital shares payable 261,880 Accrued distribution fee 23,338 Accrued service fee 1,846 Accrued transfer agency fee 10,943 Accrued administrative services fee 2,636 Other accrued expenses 138,577 ------- Total liabilities 439,220 ------- Net assets applicable to outstanding capital stock $3,278,270,431 ============== Represented by Capital stock -- $.01 par value (Note 1) $ 1,837,264 Additional paid-in capital 3,356,172,775 Undistributed net investment income 1,891,584 Accumulated net realized gain (loss) (34,699,329) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 7) (46,931,863) ----------- Total -- representing net assets applicable to outstanding capital stock $3,278,270,431 ============== Net assets applicable to outstanding shares: Class A $2,277,038,606 Class B $ 305,624,734 Class C $ 1,780,027 Class Y $ 693,827,064 Net asset value per share of outstanding capital stock: Class A shares 127,505,924 $ 17.86 Class B shares 17,266,336 $ 17.70 Class C shares 100,809 $ 17.66 Class Y shares 38,853,282 $ 17.86 ---------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 12 AXP STOCK FUND -- ANNUAL REPORT
Statement of operations AXP Stock Fund, Inc. Year ended Sept. 30, 2001 Investment income Income: Dividends $ 56,668,840 Interest 14,466,956 Less foreign taxes withheld (73,504) ------- Total income 71,062,292 ---------- Expenses (Note 2): Expenses allocated from Equity Portfolio 19,530,860 Distribution fee Class A 7,092,752 Class B 3,807,972 Class C 14,250 Transfer agency fee 3,795,302 Incremental transfer agency fee Class A 223,372 Class B 94,694 Class C 573 Service fee -- Class Y 843,430 Administrative services fees and expenses 1,156,491 Compensation of board members 13,560 Printing and postage 356,788 Registration fees 86,786 Audit fees 10,750 Other 18,836 ------ Total expenses 37,046,416 Earnings credits on cash balances (Note 2) (204,370) -------- Total net expenses 36,842,046 ---------- Investment income (loss) -- net 34,220,246 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (4,392,928) Foreign currency transactions 106,374 Futures contracts 2,715,554 --------- Net realized gain (loss) on investments (1,571,000) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (1,175,193,638) -------------- Net gain (loss) on investments and foreign currencies (1,176,764,638) -------------- Net increase (decrease) in net assets resulting from operations $(1,142,544,392) ===============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 AXP STOCK FUND -- ANNUAL REPORT
Statements of changes in net assets AXP Stock Fund, Inc. Year ended Sept. 30, 2001 2000 Operations and distributions Investment income (loss) -- net $ 34,220,246 $ 31,154,331 Net realized gain (loss) on investments (1,571,000) 465,006,097 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (1,175,193,638) 240,595,471 -------------- ----------- Net increase (decrease) in net assets resulting from operations (1,142,544,392) 736,755,899 -------------- ----------- Distributions to shareholders from: Net investment income Class A (22,908,683) (22,686,570) Class B (128,550) -- Class C (2,956) (896) Class Y (8,211,333) (8,286,582) Net realized gain Class A (342,402,971) (366,196,061) Class B (45,710,431) (42,601,785) Class C (118,787) -- Class Y (101,769,580) (112,206,614) ------------ ------------ Total distributions (521,253,291) (551,978,508) ------------ ------------ Capital share transactions (Note 3) Proceeds from sales Class A shares (Notes 2 and 5) 105,362,503 193,617,322 Class B shares 54,166,817 102,884,487 Class C shares 1,915,657 717,414 Class Y shares 154,851,512 203,076,715 Reinvestment of distributions at net asset value Class A shares 335,208,053 356,019,142 Class B shares 45,253,410 42,094,823 Class C shares 117,399 896 Class Y shares 100,711,162 108,039,801 Payments for redemptions Class A shares (359,608,863) (421,488,122) Class B shares (Note 2) (74,452,177) (69,976,434) Class C shares (Note 2) (398,828) (58) Class Y shares (196,776,065) (440,975,392) ------------ ------------ Increase (decrease) in net assets from capital share transactions 166,350,580 74,010,594 ----------- ---------- Total increase (decrease) in net assets (1,497,447,103) 258,787,985 Net assets at beginning of year 4,775,717,534 4,516,929,549 ------------- ------------- Net assets at end of year $ 3,278,270,431 $4,775,717,534 =============== ============== Undistributed net investment income $ 1,891,584 $ 1,493,642 --------------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 AXP STOCK FUND -- ANNUAL REPORT Notes to Financial Statements AXP Stock Fund, Inc. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The Fund has 10 billion authorized shares of capital stock. Class C shares of the Fund were offered to the public on June 26, 2000. Prior to this date, American Express Financial Corporation (AEFC) purchased 74 shares of capital stock at $27.21 per share, which represented the initial capital in Class C. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth calendar year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Investment in Equity Portfolio The Fund invests all of its assets in Equity Portfolio (the Portfolio), a series of Growth and Income 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. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund as of Sept. 30, 2001 was 99.99%. Valuation of securities held by the Portfolio is discussed in Note 1 of the Portfolio's "Notes to financial statements" (included elsewhere in this report). Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. -------------------------------------------------------------------------------- 15 AXP STOCK FUND -- ANNUAL REPORT Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $2,570,782 and accumulated net realized loss has been decreased by $2,570,782. Dividends to shareholders Dividends from net investment income, declared and paid each calendar quarter, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with AEFC to provide administrative services. Under an Administrative Services Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.04% to 0.02% annually. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the board. Under a 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 distribution 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. -------------------------------------------------------------------------------- 16 AXP STOCK FUND -- 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 $1,627,944 for Class A, $263,914 for Class B and $675 for Class C for the year ended Sept. 30, 2001. During the year ended Sept. 30, 2001, the Fund's transfer agency fees were reduced by $204,370 as a result of earnings credits from overnight cash balances. 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
Year ended Sept. 30, 2001 Class A Class B Class C Class Y Sold 4,825,308 2,471,218 88,031 7,103,795 Issued for reinvested distributions 15,679,368 2,126,797 5,533 4,716,026 Redeemed (16,783,964) (3,545,110) (19,004) (9,137,041) ----------- ---------- ------- ---------- Net increase (decrease) 3,720,712 1,052,905 74,560 2,682,780 --------- --------- ------ --------- Year ended Sept. 30, 2000 Class A Class B Class C* Class Y Sold 7,079,589 3,781,123 26,218 7,402,862 Issued for reinvested distributions 13,183,078 1,573,879 33 4,003,458 Redeemed (15,265,905) (2,565,981) (2) (15,921,278) ----------- ---------- -- ----------- Net increase (decrease) 4,996,762 2,789,021 26,249 (4,514,958) --------- --------- ------ ----------
* Inception date was June 26, 2000. 4. BANK BORROWINGS The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The Fund must have asset coverage for borrowings not to exceed the aggregate of 333% of advances equal to or less than five business days plus 367% of advances over five business days. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $200 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to 90 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 0.05% per annum. The Fund had no borrowings outstanding during the year ended Sept. 30, 2001. -------------------------------------------------------------------------------- 17 AXP STOCK FUND -- ANNUAL REPORT 5. FUND MERGER As of the close of business on July 14, 2000, AXP Stock Fund acquired the assets and assumed the identified liabilities of Strategist Equity Fund. The aggregate net assets of AXP Stock Fund immediately before the acquisition were $4,955,658,598. The merger was accomplished by a tax-free exchange of 41,539 shares of Strategist Equity Fund valued at $1,323,229. In exchange for the Strategist Equity Fund shares and net assets, AXP Stock Fund issued the following number of shares: Shares Net assets Class A 47,435 $1,323,229 Strategist Equity Fund's net assets at that date consisted of capital stock of $1,047,426 and unrealized appreciation of $275,803. 6. NEW ACCOUNTING PRONOUNCEMENT In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits of Investment Companies, which is effective for fiscal years beginning after Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant impact on the Fund's financial position, results of operations or changes in its net assets. 7. CAPITAL LOSS CARRY-OVER For federal income purposes, the Fund had a capital loss carry-over of $22,659,099 as of Sept. 30, 2001, that will expire in 2010 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. -------------------------------------------------------------------------------- 18 AXP STOCK FUND -- 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 Sept. 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $27.12 $26.14 $24.18 $27.44 $22.49 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .20 .19 .24 .29 .39 Net gains (losses) (both realized and unrealized) (6.47) 4.11 4.00 .22 6.11 ----- ---- ---- --- ---- Total from investment operations (6.27) 4.30 4.24 .51 6.50 ----- ---- ---- --- ---- Less distributions: Dividends from net investment income (.18) (.18) (.24) (.30) (.43) Distributions from realized gains (2.81) (3.14) (2.04) (3.47) (1.12) ----- ----- ----- ----- ----- Total distributions (2.99) (3.32) (2.28) (3.77) (1.55) ----- ----- ----- ----- ----- Net asset value, end of period $17.86 $27.12 $26.14 $24.18 $27.44 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $2,277 $3,358 $3,105 $2,783 $2,877 ------ ------ ------ ------ ------ Ratio of expenses to average daily net assets(c) .87% .84% .82% .77% .78% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets .88% .67% .90% 1.14% 1.58% --- --- --- ---- ---- Portfolio turnover rate (excluding short-term securities) 87% 53% 76% 79% 82% -- -- -- -- -- Total return(e) (24.87%) 16.59% 17.71% 2.04% 30.22% ------ ----- ----- ---- -----
Class B Per share income and capital changes(a) Fiscal period ended Sept. 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $26.90 $25.97 $24.05 $27.32 $22.42 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .01 -- .06 .10 .22 Net gains (losses) (both realized and unrealized) (6.39) 4.07 3.96 .21 6.05 ----- ---- ---- --- ---- Total from investment operations (6.38) 4.07 4.02 .31 6.27 ----- ---- ---- --- ---- Less distributions: Dividends from net investment income (.01) -- (.06) (.11) (.25) Distributions from realized gains (2.81) (3.14) (2.04) (3.47) (1.12) ----- ----- ----- ----- ----- Total distributions (2.82) (3.14) (2.10) (3.58) (1.37) ----- ----- ----- ----- ----- Net asset value, end of period $17.70 $26.90 $25.97 $24.05 $27.32 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $306 $436 $349 $258 $203 ---- ---- ---- ---- ---- Ratio of expenses to average daily net assets(c) 1.64% 1.60% 1.59% 1.53% 1.55% ---- ---- ---- ---- ---- Ratio of net investment income (loss) to average daily net assets .11% (.09%) .12% .39% .85% --- ---- --- --- --- Portfolio turnover rate (excluding short-term securities) 87% 53% 76% 79% 82% -- -- -- -- -- Total return(e) (25.48%) 15.73% 16.81% 1.27% 29.23% ------ ----- ----- ---- -----
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 19 AXP STOCK FUND -- ANNUAL REPORT Class C Per share income and capital changes(a) Fiscal period ended Sept. 30, 2001 2000(b) Net asset value, beginning of period $26.88 $26.70 ------ ------ Income from investment operations: Net investment income (loss) .04 .05 Net gains (losses) (both realized and unrealized) (6.41) .17 ----- --- Total from investment operations (6.37) .22 ----- --- Less distributions: Dividends from net investment income (.04) (.04) Distributions from realized gains (2.81) -- ----- ---- Total distributions (2.85) (.04) ----- ---- Net asset value, end of period $17.66 $26.88 ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $2 $1 -- -- Ratio of expenses to average daily net assets(c) 1.64% 1.60%(d) ---- ---- Ratio of net investment income (loss) to average daily net assets .16% .02%(d) --- --- Portfolio turnover rate (excluding short-term securities) 87% 53% -- -- Total return(e) (25.47%) .81% ------ ---
Class Y Per share income and capital changes(a) Fiscal period ended Sept. 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $27.13 $26.14 $24.18 $27.44 $22.49 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .23 .23 .27 .31 .42 Net gains (losses) (both realized and unrealized) (6.47) 4.13 4.00 .22 6.11 ----- ---- ---- --- ---- Total from investment operations (6.24) 4.36 4.27 .53 6.53 ----- ---- ---- --- ---- Less distributions: Dividends from net investment income (.22) (.23) (.27) (.32) (.46) Distributions from realized gains (2.81) (3.14) (2.04) (3.47) (1.12) ----- ----- ----- ----- ----- Total distributions (3.03) (3.37) (2.31) (3.79) (1.58) ----- ----- ----- ----- ----- Net asset value, end of period $17.86 $27.13 $26.14 $24.18 $27.44 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $694 $981 $1,063 $1,027 $1,082 ---- ---- ------ ------ ------ Ratio of expenses to average daily net assets(c) .71% .69% .72% .70% .66% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 1.04% .82% 1.00% 1.21% 1.71% ---- --- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 87% 53% 76% 79% 82% -- -- -- -- -- Total return(e) (24.77%) 16.80% 17.81% 2.12% 30.38% ------ ----- ----- ---- -----
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 20 AXP STOCK FUND -- ANNUAL REPORT Notes to financial highlights (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was June 26, 2000. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 21 AXP STOCK FUND -- ANNUAL REPORT Independent Auditors' Report THE BOARD OF TRUSTEES AND UNITHOLDERS GROWTH AND INCOME TRUST We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of Equity Portfolio (a series of Growth and Income Trust) as of September 30, 2001, the related statement of operations for the year then ended and the statements of changes in net assets for each of the years in the two-year period ended September 30, 2001. These financial statements are the responsibility of portfolio management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Equity Portfolio as of September 30, 2001, and the results of its operations and the changes in its net assets for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota November 2, 2001 -------------------------------------------------------------------------------- 22 AXP STOCK FUND -- ANNUAL REPORT Financial Statements Statement of assets and liabilities Equity Portfolio
Sept. 30, 2001 Assets Investments in securities, at value (Note 1) (identified cost $3,269,671,624) $3,220,804,928 Dividends and accrued interest receivable 4,621,214 Receivable for investment securities sold 83,748,490 ---------- Total assets 3,309,174,632 ------------- Liabilities Disbursements in excess of cash on demand deposit 37,248 Payable for investment securities purchased 30,098,800 Accrued investment management services fee 41,997 Other accrued expenses 68,933 Options contracts written, at value (premiums received $2,091,929) (Note 4) 150,000 ------- Total liabilities 30,396,978 ---------- Net assets $3,278,777,654 ==============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 23 AXP STOCK FUND -- ANNUAL REPORT Statement of operations Equity Portfolio
Year ended Sept. 30, 2001 Investment income Income: Dividends $ 56,670,057 Interest 14,449,054 Less foreign taxes withheld (73,506) ------- Total income 71,045,605 ---------- Expenses (Note 2): Investment management services fee 19,193,082 Compensation of board members 18,660 Custodian fees 251,888 Audit fees 32,500 Other 43,788 ------ Total expenses 19,539,918 Earnings credits on cash balances (Note 2) (8,640) ------ Total net expenses 19,531,278 ---------- Investment income (loss) -- net 51,514,327 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (4,413,117) Foreign currency transactions 106,211 Futures contracts 2,715,540 --------- Net realized gain (loss) on investments (1,591,366) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (1,175,198,544) -------------- Net gain (loss) on investments and foreign currencies (1,176,789,910) -------------- Net increase (decrease) in net assets resulting from operations $(1,125,275,583) ===============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 24 AXP STOCK FUND -- ANNUAL REPORT Statements of changes in net assets Equity Portfolio
Year ended Sept. 30, 2001 2000 Operations Investment income (loss) -- net $ 51,514,327 $ 50,409,731 Net realized gain (loss) on investments (1,591,366) 465,117,393 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (1,175,198,544) 240,698,409 -------------- ----------- Net increase (decrease) in net assets resulting from operations (1,125,275,583) 756,225,533 Net contributions (withdrawals) from partners (371,951,909) (499,984,692) ------------ ------------ Total increase (decrease) in net assets (1,497,227,492) 256,240,841 Net assets at beginning of year 4,776,005,146 4,519,764,305 ------------- ------------- Net assets at end of year $ 3,278,777,654 $4,776,005,146 =============== ==============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 25 AXP STOCK FUND -- ANNUAL REPORT Notes to Financial Statements Equity Portfolio 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Equity Portfolio (the Portfolio) is a series of Growth and Income Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Equity Portfolio invests primarily in common stocks and securities convertible into common stocks. 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. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Option transactions To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Portfolio may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Portfolio also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Portfolio gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Portfolio may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Portfolio pays a premium whether or not the option is exercised. The Portfolio also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. 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 -------------------------------------------------------------------------------- 26 AXP STOCK FUND -- ANNUAL REPORT contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Portfolio may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. 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 level-yield amortization of premium and discount, is accrued daily. 2. FEES AND EXPENSES The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with AEFC to manage its portfolio. Under this agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Portfolio's average daily net assets in reducing percentages from 0.53% to 0.40% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of AXP Stock Fund to the Lipper Large-Cap Core Index. The maximum adjustment is 0.08% of the Portfolio's average daily net assets after deducting 1% from the performance difference. If the performance difference is less than 1%, the adjustment will be zero. The adjustment increased the fee by $88,308 for the year ended Sept. 30, 2001. -------------------------------------------------------------------------------- 27 AXP STOCK FUND -- ANNUAL REPORT Under the agreement, the Trust also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees, audit and certain legal fees, fidelity bond premiums, registration fees for units, office expenses, consultants' fees, compensation of trustees, corporate filing fees, expenses incurred in connection with lending securities of the Portfolio and any other expenses properly payable by the Trust or Portfolio and approved by the board. During the year ended Sept. 30, 2001, the Portfolio's custodian fees were reduced by $8,640 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 $3,314,707,662 and $3,970,035,674, respectively, for the year ended Sept. 30, 2001. For the same period, the portfolio turnover rate was 87%. Realized gains and losses are determined on an identified cost basis. Brokerage commissions paid to brokers affiliated with AEFC were $548,179 for the year ended Sept. 30, 2001. Income from securities lending amounted to $46,946 for the year ended Sept. 30, 2001. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 4. OPTIONS CONTRACTS WRITTEN Contracts and premiums amounts associated with options contracts written are as follows: Year ended Sept. 30, 2001 Calls Contracts Premium Balance Sept. 30, 2000 -- $ -- Opened 10,000 2,091,929 Closed -- -- ------ ---------- Balance Sept. 30, 2001 10,000 $2,091,929 ------ ---------- See "Summary of significant accounting policies." 5. NEW ACCOUNTING PRONOUNCEMENT In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits of Investment Companies, which is effective for fiscal years beginning after Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant impact on the Portfolio's financial position, results of operations or changes in its net assets. -------------------------------------------------------------------------------- 28 AXP STOCK FUND -- ANNUAL REPORT Investments in Securities Equity Portfolio Sept. 30, 2001 (Percentages represent value of investments compared to net assets) Common stocks (80.4%) Issuer Shares Value(a) Aerospace & defense (1.5%) Lockheed Martin 700,000 $30,625,000 Raytheon 500,000 17,375,000 Total 48,000,000 Airlines (0.5%) Southwest Airlines 1,050,000 15,582,000 Banks and savings & loans (4.0%) Bank of America 1,100,000 64,240,000 FleetBoston Financial 1,000,000 36,250,000 U.S. Bancorp 1,400,000 31,052,000 Total 131,542,000 Beverages & tobacco (3.0%) Anheuser-Busch 1,200,000 50,256,000 Coca-Cola 1,000,000 46,850,000 Total 97,106,000 Chemicals (1.6%) Dow Chemical 900,000 29,484,000 Waste Management 800,000 21,392,000 Total 50,876,000 Communications equipment & services (0.7%) Motorola 1,500,000 23,400,000 Computer software & services (2.7%) Electronic Arts 800,000(b) 36,536,000 Microsoft 1,000,000(b) 51,170,000 Total 87,706,000 Computers & office equipment (1.5%) Compaq Computer 1,500,000 12,465,000 Intl Business Machines 400,000 36,920,000 Total 49,385,000 Electronics (1.8%) Analog Devices 400,000(b) 13,080,000 Intel 1,200,000 24,468,000 Texas Instruments 900,000 22,482,000 Total 60,030,000 Energy (5.4%) Chevron 500,000 42,375,000 Conoco Cl A 1,700,000 43,231,000 Exxon Mobil 1,600,000 63,040,000 Kerr-McGee 600,000 31,146,000 Total 179,792,000 Energy equipment & services (1.8%) Schlumberger 700,000 31,990,000 Transocean Sedco Forex 600,000 15,840,000 Weatherford Intl 500,000(b) 12,755,000 Total 60,585,000 Financial services (2.9%) Citigroup 1,200,000 48,600,000 Fannie Mae 600,000 48,036,000 Total 96,636,000 Food (4.6%) ConAgra Foods 2,200,000 49,390,000 General Mills 387,800 17,644,900 Heinz (HJ) 700,000 29,505,000 Kellogg 1,000,000 30,000,000 Kraft Foods Cl A 700,000 24,059,000 Total 150,598,900 Health care (11.8%) American Home Products 1,000,000 58,250,000 Amgen 300,000(b) 17,628,000 Baxter Intl 1,400,000 77,070,000 Biogen 400,000(b) 22,232,000 Johnson & Johnson 400,000 22,160,000 Medtronic 1,000,000 43,500,000 Merck & Co 300,000 19,980,000 Pfizer 2,325,000 93,232,500 Pharmacia 900,000 36,504,000 Total 390,556,500 Health care services (0.7%) HCA 500,000 22,155,000 Household products (2.8%) Avon Products 600,000 27,750,000 Colgate-Palmolive 450,000 26,212,500 Procter & Gamble 500,000 36,395,000 Total 90,357,500 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 29 AXP STOCK FUND -- ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Industrial equipment & services (3.0%) Caterpillar 1,400,000(f) $62,720,000 Fluor 900,000 34,650,000 Total 97,370,000 Insurance (1.9%) Allstate 1,000,000 37,350,000 American Intl Group 300,000 23,400,000 Total 60,750,000 Leisure time & entertainment (0.7%) Mattel 1,500,000 23,490,000 Media (6.4%) Comcast Special Cl A 1,200,000(b) 43,044,000 Cox Communications Cl A 1,000,000(b) 41,750,000 McGraw-Hill Companies 1,300,000 75,660,000 USA Networks 2,900,000(b) 52,142,000 Total 212,596,000 Metals (2.5%) Alcan 537,300(c) 16,119,000 Alcoa 1,600,000 49,616,000 Nucor 400,000 15,880,000 Total 81,615,000 Multi-industry conglomerates (4.5%) General Electric 2,400,000 89,280,000 Minnesota Mining & Mfg 600,000 59,040,000 Total 148,320,000 Paper & packaging (1.1%) Intl Paper 1,000,000 34,800,000 Retail (4.1%) Federated Dept Stores 800,000(b) 22,560,000 Home Depot 750,000 28,777,500 Wal-Mart Stores 1,100,000 54,450,000 Walgreen 800,000 27,544,000 Total 133,331,500 Transportation (1.0%) Union Pacific 700,000 32,830,000 Utilities -- electric (5.2%) Allegheny Energy 600,000 22,020,000 Dominion Resources 700,000 41,545,000 DTE Energy 1,000,000 43,050,000 Duke Energy 600,000 22,710,000 Xcel Energy 1,500,000 42,225,000 Total 171,550,000 Utilities -- gas (0.6%) Kinder Morgan 400,000 19,684,000 Utilities -- telephone (2.0%) Verizon Communications 1,200,000 64,932,000 Total common stocks (Cost: $2,694,741,841) $2,635,576,400 Preferred stocks (4.3%) Issuer Shares Value(a) Apache 2.01% Cv 267,800 $9,972,872 Dominion Resources 9.50% Cv 342,000 20,092,500 Duke Energy 8.25% Cv 980,000 25,774,000 Electronic Data Systems 7.63% Cv 500,000 25,500,000 Metlife Capital 8.00% Cm Cv 300,000 27,951,000 NRG Energy 6.50% Cv 844,280 16,379,032 Pharmacia 6.50% Cv ACES 400,000(h) 15,100,000 Total preferred stocks (Cost: $135,911,400) $140,769,404 Bonds (1.0%) Issuer Coupon Principal Value(a) rate amount Costco Wholesale Zero Coupon Cv 08-19-17 3.50% $21,000,000(d,e) $17,541,300 Devon Energy Cv 08-15-08 4.90 15,000,000 15,103,500 Total bonds (Cost: $27,239,817) $32,644,800 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 30 AXP STOCK FUND -- ANNUAL REPORT Short-term securities (12.6%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (6.5%) Federal Home Loan Bank Disc Nt 10-31-01 3.41% $30,000,000 $29,903,748 Federal Home Loan Mtge Corp Disc Nts 10-02-01 3.50 3,100,000 3,098,794 11-06-01 2.71 29,700,000 29,613,128 11-13-01 2.66 42,300,000 42,156,767 Federal Natl Mtge Assn Disc Nts 10-19-01 3.43 21,700,000 21,656,709 10-24-01 2.55 30,000,000 29,944,750 10-26-01 3.27 30,800,000 30,721,905 11-29-01 3.39 25,000,000 24,886,764 Total 211,982,565 Certificate of deposit (0.4%) Commerzbank Yankee 11-16-01 3.40 13,500,000 13,435,477 Commercial paper (5.2%) Alpine Securitization 10-17-01 3.11 4,000,000(g) 3,993,456 Amsterdam Funding 10-01-01 3.47 12,800,000(g) 12,796,299 Barclays U.S. Funding 10-02-01 3.49 1,300,000 1,299,496 Coca-Cola 11-09-01 2.86 8,700,000 8,671,073 Commerzbank U.S. Finance 10-19-01 3.62 2,500,000 2,494,653 Falcon Asset 10-23-01 3.02 25,000,000(g) 24,947,742 Gannett 10-04-01 3.00 11,300,000(g) 11,294,350 Gillette 11-20-01 3.38 18,420,000(g) 18,327,797 IBM Credit 10-29-01 3.63 1,600,000 1,595,164 Kitty Hawk Funding 02-15-02 3.38 15,000,000(g) 14,850,083 Morgan Stanley, Dean Witter, Discover & Co 10-16-01 3.00 24,200,000 24,163,699 Societe Generale North America 10-04-01 3.67 9,100,000 9,094,373 Southern Co Funding 10-11-01 3.52 11,100,000(g) 11,085,891 11-07-01 3.34 14,900,000(g) 14,844,870 UBS Finance (Delaware) 11-13-01 3.71 7,400,000 7,366,270 Variable Funding Capital 10-25-01 3.44 4,000,000(g) 3,989,267 Total 170,814,483 Letter of credit (0.5%) Bank of America- AES Hawaii 10-10-01 3.50 15,600,000 15,581,799 Total short-term securities (Cost: $411,778,566) $411,814,324 Total investments in securities (Cost: $3,269,671,624)(i) $3,220,804,928 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 31 AXP STOCK FUND -- ANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. As of Sept. 30, 2001, the value of foreign securities represented 0.49% of net assets. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (f) At Sept. 30, 2001, securities valued at $44,800,000 were held to cover open call options written as follows (see Note 4 to the financial statements): Issuer Contracts Exercise Expiration Value(a) price date Caterpillar 10,000 $60 Nov. 2001 $150,000 (g) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (h) ACES (Automatically Convertible Equity Securities) are structured as convertible preferred securities. Investors receive an enhanced yield but based upon a specific formula, potential appreciation is limited. ACES pay dividends, have voting rights, are noncallable for at least three years and upon maturity, convert into shares of common stock. (i) At Sept. 30, 2001, the cost of securities for federal income tax purposes was $3,281,957,612 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 200,003,509 Unrealized depreciation (261,156,193) ------------ Net unrealized depreciation $ (61,152,684) ------------- -------------------------------------------------------------------------------- 32 AXP STOCK FUND -- ANNUAL REPORT Federal Income Tax Information (Unaudited) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. Some of the dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. AXP Stock Fund, Inc. Fiscal year ended Sept. 30, 2001 Class A Income distributions taxable as dividend income, 82.97% qualifying for deduction by corporations. Payable date Per share Dec. 20, 2000 $0.93355 March 27, 2001 0.03391 June 27, 2001 0.04781 Sept. 27, 2001 0.04217 Total $1.05744 Capital gain distribution taxable for long-term capital gain. Payable date Per share Dec. 20, 2000 $1.93358 Total distributions $2.99102 The distributions of $2.86713 per share, payable Dec. 20, 2000, consisted of $0.05528 derived from net investment income, $0.87827 from net short-term capital gains (a total of $0.93355 taxable as dividend income) and $1.93358 from net long-term capital gains. Class B Income distributions taxable as dividend income, 82.97% qualifying for deduction by corporations. Payable date Per share Dec. 20, 2000 $0.88567 Sept. 27, 2001 0.00129 Total $0.88696 Capital gain distribution taxable for long-term capital gain. Payable date Per share Dec. 20, 2000 $1.93358 Total distributions $2.82054 The distributions of $2.81925 per share, payable Dec. 20, 2000, consisted of $0.00740 derived from net investment income, $0.87827 from net short-term capital gains (a total of $0.88567 taxable as dividend income) and $1.93358 from net long-term capital gains. -------------------------------------------------------------------------------- 33 AXP STOCK FUND -- ANNUAL REPORT Class C Income distributions taxable as dividend income, 82.97% qualifying for deduction by corporations. Payable date Per share Dec. 20, 2000 $0.89791 March 27, 2001 0.00021 June 27, 2001 0.01293 Sept. 27, 2001 0.00603 Total $0.91708 Capital gain distribution taxable for long-term capital gain. Payable date Per share Dec. 20, 2000 $1.93358 Total distributions $2.85066 The distributions of $2.83149 per share, payable Dec. 20, 2000, consisted of $0.01964 derived from net investment income, $0.87827 from net short-term capital gains (a total of $0.89791 taxable as dividend income) and $1.93358 from net long-term capital gains. Class Y Income distributions taxable as dividend income, 82.97% qualifying for deduction by corporations. Payable date Per share Dec. 20, 2000 $0.94367 March 27, 2001 0.04281 June 27, 2001 0.05648 Sept. 27, 2001 0.05022 Total $1.09318 Capital gain distribution taxable for long-term capital gain. Payable date Per share Dec. 20, 2000 $1.93358 Total distributions $3.02676 The distributions of $2.87725 per share, payable Dec. 20, 2000, consisted of $0.06540 derived from net investment income, $0.87827 from net short-term capital gains (a total of $0.94367 taxable as dividend income) and $1.93358 from net long-term capital gains. -------------------------------------------------------------------------------- 34 AXP STOCK FUND -- ANNUAL REPORT AXP Stock Fund PRSRT STD AUTO 70100 AXP Financial Center U.S. POSTAGE Minneapolis, MN 55474 PAID AMERICAN americanexpress.com EXPRESS Ticker Symbol Class A: INSTX Class B: IDSBX Class C: N/A Class Y: IDSYX (logo) AMERICAN EXPRESS 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-6351 V (11/01)