-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Alj7lk81pD5dEHv8hEtYzBXircA749CjXpx601Dh4CYJaGHaPKCSnSBMqXmNW1+e 8SV3Z9xJpwgUPPZQegekVQ== 0000820027-02-000752.txt : 20021121 0000820027-02-000752.hdr.sgml : 20021121 20021121102130 ACCESSION NUMBER: 0000820027-02-000752 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021121 EFFECTIVENESS DATE: 20021121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP STOCK SERIES INC CENTRAL INDEX KEY: 0000052423 IRS NUMBER: 410839317 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00498 FILM NUMBER: 02835563 BUSINESS ADDRESS: STREET 1: 80 SOUTH 8TH ST STREET 2: T33/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6126712727 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS STOCK FUND INC DATE OF NAME CHANGE: 19831221 FORMER COMPANY: FORMER CONFORMED NAME: IDS STOCK FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AXP STOCK FUND INC DATE OF NAME CHANGE: 19991124 N-30D 1 s6351.txt AXP STOCK FUND -- 2002 ANNUAL REPORT AXP(R) Stock Fund 2002 ANNUAL REPORT (Prospectus Enclosed) 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.) - -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) - -------------------------------------------------------------------------------- (photo of) Arne H. Carlson From the Chairman Arne H. Carlson Chairman of the board Dear Shareholders, It is a very difficult period for investors caused by corporate management misconduct and its impact on the market as well as the economy. The integrity of corporations at large is being questioned. However, there is optimism that the resulting reforms will give Americans the kind of integrity they deserve. Many corporate leaders are strongly supportive of these reforms. We all have a right to expect financial statements to be fully accurate and business leaders to place the interests of shareholders above personal desires. Your Board is truly independent, comprised of 10 members (nominated by independent members) and three recommended by American Express Financial Corporation. These individuals come from a variety of geographic areas with the diverse skill sets necessary to oversee the operations of the Fund. Investment performance is, and remains, our primary concern. The Fund's auditors, KPMG LLP, are truly independent of American Express Financial Corporation. KPMG serves the interest of shareholders by supporting the work of the Board and certifying unbiased financial reports. The Board has confidence in Ted Truscott, American Express Financial Corporation's Chief Investment Officer, and shares his enthusiasm in the management changes he has effected to improve the investment performance of all American Express funds. The focus of the Board and American Express Financial Corporation is simple; we strive for consistent, competitive investment performance. All of the proposals in the proxy statement you received in September were approved at the shareholder meeting on November 13, 2002, and will be implemented in the coming weeks. On behalf of the Board, Arne H. Carlson CONTENTS From the Chairman 2 Economic and Market Update 3 Fund Snapshot 5 Questions & Answers with Portfolio Management 6 The Fund's Long-term Performance 9 Investments in Securities 10 Financial Statements (Portfolio) 13 Notes to Financial Statements (Portfolio) 16 Independent Auditors' Report (Portfolio) 20 Financial Statements (Fund) 21 Notes to Financial Statements (Fund) 24 Independent Auditors' Report (Fund) 31 Federal Income Tax Information 32 Board Members and Officers 34 - -------------------------------------------------------------------------------- 2 -- AXP STOCK FUND -- 2002 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, The past several months* have proven that the economy isn't the only force driving the stock market. Although, early this year the U.S. recession was pronounced over, accounting scandals and shaky consumer confidence kept the downtrend in stock prices in place until mid-summer. September lived up to its reputation as the cruelest month for stocks, erasing all of the summertime gains - -- and more. It remains to be seen whether the late-October rally -- among the strongest market performances in years -- will hold its own. Yet even as the stock market grapples with questions of corporate integrity, I still believe the economy will ultimately dictate the direction for stocks. The latest cut in interest rates enacted by the Federal Reserve could be the key to a sustainable rebound. At 1.25%, the Fed's overnight bank lending rate is now at its lowest level since July 1961. What is needed to support the stock market? In a word, earnings. The economic downturn of 2001 was confined largely to the business sector. Faced with eroding margins, businesses were forced to liquidate inventories, cut investment spending and reduce staff. Fortunately, these measures appear to be subsiding. Through it all, low inflation and interest rates continued to spur consumer spending. Today stock market investors are in a better position than they have been for some time, with improving prospects for both consumers and businesses. That may just prove to be the winning combination for corporate earnings -- and for the stock market -- in the coming year. It's also important to note that a bear market in corporate bonds has developed alongside the one in stocks. Recent irregularities in corporate accounting have no doubt played a role in investors' concerns about non-government bonds. For example, the yield on 10-year U.S. Treasury Notes was at historic lows in early October -- about 3.7%. Since bond yields move inversely to prices, the low yield means that prices of U.S. Treasury securities - -------------------------------------------------------------------------------- 3 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Economic and Market Update have risen substantially. Investors are seeking the comparative safety of Uncle Sam in a very uncertain environment. The threat of war with Iraq and the prospect of higher oil prices stoked investors' fears toward the end of the period. Nevertheless, opportunities do exist in corporate and high-yield bonds because of the bear market we have seen in recent months. Investors who can tolerate some risk should not abandon these securities in a flight to safety. After all, safety comes with its own price -- the forfeiture of growth and earning potential. And bond investors usually lose when interest rates rise or inflation becomes more of a factor. For more information about different kinds of bonds, speak to your financial advisor or retirement plan administrator. While the latest market declines are indeed painful, they are creating more opportunity in stocks in the form of a steadily declining price/earnings ratio. On both a relative and absolute basis, stocks continue to get less and less expensive. Those saving for long-term goals should maintain a significant allocation to equities. Over time, they have provided the best returns of virtually any investment. There's no compelling reason to believe this will be different going forward. As always, diversification is the best strategy for meeting your financial goals. Thank you for investing with American Express Funds. William F. Truscott * Please see portfolio manager Q&A for fiscal period economic coverage. KEY POINTS - -- Stocks are continuing to get less expensive. - -- Credit "crunch" for business sector persists. - -- Those saving for long-term goals should maintain an allocation to equities. - -------------------------------------------------------------------------------- 4 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Fund Snapshot AS OF SEPT. 30, 2002 PORTFOLIO MANAGER Portfolio manager Mike Kennedy Tenure/since 7/1/99 Years in industry 32 FUND OBJECTIVE For investors seeking current income and growth of capital. Inception dates A: 4/6/45 B: 3/20/95 C: 6/26/00 Y: 3/20/95 Ticker symbols A: INSTX B: IDSBX C: -- Y: IDSYX Total net assets $2.301 billion Number of holdings approximately 100 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL PORTFOLIO ASSET MIX Percentage of portfolio assets (pie chart) Common stocks 84.3% Preferred stocks 4.6% Bonds 1.3% Cash equivalents 9.8% TOP FIVE SECTORS Percentage of portfolio assets Health care 14.9% Aerospace & defense 5.4 Banks and savings & loans 5.2 Media 5.1 Utilities -- electric 5.1 TOP TEN HOLDINGS Percentage of portfolio assets 3M 3.3% Anheuser-Busch 2.6 USA Interactive 2.2 Lockheed Martin 2.2 Northrop-Grumman 2.1 Wal-Mart Stores 2.1 Pfizer 2.0 Procter & Gamble 1.9 Bank of America 1.9 Gillette 1.9 Fund holdings are subject to change. - -------------------------------------------------------------------------------- 5 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Q: How did AXP Stock Fund perform for its fiscal year ended Sept. 30, 2002? A: The Fund outperformed its benchmark, the S&P 500 Index and ended up in the 22nd percentile of its competitive group. For the year, the Fund returned -18.20% (Class A shares excluding sales charges), versus its benchmark, the S&P 500 Index, which returned -20.49%. The Lipper Large-Cap Core Funds Index returned -18.54% for the same period. Q: What factors impacted performance this period? A: We began the period with a rather conservative structure in the portfolio, emphasizing large-cap stocks that represented a wide cross-section of the market. We managed to capitalize on much of the market's positive movement through the end of 2001, but we were surprised by the sudden surge in technology stocks that took place during the fourth calendar quarter; however, our broad-based focus on the market proved to be more effective for the remainder of the fiscal year. The sectors that helped us outperform most significantly were our holdings in the industrial sector and, in a reverse sense, not owning telecommunications services stocks. First, industrials were the best contributor to performance, both in our decision to overweight this sector and in our individual stock selection, as our holdings did better than the sector within the benchmark. Our decision to overweight the stocks of defense companies within the sector helped performance for the year. We added to this position as we saw evidence of an increase in defense spending, which should allow these companies to enjoy incremental growth potential. Also, our current largest holding in the Fund's portfolio -- 3M -- proved to be another positive influence to performance, particularly in recent weeks. (bar graph) PERFORMANCE COMPARISON For the year ended Sept. 30, 2002 0% -5% - -10% - -15% (bar 1) (bar 2) (bar 3) - -20% -18.20% -20.49% -18.54% - -25% (bar 1) AXP Stock Fund Class A (excluding sales charge) (bar 2) S&P 500 Index (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in sales charges and fees. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 6 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Questions & Answers (begin callout quote) > Industrials were the best contributor to performance, both in our decision to overweight this sector and in our individual stock selection. (end callout quote) More positive performance came from our continuing strategy to avoid the troubled telecommunications sector. Burdened with excess capacity plus possessing debt-heavy balance sheets, we were convinced to avoid the sector. On the negative side, the worst performing sector for the Fund was healthcare. The portfolio's laggards included two healthcare company stocks, which had product specific problems. The second sector that hurt performance was technology. The irony is that we made a conscious effort to remain underweighted in our exposure to technology, which was the third-worst performing sector of the benchmark for the twelve month period. Although it was the right decision to minimize our exposure to technology, what we owned did not help
AVERAGE ANNUAL TOTAL RETURNS as of Sept. 30, 2002 Class A Class B Class C Class Y (Inception dates) (4/6/45) (3/20/95) (6/26/00) (3/20/95) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) 1 year -18.20% -22.90% -18.84% -22.08% -18.84% -18.84% -18.12% -18.12% 5 years -2.96% -4.10% -3.70% -3.83% N/A N/A -2.85% -2.85% 10 years +6.57% +5.94% N/A N/A N/A N/A N/A N/A Since inception N/A N/A +4.71% +4.71% -19.64% -19.64% +5.65% +5.65%
(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. - -------------------------------------------------------------------------------- 7 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Questions & Answers performance. Another area that underperformed the benchmark was basic materials, where our overweighted exposure to paper companies detracted from overall performance. We believe it bears mention that the S&P 500 Index, the Fund's benchmark, completed its worst quarter (third quarter of 2002) in 15 years during the period under review. While we are disappointed with absolute returns for the Fund, the Fund's relative performance offered a significant advantage over its benchmark. Q: What is your outlook? A: We continue to remain cautiously positive on economic and market recovery. It seems that there are two factors currently holding the market back: the fear of a double dip, and the consequences of an invasion of Iraq by the United States. We do not believe a double-dip recession is likely. Instead, earnings expectations were too high and are now being adjusted downward to more realistic levels beginning with third quarter earnings reports. These earnings reductions will result in more realistic equity valuations, i.e., more in line with actual economic earnings growth of 6% to 9%. There seems to be confusion in the market since earnings are being reduced, which many think is an indication of a pending recession. It should be remembered that although earnings estimates are coming down, they remain positive and ahead of the rate in the second quarter. Regarding current geopolitical tensions, the outcome remains to be seen. Our strategy remains the same: based on the anticipation that economic recovery will proceed slowly, earnings will grow 6% to 9% and market leadership will not come from either the technology sector or the consumer sectors. If events go as planned, we expect to increase the economic-sensitivity of the portfolio over the next few months. - -------------------------------------------------------------------------------- 8 -- AXP STOCK FUND -- 2002 ANNUAL REPORT The Fund's Long-Term Performance This chart illustrates the total value of an assumed $10,000 investment in AXP Stock Fund Class A shares (from 10/01/92 to 9/30/02) as compared to the performance of two widely cited performance indices, the Standard & Poor's 500 Index (S&P 500 Index) and the Lipper Large-Cap Core Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. 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 STOCK FUND $50,000 $37,500 (solid line) AXP Stock Fund Class A $25,000 (dotted line) S&P 500 Index(1) $12,500 (dashed line) Lipper Large-Cap Core Funds Index(2) `92 `93 `94 `95 `96 `97 `98 `99 `00 `01 `02 (solid line) AXP Research Opportunities Fund Class A $17,812 (dotted line) S&P 500 Index(1) $23,663 (dashed line) Lipper Large-Cap Core Funds Index(2) $21,605 (1) Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (2) The Lipper Large-Cap Core Funds Index, published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. Average Annual Total Returns Class A with Sales Charge as of Sept. 30, 2002 1 year -22.90% 5 years -4.10% 10 years +5.94% Since inception N/A Results for other share classes can be found on page 7. - -------------------------------------------------------------------------------- 9 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Investments in Securities Equity Portfolio Sept. 30, 2002 (Percentages represent value of investments compared to net assets) Common stocks (85.2%) Issuer Shares Value(a) Aerospace & defense (5.4%) Lockheed Martin 800,000 $51,736,000 Northrop Grumman 400,000 49,616,000 Raytheon 800,000 23,440,000 Total 124,792,000 Airlines (0.7%) Southwest Airlines 1,300,000 16,978,000 Banks and savings & loans (5.2%) Bank of America 700,000 44,660,000 FleetBoston Financial 800,000 16,264,000 U.S. Bancorp 1,400,000 26,012,000 Wells Fargo 700,000 33,712,000 Total 120,648,000 Beverages & tobacco (4.3%) Anheuser-Busch 1,200,000 60,720,000 Coca-Cola 800,000 38,368,000 Total 99,088,000 Building materials & construction (1.5%) Weyerhaeuser 800,000 35,016,000 Chemicals (2.4%) Air Products & Chemicals 300,000 12,603,000 Dow Chemical 1,200,000 32,772,000 Praxair 200,000 10,222,000 Total 55,597,000 Communications equipment & services (1.0%) Motorola 2,200,000 22,396,000 Computer software & services (0.9%) Microsoft 500,000(b) 21,845,000 Computers & office equipment (0.9%) Cisco Systems 2,000,000(b) 20,960,000 Electronics (2.5%) Intel 1,300,000 18,057,000 KLA-Tencor 500,000(b) 13,970,000 Taiwan Semiconductor Mfg ADR 1,100,000(b,c) 6,985,000 Texas Instruments 1,000,000 14,770,000 Vishay Intertechnology 500,000(b) 4,400,000 Total 58,182,000 Energy (3.1%) Apache 300,000 17,835,000 ConocoPhillips 467,700 21,626,448 Exxon Mobil 1,000,000 31,900,000 Total 71,361,448 Energy equipment & services (0.8%) Transocean 900,000 18,720,000 Financial services (0.9%) Citigroup 700,000 20,755,000 Food (3.0%) Kraft Foods Cl A 700,000 25,522,000 Tyson Foods Cl A 2,500,000 29,075,000 Wrigley (Wm) Jr 300,000 14,847,000 Total 69,444,000 Health care (15.1%) Abbott Laboratories 500,000 20,200,000 Baxter Intl 1,200,000 36,660,000 IDEC Pharmaceuticals 700,000(b) 29,064,000 Johnson & Johnson 700,000 37,856,000 Laboratory Corp America Holdings 900,000(b) 30,402,000 MedImmune 1,000,000(b) 20,870,000 Medtronic 1,000,000 42,120,000 Merck & Co 700,000 31,997,000 Pfizer 1,600,000 46,432,000 Pharmacia 500,000 19,440,000 Wyeth 1,000,000 31,800,000 Total 346,841,000 Household products (3.9%) Gillette 1,500,000 44,400,000 Procter & Gamble 500,000 44,690,000 Total 89,090,000 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Industrial equipment & services (1.5%) Caterpillar 300,000 $11,166,000 Deere & Co 500,000 22,725,000 Total 33,891,000 Insurance (3.3%) AFLAC 700,000 21,483,000 Allstate 500,000 17,775,000 Jefferson-Pilot 600,000 24,059,999 Travelers Property Casualty Cl A 930,243(b) 12,279,208 Travelers Property Casualty Cl B 62,135(b) 840,687 Total 76,437,894 Leisure time & entertainment (3.4%) Mattel 1,700,000 30,617,000 MGM Mirage 600,000(b) 22,380,000 Viacom Cl B 600,000(b) 24,330,000 Total 77,327,000 Media (5.2%) Gannett 500,000 36,090,000 McGraw-Hill Companies 500,000 30,610,000 USA Interactive 2,700,000(b) 52,326,000 Total 119,026,000 Metals (1.7%) Alcoa 800,000 15,440,000 Barrick Gold 600,000(c) 9,330,000 Newmont Mining 500,000 13,755,000 Total 38,525,000 Multi-industry conglomerates (5.1%) 3M 700,000 76,979,000 General Electric 1,600,000 39,440,000 Total 116,419,000 Paper & packaging (1.5%) Intl Paper 1,000,000 33,390,000 Restaurants & lodging (1.5%) McDonald's 2,000,000 35,320,000 Retail (3.5%) Home Depot 500,000 13,050,000 Wal-Mart Stores 1,000,000 49,240,000 Walgreen 600,000 18,456,000 Total 80,746,000 Transportation (1.8%) Union Pacific 700,000 40,509,000 Utilities -- electric (5.1%) Dominion Resources 700,000 35,511,000 DTE Energy 700,000 28,490,000 FPL Group 500,000 26,900,000 Southern Co 500,000 14,390,000 TXU 300,000 12,513,000 Total 117,804,000 Total common stocks (Cost: $2,283,663,702) $1,961,108,342 Preferred stocks (4.6%) Issuer Shares Value(a) Dominion Resources 9.50% Cv 342,000 $17,370,180 FPL Group 8.50% Cv 300,000 15,450,000 General Motors 5.25% Cv Series B 600,000 13,428,000 MetLife Capital Trust I 8.00% Cm Cv 300,000 21,180,000 Public Service Enterprise Group 10.25% Cv 229,500 11,004,525 St. Paul Companies 9.00% Cv 491,200 28,366,800 Total preferred stocks (Cost: $101,380,972) $106,799,505 Bonds (1.3%) Issuer Coupon Principal Value(a) rate amount Costco Wholesale Zero Coupon Cv 08-19-17 3.50% $21,000,000(d,f) $15,960,000 Devon Energy Cv 08-15-08 4.90 15,000,000 14,906,250 Total bonds (Cost: $27,651,602) $30,866,250 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 11 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Short-term securities (9.9%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (7.6%) Federal Home Loan Bank Disc Nts 10-25-02 1.64% $9,100,000 $9,089,297 10-25-02 1.68 11,200,000 11,187,180 Federal Home Loan Mtge Corp Disc Nts 10-04-02 1.70 400,000 399,924 10-08-02 1.61 11,900,000 11,895,742 10-17-02 1.73 16,800,000 16,787,569 10-29-02 1.70 20,000,000 19,972,610 11-07-02 1.68 25,000,000 24,955,667 11-19-02 1.67 13,800,000 13,767,992 Federal Natl Mtge Assn Disc Nts 11-06-02 1.64 15,000,000 14,975,816 12-18-02 1.70 50,000,000 49,823,400 Total 172,855,197 Commercial paper (2.3%) BOC Group 10-25-02 1.75 7,900,000(e) 7,890,399 Chevron UK Investment 10-15-02 1.69 10,000,000(e) 9,992,625 Falcon Asset Securitization 10-28-02 1.80 4,000,000(e) 3,994,400 GE Capital Intl Funding 10-01-02 2.00 10,000,000(e) 9,999,445 Morgan Stanley 11-15-02 1.76 2,200,000 2,195,052 Park Avenue Receivables 10-04-02 1.71 10,500,000(e) 10,498,005 SBC Intl 10-03-02 1.76 1,400,000(e) 1,399,795 10-24-02 1.77 1,600,000(e) 1,598,112 Sheffield Receivables 11-04-02 1.77 1,600,000(e) 1,597,247 Variable Funding Capital 10-29-02 1.75 4,900,000(e) 4,893,092 Total 54,058,172 Total short-term securities (Cost: $226,913,328) $226,913,369 Total investments in securities (Cost: $2,639,609,604)(g) $2,325,687,466 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, 2002, the value of foreign securities represented 0.7% 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) 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. (f) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (g) At Sept. 30, 2002, the cost of securities for federal income tax purposes was $2,640,914,263 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 130,205,850 Unrealized depreciation (445,432,647) ------------ Net unrealized depreciation $(315,226,797) ------------- - -------------------------------------------------------------------------------- 12 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Financial Statements Statement of assets and liabilities Equity Portfolio Sept. 30, 2002 Assets Investments in securities, at value (Note 1)* (identified cost $2,639,609,604) $2,325,687,466 Dividends and accrued interest receivable 3,348,236 Receivable for investment securities sold 15,596,637 ---------- Total assets 2,344,632,339 ------------- Liabilities Disbursements in excess of cash on demand deposit 84,671 Payable upon return of securities loaned (Note 4) 42,771,000 Accrued investment management services fee 94,336 Other accrued expenses 59,005 ------ Total liabilities 43,009,012 ---------- Net assets $2,301,623,327 ============== *Including securities on loan, at value (Note 4) $ 40,805,072 -------------- See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 -- AXP STOCK FUND -- 2002 ANNUAL REPORT
Statement of operations Equity Portfolio Year ended Sept. 30, 2002 Investment income Income: Dividends $ 51,561,467 Interest 5,925,641 Less foreign taxes withheld (92,354) ------- Total income 57,394,754 ---------- Expenses (Note 2): Investment management services fee 15,120,564 Compensation of board members 23,405 Custodian fees 173,862 Audit fees 32,250 Other 48,846 ------ Total expenses 15,398,927 Earnings credits on cash balances (Note 2) (176) ---- Total net expenses 15,398,751 ---------- Investment income (loss) -- net 41,996,003 ---------- Realized and unrealized gain (loss) - net Net realized gain (loss) on: Security transactions (Note 3) (282,365,155) Options contracts written (Note 5) 2,091,929 --------- Net realized gain (loss) on investments (280,273,226) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (266,988,346) ------------ Net gain (loss) on investments and foreign currencies (547,261,572) ------------ Net increase (decrease) in net assets resulting from operations $(505,265,569) =============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 -- AXP STOCK FUND -- 2002 ANNUAL REPORT
Statements of changes in net assets Equity Portfolio Year ended Sept. 30, 2002 2001 Operations Investment income (loss) -- net $ 41,996,003 $ 51,514,327 Net realized gain (loss) on investments (280,273,226) (1,591,366) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (266,988,346) (1,175,198,544) ------------ -------------- Net increase (decrease) in net assets resulting from operations (505,265,569) (1,125,275,583) ------------ -------------- Proceeds from contributions 29,447,718 14,412,855 Fair value of withdrawals (501,336,476) (386,364,764) ------------ ------------ Net contributions (withdrawals) from partners (471,888,758) (371,951,909) ------------ ------------ Total increase (decrease) in net assets (977,154,327) (1,497,227,492) Net assets at beginning of year 3,278,777,654 4,776,005,146 ------------- ------------- Net assets at end of year $2,301,623,327 $ 3,278,777,654 ============== ===============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 -- AXP STOCK FUND -- 2002 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. - -------------------------------------------------------------------------------- 16 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Futures transactions To gain exposure to or protect itself from market changes, the Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Portfolio may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. 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. - -------------------------------------------------------------------------------- 17 -- AXP STOCK FUND -- 2002 ANNUAL REPORT 2. FEES AND EXPENSES The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with American Express Financial Corporation (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 Funds 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 $100,680 for the year ended Sept. 30, 2002. 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, 2002, the Portfolio's custodian fees were reduced by $176 as a result of earnings credits from overnight cash balances. The Portfolio also pays custodian fees to American Express Trust Company, an affiliate of AEFC. According to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the Trust's units. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $2,456,365,506 and $2,619,188,943, respectively, for the year ended Sept. 30, 2002. For the same period, the portfolio turnover rate was 86%. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with AEFC were $527,433 for the year ended Sept. 30, 2002. 4. LENDING OF PORTFOLIO SECURITIES As of Sept. 30, 2002, securities valued at $40,805,072 were on loan to brokers. For collateral, the Portfolio received $42,771,000 in cash. Income from securities lending amounted to $101,558 for the year ended Sept. 30, 2002. 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. - -------------------------------------------------------------------------------- 18 -- AXP STOCK FUND -- 2002 ANNUAL REPORT 5. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows: Year ended Sept. 30, 2002 Calls Contracts Premiums Balance Sept. 30, 2001 10,000 $ 2,091,929 Opened -- -- Expired (10,000) (2,091,929) ------- ---------- Balance Sept. 30, 2002 -- $ -- ------- ----------- See "Summary of significant accounting policies." - -------------------------------------------------------------------------------- 19 -- AXP STOCK FUND -- 2002 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, 2002, 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, 2002. 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, 2002, 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 referred to above present fairly, in all material respects, the financial position of Equity Portfolio as of September 30, 2002, 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 1, 2002 - -------------------------------------------------------------------------------- 20 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Stock Fund, Inc. Sept. 30, 2002 Assets Investment in Portfolio (Note 1) $2,301,562,500 Capital shares receivable 124,999 ------- Total assets 2,301,687,499 ------------- Liabilities Capital shares payable 57,711 Accrued distribution fee 50,910 Accrued service fee 4,072 Accrued transfer agency fee 27,866 Accrued administrative services fee 6,224 Other accrued expenses 244,541 ------- Total liabilities 391,324 ------- Net assets applicable to outstanding capital stock $2,301,296,175 ============== Represented by Capital stock -- $.01 par value (Note 1) $ 1,592,219 Additional paid-in capital 2,927,078,765 Undistributed net investment income 1,749,200 Accumulated net realized gain (loss) (Note 5) (315,210,853) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (313,913,156) ------------ Total -- representing net assets applicable to outstanding capital stock $2,301,296,175 ============== Net assets applicable to outstanding shares: Class A $1,598,810,289 Class B $ 210,085,094 Class C $ 2,000,198 Class Y $ 490,400,594 Net asset value per share of outstanding capital stock: Class A shares 110,526,476 $ 14.47 Class B shares 14,651,380 $ 14.34 Class C shares 139,916 $ 14.30 Class Y shares 33,904,134 $ 14.46 ---------- --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 21 -- AXP STOCK FUND -- 2002 ANNUAL REPORT
Statement of operations AXP Stock Fund, Inc. Year ended Sept. 30, 2002 Investment income Income: Dividends $ 51,560,220 Interest 5,928,523 Less foreign taxes withheld (92,351) ------- Total income 57,396,392 ---------- Expenses (Note 2): Expenses allocated from Portfolio 15,398,383 Distribution fee Class A 5,419,770 Class B 2,973,449 Class C 22,913 Transfer agency fee 3,613,219 Incremental transfer agency fee Class A 208,448 Class B 90,500 Class C 1,031 Service fee -- Class Y 650,837 Administrative services fees and expenses 958,744 Compensation of board members 17,030 Printing and postage 371,599 Registration fees 80,332 Audit fees 10,750 Other 10,447 ------ Total expenses 29,827,452 Earnings credits on cash balances (Note 2) (29,456) ------- Total net expenses 29,797,996 ---------- Investment income (loss) -- net 27,598,396 ---------- Realized and unrealized gain (loss) - net Net realized gain (loss) on: Security transactions (282,357,964) Options contracts written 2,091,929 --------- Net realized gain (loss) on investments (280,266,035) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (266,981,293) ------------ Net gain (loss) on investments and foreign currencies (547,247,328) ------------ Net increase (decrease) in net assets resulting from operations $(519,648,932) =============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 22 -- AXP STOCK FUND -- 2002 ANNUAL REPORT
Statements of changes in net assets AXP Stock Fund, Inc. Year ended Sept. 30, 2002 2001 Operations and distributions Investment income (loss) -- net $ 27,598,396 $ 34,220,246 Net realized gain (loss) on investments (280,266,035) (1,571,000) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (266,981,293) (1,175,193,638) ------------ -------------- Net increase (decrease) in net assets resulting from operations (519,648,932) (1,142,544,392) ------------ -------------- Distributions to shareholders from: Net investment income Class A (20,134,467) (22,908,683) Class B (546,583) (128,550) Class C (4,753) (2,956) Class Y (7,054,693) (8,211,333) Net realized gain Class A (170,708) (342,402,971) Class B (23,793) (45,710,431) Class C (157) (118,787) Class Y (51,115) (101,769,580) ------- ------------ Total distributions (27,986,269) (521,253,291) ----------- ------------ Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 97,420,399 105,362,503 Class B shares 44,137,647 54,166,817 Class C shares 1,273,765 1,915,657 Class Y shares 109,513,536 154,851,512 Reinvestment of distributions at net asset value Class A shares 18,318,413 335,208,053 Class B shares 560,081 45,253,410 Class C shares 4,800 117,399 Class Y shares 6,624,459 100,711,162 Payments for redemptions Class A shares (413,669,151) (359,608,863) Class B shares (Note 2) (87,590,707) (74,452,177) Class C shares (Note 2) (540,820) (398,828) Class Y shares (205,391,477) (196,776,065) ------------ ------------ Increase (decrease) in net assets from capital share transactions (429,339,055) 166,350,580 ------------ ----------- Total increase (decrease) in net assets (976,974,256) (1,497,447,103) Net assets at beginning of year 3,278,270,431 4,775,717,534 ------------- ------------- Net assets at end of year $2,301,296,175 $ 3,278,270,431 ============== =============== Undistributed net investment income $ 1,749,200 $ 1,891,584 -------------- ---------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 23 -- AXP STOCK FUND -- 2002 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. 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, 2002 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. - -------------------------------------------------------------------------------- 24 -- AXP STOCK FUND -- 2002 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 $284 and accumulated net realized loss has been decreased by $284. The tax character of distributions paid for the years indicated is as follows: Year ended Sept. 30, 2002 2001 Class A Distributions paid from: Ordinary income $20,305,175 $129,856,868 Long-term capital gain -- 235,454,786 Class B Distributions paid from: Ordinary income 570,376 14,406,019 Long-term capital gain -- 31,432,962 Class C Distributions paid from: Ordinary income 4,910 40,058 Long-term capital gain -- 81,685 Class Y Distributions paid from: Ordinary income 7,105,808 39,998,651 Long-term capital gain -- 69,982,262 As of Sept. 30, 2002, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ 1,749,200 Accumulated gain (loss) $(313,906,225) Unrealized appreciation (depreciation) $(315,217,784) 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. - -------------------------------------------------------------------------------- 25 -- AXP STOCK FUND -- 2002 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with AEFC to provide administrative services. Under an Administrative Services Agreement, the Fund pays AEFC a fee for 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. 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 $1,054,484 for Class A, $253,409 for Class B and $662 for Class C for the year ended Sept. 30, 2002. During the year ended Sept. 30, 2002, the Fund's transfer agency fees were reduced by $29,456 as a result of earnings credits from overnight cash balances. - -------------------------------------------------------------------------------- 26 -- AXP STOCK FUND -- 2002 ANNUAL REPORT 3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows: Year ended Sept. 30, 2002 Class A Class B Class C Class Y Sold 5,392,410 2,444,654 70,579 6,106,890 Issued for reinvested distributions 1,035,001 30,261 267 375,558 Redeemed (23,406,859) (5,089,871) (31,739) (11,431,596) ----------- ---------- ------- ----------- Net increase (decrease) (16,979,448) (2,614,956) 39,107 (4,949,148) ----------- ---------- ------ ---------- 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 --------- --------- ------ ---------
4. BANK BORROWINGS The Fund has a revolving credit agreement with 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 Sept. 30, 2002. 5. CAPITAL LOSS CARRY-OVER For federal income purposes, the Fund has a capital loss carry-over of $313,906,225 as of Sept. 30, 2002, that will expire in 2010 and 2011 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. - -------------------------------------------------------------------------------- 27 -- AXP STOCK FUND -- 2002 ANNUAL REPORT 6. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
Class A Per share income and capital changes(a) Fiscal period ended Sept. 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $17.86 $27.12 $26.14 $24.18 $27.44 Income from investment operations: Net investment income (loss) .17 .20 .19 .24 .29 Net gains (losses) (both realized and unrealized) (3.39) (6.47) 4.11 4.00 .22 Total from investment operations (3.22) (6.27) 4.30 4.24 .51 Less distributions: Dividends from net investment income (.17) (.18) (.18) (.24) (.30) Distributions from realized gains -- (2.81) (3.14) (2.04) (3.47) Total distributions (.17) (2.99) (3.32) (2.28) (3.77) Net asset value, end of period $14.47 $17.86 $27.12 $26.14 $24.18 Ratios/supplemental data Net assets, end of period (in millions) $1,599 $2,277 $3,358 $3,105 $2,783 Ratio of expenses to average daily net assets(c) .92% .87% .84% .82% .77% Ratio of net investment income (loss) to average daily net assets .93% .88% .67% .90% 1.14% Portfolio turnover rate (excluding short-term securities) 86% 87% 53% 76% 79% Total return(e) (18.20%) (24.87%) 16.59% 17.71% 2.04%
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 28 -- AXP STOCK FUND -- 2002 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended Sept. 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $17.70 $26.90 $25.97 $24.05 $27.32 Income from investment operations: Net investment income (loss) .03 .01 -- .06 .10 Net gains (losses) (both realized and unrealized) (3.36) (6.39) 4.07 3.96 .21 Total from investment operations (3.33) (6.38) 4.07 4.02 .31 Less distributions: Dividends from net investment income (.03) (.01) -- (.06) (.11) Distributions from realized gains -- (2.81) (3.14) (2.04) (3.47) Total distributions (.03) (2.82) (3.14) (2.10) (3.58) Net asset value, end of period $14.34 $17.70 $26.90 $25.97 $24.05 Ratios/supplemental data Net assets, end of period (in millions) $210 $306 $436 $349 $258 Ratio of expenses to average daily net assets(c) 1.69% 1.64% 1.60% 1.59% 1.53% Ratio of net investment income (loss) to average daily net assets .15% .11% (.09%) .12% .39% Portfolio turnover rate (excluding short-term securities) 86% 87% 53% 76% 79% Total return(e) (18.84%) (25.48%) 15.73% 16.81% 1.27%
Class C Per share income and capital changes(a) Fiscal period ended Sept. 30, 2002 2001 2000(b) Net asset value, beginning of period $17.66 $26.88 $26.70 Income from investment operations: Net investment income (loss) .04 .04 .05 Net gains (losses) (both realized and unrealized) (3.36) (6.41) .17 Total from investment operations (3.32) (6.37) .22 Less distributions: Dividends from net investment income (.04) (.04) (.04) Distributions from realized gains -- (2.81) -- Total distributions (.04) (2.85) (.04) Net asset value, end of period $14.30 $17.66 $26.88 Ratios/supplemental data Net assets, end of period (in millions) $2 $2 $1 Ratio of expenses to average daily net assets(c) 1.71% 1.64% 1.60%(d) Ratio of net investment income (loss) to average daily net assets .14% .16% .02%(d) Portfolio turnover rate (excluding short-term securities) 86% 87% 53% Total return(e) (18.84%) (25.47%) .81%
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 29 -- AXP STOCK FUND -- 2002 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended Sept. 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $17.86 $27.13 $26.14 $24.18 $27.44 Income from investment operations: Net investment income (loss) .20 .23 .23 .27 .31 Net gains (losses) (both realized and unrealized) (3.40) (6.47) 4.13 4.00 .22 Total from investment operations (3.20) (6.24) 4.36 4.27 .53 Less distributions: Dividends from net investment income (.20) (.22) (.23) (.27) (.32) Distributions from realized gains -- (2.81) (3.14) (2.04) (3.47) Total distributions (.20) (3.03) (3.37) (2.31) (3.79) Net asset value, end of period $14.46 $17.86 $27.13 $26.14 $24.18 Ratios/supplemental data Net assets, end of period (in millions) $490 $694 $981 $1,063 $1,027 Ratio of expenses to average daily net assets(c) .76% .71% .69% .72% .70% Ratio of net investment income (loss) to average daily net assets 1.08% 1.04% .82% 1.00% 1.21% Portfolio turnover rate (excluding short-term securities) 86% 87% 53% 76% 79% Total return(e) (18.12%) (24.77%) 16.80% 17.81% 2.12%
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. - -------------------------------------------------------------------------------- 30 -- AXP STOCK FUND -- 2002 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, 2002, 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, 2002, and the financial highlights for each of the years in the five-year period ended September 30, 2002. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with 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 and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Stock Fund, Inc. as of September 30, 2002, 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 1, 2002 - -------------------------------------------------------------------------------- 30 -- AXP STOCK FUND -- 2002 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, 2002 Class A Income distributions taxable as dividend income, 98.70% qualifying for deduction by corporations. Payable date Per share Dec. 20, 2001 $0.06269 March 21, 2002 0.03625 June 21, 2002 0.03153 Sept. 20, 2002 0.03956 Total distributions $0.17003 The distributions of $0.06269 per share, payable Dec. 20, 2001, consisted of $0.06132 from net investment income and $0.00137 from net short-term capital gains. Class B Income distributions taxable as dividend income, 98.70% qualifying for deduction by corporations. Payable date Per share Dec. 20, 2001 $0.03083 Mar. 21, 2002 0.00001 Sept. 20, 2002 0.00234 Total distributions $0.03318 The distributions of $0.03083 per share, payable Dec. 20, 2001, consisted of $0.02946 from net investment income and $0.00137 from net short-term capital gains. - -------------------------------------------------------------------------------- 32 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Class C Income distributions taxable as dividend income, 98.70% qualifying for deduction by corporations. Payable date Per share Dec. 20, 2001 $0.03254 March 21, 2002 0.00292 Sept. 20, 2002 0.00562 Total distributions $0.04108 The distributions of $0.03254 per share, payable Dec. 20, 2001, consisted of $0.03117 from net investment income and $0.00137 from net short-term capital gains. Class Y Income distributions taxable as dividend income, 98.70% qualifying for deduction by corporations. Payable date Per share Dec. 20, 2001 $0.06955 March 21, 2002 0.04390 June 21, 2002 0.03908 Sept. 20, 2002 0.04624 Total distributions $0.19877 The distributions of $0.06955 per share, payable Dec. 20, 2001, consisted of $0.06818 from net investment income and $0.00137 from net short-term capital gains. - -------------------------------------------------------------------------------- 33 -- AXP STOCK FUND -- 2002 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 79 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held Principal Other directorships with Fund and occupation during length of service past five years - ------------------------- ------------------ -------------------- --------------------- Arne H. Carlson Board member Chair, Board 901 S. Marquette Ave. since 1999 Services Minneapolis, MN 55402 Corporation Born in 1934 (provides administrative services to boards). Former Governor of Minnesota - ------------------------- ------------------ -------------------- --------------------- Philip J. Carroll, Jr. Board member Retired Chairman Boise Cascade 901 S. Marquette Ave. since 2002 and CEO, Fluor Corporation (forest Minneapolis, MN 55402 Corporation products), Scottish Born in 1937 (engineering and Power PLC, Vulcan construction) Materials Company, since 1998. Former Inc. President and CEO, (construction Shell Oil Company materials/chemicals) - ------------------------- ------------------ -------------------- --------------------- Livio D. DeSimone Board member Retired Chair of Cargill, 30 Seventh Street East since 2001 the Board and Incorporated Suite 3050 Chief Executive (commodity St. Paul, MN 55101-4901 Officer, Minnesota merchants and Born in 1936 Mining and processors), Target Manufacturing (3M) Corporation (department stores), General Mills, Inc. (consumer foods), Vulcan Materials Company (construction materials/ chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. - ------------------------- ------------------ -------------------- --------------------- Ira D. Hall Board member Private investor; Imagistics 183 Long Close Road since 2001 formerly with International, Inc. Stamford, CT 06902 Texaco Inc., (office equipment), Born in 1944 Treasurer, Reynolds & Reynolds 1999-2001 and Company General Manager, (information Alliance services), TECO Management Energy, Inc. Operations, (energy holding 1998-1999. Prior company), The to that, Director, Williams Companies, International Inc. (energy Operations IBM distribution Corp. company) - ------------------------- ------------------ -------------------- --------------------- Heinz F. Hutter Board member Retired President P.O. Box 2187 since 1994 and Chief Minneapolis, MN 55402 Operating Officer, Born in 1929 Cargill, Incorporated (commodity merchants and processors) - ------------------------- ------------------ -------------------- --------------------- Anne P. Jones Board member Attorney and Motorola, Inc. 5716 Bent Branch Rd. since 1985 Consultant (electronics) Bethesda, MD 20816 Born in 1935 - ------------------------- ------------------ -------------------- --------------------- Stephen R. Lewis, Jr.* Board member Retired President 901 S. Marquette Ave. since 2002 and Professor of Minneapolis, MN 55402 Economics, Born in 1939 Carleton College - ------------------------- ------------------ -------------------- ---------------------
* Interested person of AXP Partners International Aggressive Growth Fund by reason of being a securityholder of FleetBoston Financial Corporation, parent company of Liberty Wanger Asset Management, L.P., one of the fund's subadvisers. - -------------------------------------------------------------------------------- 34 -- AXP STOCK FUND -- 2002 ANNUAL REPORT Independent Board Members (continued)
Name, Position held Principal address, with Fund and occupation during age length of service past five years Other directorships - ------------------------- ------------------ -------------------- --------------------- Alan G. Quasha Board member President, Compagnie 720 Fifth Avenue since 2002 Quadrant Financiere New York, NY 10019 Management, Inc. Richemont AG Born in 1949 (management of (luxury goods) private equities) - ------------------------- ------------------ -------------------- --------------------- Alan K. Simpson Board member Former three-term Biogen, Inc. 1201 Sunshine Ave. since 1997 United States (biopharmaceuticals) Cody, WY 82414 Senator for Wyoming Born in 1931 - ------------------------- ------------------ -------------------- --------------------- Alison Taunton-Rigby Board member President, Synaptic 8 Farrar Road since 2002 Forester Biotech Pharmaceuticals Lincoln, MA 01773 since 2000. Former Corporation Born in 1944 President and CEO, Aquila Biopharmaceuticals, Inc. - ------------------------- ------------------ -------------------- --------------------- Board Members Affiliated with AEFC** Name, Position held Principal address, with Fund and occupation during age length of service past five years Other directorships - ------------------------- ------------------ -------------------- --------------------- Barbara H. Fraser Board member Executive Vice 1546 AXP Financial since 2002 President - AEFA Center Products and Minneapolis, MN 55474 Corporate Born in 1949 Marketing of 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. Head of Marketing and Strategic Planning - Investment Products and Distribution, Citibank Global, 1995-1998 - ------------------------- ------------------ -------------------- --------------------- Stephen W. Roszell Board member Senior Vice 50238 AXP Financial since 2002; Vice President - Center President since Institutional Minneapolis, MN 55474 2002 Group of AEFC Born in 1949 - ------------------------- ------------------ -------------------- --------------------- William F. Truscott Board member Senior Vice 53600 AXP Financial since 2001, Vice President - Chief Center President since Investment Officer Minneapolis, MN 55474 2002 of AEFC since Born in 1960 2001. Former Chief Investment Officer and Managing Director, Zurich Scudder Investments - ------------------------- ------------------ -------------------- ---------------------
** Interested person by reason of being an officer, director and/or employee of AEFC. - -------------------------------------------------------------------------------- 35 -- AXP STOCK FUND -- 2002 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 Principal address, with Fund and occupation during age length of service past five years Other directorships - ------------------------- ------------------ -------------------- --------------------- Jeffrey P. Fox Treasurer since Vice President - 50005 AXP Financial 2002 Investment Center Accounting, AEFC, Minneapolis, MN 55474 since 2002; Vice Born in 1955 President - Finance, American Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 - ------------------------- ------------------ -------------------- --------------------- Paula R. Meyer President since Senior Vice 596 AXP Financial Center 2002 President and Minneapolis, MN 55474 General Manager - Born in 1954 Mutual Funds, AEFC, since 2002; Vice President and Managing Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000; President - Piper Capital Management 1997-1998 - ------------------------- ------------------ -------------------- --------------------- Leslie L. Ogg Vice President, President of Board 901 S. Marquette Ave. General Counsel, Services Minneapolis, MN 55402 and Secretary Corporation Born in 1938 since 1978 - ------------------------- ------------------ -------------------- ---------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. - -------------------------------------------------------------------------------- 36 -- AXP STOCK FUND -- 2002 ANNUAL REPORT American Express(R) Funds 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 DimensionsFund(R) 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 International Equity Index Fund AXP Large Cap Equity Fund AXP Managed Allocation Fund AXP Mid Cap Index Fund AXP Nasdaq 100 Index(R) Fund AXP Partners International Core Fund AXP Partners International Small Cap Fund AXP Partners Small Cap Core Fund AXP Research Opportunities Fund AXP S&P 500 Index Fund AXP Small Cap Advantage Fund AXP Small Company Index Fund AXP Stock Fund AXP Total Stock Market Index 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 Fundamental Value 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 International Equity Index 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. For more complete information about our funds, including fees and expenses, please call (800) 862-7919 for prospectuses. Read them carefully before you invest. (11/02) AXP Stock Fund 70100 AXP Financial Center Minneapolis, MN 55474 americanexpress.com - -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (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-6351 W (11/02) -----END PRIVACY-ENHANCED MESSAGE-----