N-CSR 1 stock-ncsr.txt AXP STOCK SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-498 ----------- AXP STOCK SERIES, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 AXP Financial Center, Minneapolis, Minnesota 55474 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 9/30 -------------- Date of reporting period: 9/30 -------------- AXP(R) Stock Fund Annual Report for the Period Ended Sept. 30, 2004 AXP Stock Fund seeks to provide shareholders with current income and growth of capital. (logo) (logo) American AMERICAN Express(R) EXPRESS Funds (R) Table of Contents Fund Snapshot 3 Performance Summary 4 Questions & Answers with Portfolio Management 5 The Fund's Long-term Performance 10 Investments in Securities 12 Financial Statements (Portfolio) 15 Notes to Financial Statements (Portfolio) 18 Report of Independent Registered Public Accounting Firm (Portfolio) 22 Financial Statements (Fund) 23 Notes to Financial Statements (Fund) 26 Report of Independent Registered Public Accounting Firm (Fund) 36 Federal Income Tax Information 37 Fund Expenses Example 39 Board Members and Officers 41 Proxy Voting 43 [dalbar logo] American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. -------------------------------------------------------------------------------- 2 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Fund Snapshot AT SEPT. 30, 2004 PORTFOLIO MANAGERS Portfolio managers Since Years in industry Mike Kennedy, CFA 7/99 34 Scott Mullinix 6/04 15 Dimitris Bertsimas 10/04 11 Gina Mourtzinou 10/04 8 FUND OBJECTIVE For investors seeking current income and growth of capital. Inception dates by class A: 4/6/45 B: 3/20/95 C: 6/26/00 Y: 3/20/95 Ticker symbols by class A: INSTX B: IDSBX C: -- Y: IDSYX Total net assets $2.195 billion Number of holdings 87 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets (pie graph) Industrials 14.4% Health care 12.7% Financials 12.3% Information technology 11.8% Energy 10.7% Consumer discretionary 9.8% Materials 7.8% Utilities 6.8% Consumer staples 6.3% Short-term securities 5.6% Telecommunication services 1.8% TOP TEN HOLDINGS Percentage of portfolio assets Microsoft (Computer software & services) 4.8% General Electric (Multi-industry) 3.8 Exxon Mobil (Energy) 3.3 Citigroup (Finance companies) 2.4 Pfizer (Health care products) 2.2 American Intl Group (Insurance) 2.2 BP ADR (Energy) 2.1 Home Depot (Retail -- general) 2.0 Tyco Intl (Multi-industry) 1.8 Verizon Communications (Utilites -- telephone) 1.8 For further detail about these holdings, please refer to the section entitled "Investments in Securities." Fund holdings are subject to change. -------------------------------------------------------------------------------- 3 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Performance Summary (bar graph) PERFORMANCE COMPARISON For the year ended Sept. 30, 2004 15% (bar 2) (bar 3) 10% (bar 1) +13.87% +10.66% 5% +9.72% 0% (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) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes.
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class 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) as of Sept. 30, 2004 1 year +9.72% +3.40% +8.91% +4.91% +8.87% +8.87% +9.90% +9.90% 3 years +1.36% -0.62% +0.58% -0.42% +0.57% +0.57% +1.51% +1.51% 5 years -1.82% -2.98% -2.58% -2.73% N/A N/A -1.68% -1.68% 10 years +6.89% +6.26% N/A N/A N/A N/A N/A N/A Since inception +9.75% +9.64% +6.19% +6.19% -6.11% -6.11% +7.16% +7.16%
(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. -------------------------------------------------------------------------------- 4 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Managers Mike Kennedy and Scott Mullinix discuss the Fund's positioning and results for fiscal year 2004. On Oct. 1, 2004, Portfolio Managers Dimitris Bertsimas and Gina Mourtzinou began managing approximately 25% of the Fund's assets using a quantitative investing approach to complement the Fund's investing strategy. Q: How did AXP Stock Fund perform for the 12 months ended Sept. 30, 2004? A: AXP Stock Fund's Class A shares gained 9.72%, excluding sales charge for the 12 months ended Sept. 30, 2004. This was less than the Lipper Large-Cap Core Funds Index, representing the Fund's peer group, that rose 10.66% for the same one-year period. The Fund's benchmark, the broad-based Standard & Poor's 500 Index (S&P 500 Index) increased 13.87% over the same time frame. Q: What factors most significantly affected performance? A: Stocks delivered attractive results during the Fund's fiscal period. However, most of the gains were achieved early in the period. In the second half of the fiscal year, markets lost momentum amid concerns about high energy prices, the pace of economic growth, potential terrorist activity and uncertainty surrounding the presidential election. Overall, our sector allocations added to the Fund's positive return for the fiscal year. However, this was not enough to offset our weak stock selection, which resulted in the Fund's underperformance of the S&P 500 and peer group for the period. Larger-than-benchmark weightings in the strongly performing energy, industrials and materials sectors were significant positive contributors for the Fund. Within the energy sector, the Fund benefited from energy equipment holdings such as Schlumberger, Transocean and Global Santa Fe, as well as from several larger oil companies like ConocoPhillips, British Petroleum and Apache. As a whole, the Fund's energy stocks kept pace with those in the S&P 500. Within the industrials sector, the Fund benefited from its holdings in the defense industry, as well as two individual stocks, Rockwell Automation and Tyco. However, performance of the Fund's industrial holdings fell just short of the benchmark. The materials sector was one of the strongest in the index, so our higher-than-S&P 500 position was particularly advantageous. Within the sector, the Fund's chemical and metals stocks were beneficial, while holdings in the paper industry hampered relative performance. As a result, our materials holdings underperformed the S&P 500. The Fund's position in the financial sector detracted from performance relative to the S&P 500. We maintained a lower-than-S&P 500 weighting in the sector because we believed the -------------------------------------------------------------------------------- 5 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Questions & Answers (begin callout quote)> We are focusing on companies that can increase prices, as well as those that have strong cash flow and above average dividend growth potential.(end callout quote) Federal Reserve (the Fed) would begin raising short-term interest rates, which it did three times during the period. Surprisingly, financial stocks performed well despite the rising interest rate environment. Our stock selection within the sector was unfavorable as we had focused on companies with ties to the capital markets, believing they would benefit from stronger equity markets and increased merger and acquisition activity. Thus, we established new positions in Merrill Lynch and Goldman Sachs and added to the Fund's Citigroup holdings during the first half of the fiscal period. When equity markets weakened in the second half of the period and merger and acquisition activity failed to materialize, our positions in these stocks did not work as expected. The Fund had a lower-than-benchmark position in technology. This was a prudent strategy given that technology was one of the worst performing sectors in the S&P 500 because of the sector's earnings shortfalls. However, our holdings in the semiconductor industry, which was by far the worst performing group in the technology sector, hurt relative performance. Healthcare was a similar story. The Fund had a lower-than-S&P 500 position, which was quite beneficial since health care was one of the worst performing sectors in the S&P 500. However, the Fund was hurt by several holdings including Boston Scientific and Merck, both of which suffered from product recalls. Q: What changes did you make to the Fund and how is it currently positioned? A: We entered the fiscal year with the belief that the economic recovery was going to be on track and we shifted the Fund to higher-than-S&P 500 positions in materials and industrials. In the first six months of the fiscal year, we pared back those positions because we thought stock prices in the sectors had gotten ahead of their underlying values. We waited for a pause in the market and then subsequently rebuilt the Fund's positions in both areas. -------------------------------------------------------------------------------- 6 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Questions & Answers The biggest sector changes over the 12-month period were increases in the Fund's energy and financial positions and decreases in technology and materials. Despite the decrease in materials, the Fund's position remained larger than the benchmark. Similarly, the Fund's financial position remained below that of the benchmark, even with the increase. We think the outperformance of financial stocks in the face of rising interest rates was an anomaly that may not be repeated in the months ahead. During the fiscal year, we further reduced or eliminated the Fund's positions in materials companies Freeport-McMoRan, Newmont Mining and Weyerhaeuser. These companies had become overvalued in our view. We also further reduced or eliminated drug companies Teva Pharmaceuticals and Merck because of earnings concerns. In the energy sector, we slightly reduced our holdings of integrated oil companies in favor of drilling and oil service companies. We have continued to cut back on the Fund's holdings of consumer discretionary stocks because we are concerned about consumers' desire and ability to continue spending now that the Fed has begun to raise interest rates, mortgage refinancing has slowed and high energy prices continue to bite into spendable income. In summary, the Fund's most significant deviations from the S&P 500 were larger-than-index positions in energy and materials and lower-than-S&P 500 positions in the financials, consumer discretionary and technology sectors. -------------------------------------------------------------------------------- 7 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Questions & Answers How the quantitative element of AXP Stock Fund's investment strategy works: Buyable Universe (Example: S&P 500 Index) Stock Selection Model Momentum Value Quality Portfolio Construction & Risk Management Mutual Fund Portfolio Q: How does a quantitative approach differ from how the Fund has historically been managed? A: Adding a quantitative approach should provide new resources and greater investment flexibility for the Fund. Specifically, quantitative techniques differ from stock selection using fundamental methods in that a quantitative approach relies on computer modeling rather than a judgment call by portfolio management. Dimitris Bertsimas leads our Quantitative Investing team that employs three stock selection techniques for the Fund: o A momentum model. This investment model is based on the pattern of stock returns observed over history, and singles out groups of companies that appear to have improving prospects. o A value model. This investment model use proprietary estimates of future corporate earnings and buys stocks that appear undervalued based on historical price/earnings (P/E) ratios. o A quality-based model. This investment model attempts to predict returns of stocks based on valuation measures adjusted for quality based on parameters such as high earnings, low volatility of earnings and low debt over an appropriate historical period. -------------------------------------------------------------------------------- 8 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Questions & Answers Even as we have added these investment techniques, the Fund's objective -- to provide current income and growth of capital -- remains the same. The Fund also continues to invest primarily in large-cap U.S. stocks. Our Quantitative Investing team currently manages AXP Quantitative Large Cap Equity Fund, the equity portion and overall asset allocation mix of AXP Managed Allocation Fund and a small portion of AXP Small Cap Advantage Fund. More information as well as fact sheets, prospectuses and shareholder reports for these funds can be found at americanexpress.com/funds. Q: How do you intend to manage the Fund in the coming months? A: Recent months have been fairly difficult for investors as market sentiment was swayed by questions about the economic recovery; including how strong it is and how long it can last. Rising energy costs have been an additional drag on the market. We believe energy costs will remain a key factor in the investing environment for the next 12 to 24 months. Finding new sources of energy and changing people's energy usage are long-term solutions, so there is no quick fix. Oil prices may decline if speculation subsides. If oil prices remain high perhaps the global economy will not grow as fast, but it is also possible the world will adjust to new economic realities of higher energy costs. We continue to believe the recovery can continue through 2005 and that interest rates and inflation (pricing) will increase modestly. Given this scenario, we think profits on the stocks in the S&P 500 Index may rise 6% to 9%, but that certain sectors and stocks might do better. Thus, we believe effective stock selection will be critical to successful investing in 2005. In this environment, we remain wary of the financial sector and consumer spending related sectors, believing they will be unable to keep up with the overall market. We are focusing on companies that can increase prices, as well as those that have strong cash flow and above average dividend growth potential. -------------------------------------------------------------------------------- 9 --- AXP STOCK FUND --- 2004 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP Stock Fund Class A shares (from 10/1/94 to 9/30/04) 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. The performance information shown represents past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (888) 723-8476 or visiting www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current prospectus. You should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements. Class A Short-term Long-term Fiscal year ended Income capital gains capital gains Total Sept. 30, 2004 $0.19 $ -- $ -- $0.19 Sept. 30, 2003 0.18 -- -- 0.18 Sept. 30, 2002 0.17 -- -- 0.17 Sept. 30, 2001 0.18 0.88 1.93 2.99 Sept. 30, 2000 0.18 -- 3.14 3.32 -------------------------------------------------------------------------------- 10 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
(line graph) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP STOCK FUND AXP Stock Fund Class A (includes sales charge) $ 9,425 $11,041 $12,862 $16,749 $17,091 $20,117 $23,455 $17,622 $14,415 $16,725 $18,351 S&P 500 Index(1) $10,000 $12,975 $15,614 $21,928 $23,913 $30,561 $34,619 $25,400 $20,196 $25,123 $28,608 Lipper Large-Cap Core Funds Index(2) $10,000 $12,417 $14,656 $19,812 $21,099 $26,376 $31,050 $22,390 $18,239 $21,900 $24,234 `94 `95 `96 `97 `98 `99 `00 `01 `02 `03 `04
COMPARATIVE RESULTS
Results as of Sept. 30, 2004 Since 1 year 3 years 5 years 10 years inception(3) AXP Stock Fund (includes sales charge) Class A Cumulative value of $10,000 $10,340 $9,815 $8,596 $18,351 $2,385,365 Average annual total return +3.40% -0.62% -2.98% +6.26% +9.64% Standard & Poor's 500 Index(1) Cumulative value of $10,000 $11,387 $11,265 $9,362 $28,608 $7,169,693 Average annual total return +13.87% +4.05% -1.31% +11.08% +11.73% Lipper Large-Cap Core Funds Index(2) Cumulative value of $10,000 $11,066 $10,823 $9,188 $24,234 N/A Average annual total return +10.66% +2.67% -1.68% +9.25% N/A
Results for other share classes can be found on page 4. (1) 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. (3) Fund data is from April 6, 1945. Index data is from July 1, 1945. The Fund began operating before inception of the Lipper peer group. -------------------------------------------------------------------------------- 11 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Investments in Securities Equity Portfolio Sept. 30, 2004 (Percentages represent value of investments compared to net assets) Common stocks (86.6%) Issuer Shares Value(a) Aerospace & defense (5.6%) Lockheed Martin 600,000 $33,468,000 Northrop Grumman 400,000 21,332,000 Rockwell Automation 800,000 30,960,000 United Technologies 400,000 37,352,000 Total 123,112,000 Banks and savings & loans (3.6%) Bank of America 800,000 34,664,000 U.S. Bancorp 700,000 20,230,000 Wells Fargo & Co 400,000 23,852,000 Total 78,746,000 Beverages & tobacco (1.1%) PepsiCo 500,000 24,325,000 Broker dealers (0.7%) Morgan Stanley 300,000 14,790,000 Chemicals (3.0%) Air Products & Chemicals 400,000 21,752,000 Dow Chemical 600,000 27,108,000 EI du Pont de Nemours & Co 400,000 17,120,000 Total 65,980,000 Computer hardware (1.3%) Dell 800,000(b) 28,480,000 Computer software & services (7.3%) Computer Sciences 400,000(b) 18,840,000 Electronic Arts 400,000(b) 18,396,000 Intl Business Machines 200,000 17,148,000 Microsoft 3,800,000 105,070,000 Total 159,454,000 Electronics (1.3%) Intel 800,000 16,048,000 Texas Instruments 600,000 12,768,000 Total 28,816,000 Energy (8.6%) Apache 600,000 30,066,000 BP ADR 800,000(c) 46,024,000 ConocoPhillips 200,000 16,570,000 EnCana 500,000(c) 23,150,000 Exxon Mobil 1,500,000 72,495,000 Total 188,305,000 Energy equipment & services (1.4%) Schlumberger 200,000 13,462,000 Transocean 500,000(b) 17,890,000 Total 31,352,000 Finance companies (2.4%) Citigroup 1,200,000 52,944,000 Financial services (2.2%) Capital One Financial 400,000 29,560,000 Goldman Sachs Group 200,000 18,648,000 Total 48,208,000 Food (1.7%) ConAgra Foods 700,000 17,997,000 Wm Wrigley Jr 300,000 18,993,000 Total 36,990,000 Health care products (9.5%) Amgen 500,000(b) 28,340,000 Boston Scientific 500,000(b) 19,865,000 Gilead Sciences 400,000(b) 14,952,000 Johnson & Johnson 600,000 33,798,000 Medtronic 500,000 25,950,000 Merck & Co 700,000 23,100,000 Pfizer 1,600,000 48,960,000 Teva Pharmaceutical Inds ADR 400,000(c) 10,380,000 Total 205,345,000 Health care services (2.3%) Aetna 200,000 19,986,000 WellPoint Health Networks 300,000(b) 31,527,000 Total 51,513,000 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 12 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Common stocks (continued) Issuer Shares Value(a) Household products (3.0%) Clorox 200,000 $10,660,000 Colgate-Palmolive 500,000 22,590,000 Procter & Gamble 600,000 32,472,000 Total 65,722,000 Insurance (3.4%) American Intl Group 700,000 47,593,000 Chubb 400,000 28,112,000 Total 75,705,000 Leisure time & entertainment (1.1%) Viacom Cl B 700,000 23,492,000 Lodging & gaming (0.8%) Intl Game Technology 500,000 17,975,000 Machinery (1.1%) Caterpillar 300,000 24,135,000 Media (1.5%) Gannett 200,000 16,752,000 McGraw-Hill Companies 200,000 15,938,000 Total 32,690,000 Metals (1.5%) Alcoa 1,000,000 33,590,000 Multi-industry (7.7%) 3M 300,000 23,991,000 Danaher 400,000 20,512,000 General Electric 2,500,000 83,950,000 Tyco Intl 1,300,000(c) 39,858,000 Total 168,311,000 Paper & packaging (1.5%) Intl Paper 800,000 32,328,000 Precious metals (0.7%) Freeport McMoRan Copper & Gold Cl B 400,000 16,200,000 Retail -- general (4.2%) Home Depot 1,100,000 43,120,000 Target 500,000 22,625,000 Wal-Mart Stores 500,000 26,600,000 Total 92,345,000 Retail -- grocery (0.5%) SUPERVALU 400,000 11,020,000 Telecom equipment & services (1.9%) Corning 1,800,000(b) 19,944,000 Motorola 1,200,000 21,648,000 Total 41,592,000 Utilities -- electric (4.0%) Cinergy 200,000 7,920,000 Dominion Resources 500,000 32,625,000 FPL Group 500,000 34,160,000 PPL 300,000 14,154,000 Total 88,859,000 Utilities -- telephone (1.8%) Verizon Communications 1,000,000 39,380,000 Total common stocks (Cost: $1,766,752,640) $1,901,704,000 Preferred stocks (6.0%) Issuer Shares Value(a) Dominion Resources 9.50% Cv 342,000 $18,656,100 FPL Group 8.50% Cv 300,000 17,070,000 Freeport McMoRan Copper & Gold 5.50% Cv 21,950(d) 22,334,125 General Motors 6.25% Cv 1,000,000 28,150,000 Public Service Enterprise Group 10.25% Cv 415,000 24,298,250 Schering-Plough 6.00% Cv 440,000 22,088,000 Total preferred stocks (Cost: $125,377,302) $132,596,475 Bonds (1.6%) Issuer Coupon Principal Value(a) rate amount Costco Wholesale Zero Coupon Cv 08-19-17 3.50% $21,000,000(d,e) $19,845,000 Devon Energy Cv 08-15-08 4.90 15,000,000 16,256,250 Total bonds (Cost: $28,513,948) $36,101,250 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 13 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Short-term securities (5.6%) Issuer Effective Amount Value(a) yield payable at maturity U.S. government agencies (3.5%) Federal Home Loan Mtge Corp Disc Nt 10-19-04 1.72% $15,000,000 $14,986,384 Federal Natl Mtge Assn Disc Nts 10-22-04 1.70 30,000,000 29,968,831 11-01-04 1.68 7,900,000 7,888,203 12-01-04 1.80 25,000,000 24,922,900 Total 77,766,318 Commercial paper (2.1%) Galaxy Funding 10-21-04 1.62 6,000,000 5,994,330 Greyhawk Funding 10-29-04 1.77 2,700,000 2,696,150 Park Avenue Receivables 10-28-04 1.78 5,000,000 4,993,078 Preferred Receivables Funding 10-15-04 1.72 7,200,000 7,194,841 Ranger Funding LLC 10-19-04 1.77 9,400,000 9,391,219 UBS Finance/Delaware LLC 10-01-04 1.88 14,900,000 14,899,222 Total 45,168,840 Total short-term securities (Cost: $122,939,050) $122,935,158 Total investments in securities (Cost: $2,043,582,940)(f) $2,193,336,883 Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At Sept. 30, 2004, the value of foreign securities represented 5.4% 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 Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Sept. 30, 2004, the value of these securities amounted to $42,179,125 or 1.9% of net assets. (e) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (f) At Sept. 30, 2004, the cost of securities for federal income tax purposes was $2,047,007,799 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $213,124,582 Unrealized depreciation (66,795,498) ----------- Net unrealized appreciation $146,329,084 ------------ How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. -------------------------------------------------------------------------------- 14 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Financial Statements
Statement of assets and liabilities Equity Portfolio Sept. 30, 2004 Assets Investments in securities, at value (Note 1) (identified cost $2,043,582,940) $2,193,336,883 Dividends and accrued interest receivable 1,990,024 --------- Total assets 2,195,326,907 ------------- Liabilities Disbursements in excess of cash on demand deposit 243,232 Accrued investment management services fee 29,795 Other accrued expenses 62,400 ------ Total liabilities 335,427 ------- Net assets $2,194,991,480 ==============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 15 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
Statement of operations Equity Portfolio Year ended Sept. 30, 2004 Investment income Income: Dividends $ 44,784,439 Interest 2,211,939 Fee income from securities lending (Note 3) 60,598 Less foreign taxes withheld (208,836) -------- Total income 46,848,140 ---------- Expenses (Note 2): Investment management services fee 11,111,422 Compensation of board members 14,815 Custodian fees 152,542 Audit fees 32,250 Other 51,775 ------ Total expenses 11,362,804 Earnings credits on cash balances (Note 2) (483) ---- Total net expenses 11,362,321 ---------- Investment income (loss) -- net 35,485,819 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 197,097,444 Foreign currency transactions 544 --- Net realized gain (loss) on investments 197,097,988 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 6,927,011 --------- Net gain (loss) on investments and foreign currencies 204,024,999 ----------- Net increase (decrease) in net assets resulting from operations $239,510,818 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 16 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
Statements of changes in net assets Equity Portfolio Year ended Sept. 30, 2004 2003 Operations Investment income (loss) -- net $ 35,485,819 $ 36,235,440 Net realized gain (loss) on investments 197,097,988 (141,714,417) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 6,927,011 456,767,733 --------- ----------- Net increase (decrease) in net assets resulting from operations 239,510,818 351,288,756 ----------- ----------- Proceeds from contributions 19,586,930 32,548,294 Fair value of withdrawals (428,338,955) (321,227,690) ------------ ------------ Net contributions (withdrawals) from partners (408,752,025) (288,679,396) ------------ ------------ Total increase (decrease) in net assets (169,241,207) 62,609,360 Net assets at beginning of year 2,364,232,687 2,301,623,327 ------------- ------------- Net assets at end of year $2,194,991,480 $2,364,232,687 ============== ==============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 17 --- AXP STOCK FUND --- 2004 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. In pursuit of its income objective, the Portfolio will invest in income-producing equity securities (such as convertible securities and preferred stocks) and short-term debt instruments (such as commercial paper). The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Trustees of the portfolios, American Express Financial Corporation (AEFC) utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair NAV. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. -------------------------------------------------------------------------------- 18 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Option transactions To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Portfolio may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Portfolio also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Portfolio gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Portfolio may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Portfolio pays a premium whether or not the option is exercised. The Portfolio also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Portfolio will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. -------------------------------------------------------------------------------- 19 --- AXP STOCK FUND --- 2004 ANNUAL REPORT The Portfolio may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. Guarantees and indemnifications Under the Portfolio's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Portfolio. In addition, certain of the Portfolio's contracts with its service providers contain general indemnification clauses. The Portfolio's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Portfolio cannot be determined and the Portfolio has no historical basis for predicting the likelihood of any such claims. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. FEES AND EXPENSES The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with AEFC to manage its portfolio. Under 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 that declines from 0.53% to 0.40% annually as the Portfolio's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of AXP Stock Fund to the Lipper Large-Cap Core Funds Index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment decreased the fee by $642,172 for the year ended Sept. 30, 2004. Under the agreement, the Trust also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees, audit and certain legal fees, fidelity bond premiums, registration fees for units, office expenses, consultants' fees, compensation of trustees, corporate filing fees, expenses incurred in connection with lending securities of the Portfolio and any other expenses properly payable by the Trust or Portfolio and approved by the board. -------------------------------------------------------------------------------- 20 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the underlying Fund or other American Express mutual funds. The Portfolio's liability for these amounts is adjusted for market value changes and remains in the Portfolio until distributed in accordance with the Plan. During the year ended Sept. 30, 2004, the Portfolio's custodian fees were reduced by $483 as a result of earnings credits from overnight cash balances. The Portfolio also pays custodian fees to American Express Trust Company, an affiliate of AEFC. According to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the Trust's units. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $1,741,025,605 and $2,122,576,790, respectively, for the year ended Sept. 30, 2004. Realized gains and losses are determined on an identified cost basis. Income from securities lending amounted to $60,598 for the year ended Sept. 30, 2004. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. Brokerage clearing fees paid to brokers affiliated with AEFC were $514,423 for the year ended Sept. 30, 2004. 4. FINANCIAL HIGHLIGHTS The table below shows certain important financial information for evaluating the Portfolio's results. Ratios/supplemental data
Fiscal period ended Sept. 30, 2004 2003 2002 2001 2000 Ratio of expenses to average daily net assets(a) .47% .47% .49% .48% .47% Ratio of net investment income (loss) to average daily net assets 1.48% 1.56% 1.35% 1.27% 1.03% Portfolio turnover rate (excluding short-term securities) 76% 68% 86% 87% 53% Total return(b) 10.19% 16.53% (17.87%)(24.59%) 17.02%
(a) Expense ratio is based on total expenses of the Portfolio before reduction of earnings credits on cash balances. The ratio does not include feeder fund expenses. (b) Total return is based on a calculated Portfolio NAV and does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 21 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Report of Independent Registered Public Accounting Firm 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, 2004, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended September 30, 2004, and the financial highlights for each of the years in the five-year period ended September 30, 2004. These financial statements and the financial highlights are the responsibility of portfolio management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Equity Portfolio as of September 30, 2004, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota November 22, 2004 -------------------------------------------------------------------------------- 22 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Stock Fund Sept. 30, 2004 Assets Investment in Portfolio (Note 1) $2,194,913,371 Capital shares receivable 27,816 ------ Total assets 2,194,941,187 Liabilities Capital shares payable 166,972 Accrued distribution fee 14,995 Accrued service fee 1,210 Accrued transfer agency fee 3,640 Accrued administrative services fee 1,983 Other accrued expenses 152,212 ------- Total liabilities 341,012 ------- Net assets applicable to outstanding capital stock $2,194,600,175 ============== Represented by Capital stock -- $.01 par value (Note 1) $ 1,218,906 Additional paid-in capital 2,302,127,767 Undistributed net investment income 1,307,250 Accumulated net realized gain (loss) (Note 5) (259,822,639) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 149,768,891 ----------- Total -- representing net assets applicable to outstanding capital stock $2,194,600,175 ============== Net assets applicable to outstanding shares: Class A $1,595,974,238 Class B $ 145,515,711 Class C $ 3,147,113 Class I $ 12,191,913 Class Y $ 437,771,200 Net asset value per share of outstanding capital stock: Class A shares 88,586,618 $ 18.02 Class B shares 8,148,843 $ 17.86 Class C shares 176,940 $ 17.79 Class I shares 676,783 $ 18.01 Class Y shares 24,301,388 $ 18.01 ---------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 23 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
Statement of operations AXP Stock Fund Year ended Sept. 30, 2004 Investment income Income: Dividends $ 44,782,983 Interest 2,208,928 Fee income from securities lending 60,596 Less foreign taxes withheld (208,829) -------- Total income 46,843,678 ---------- Expenses (Note 2): Expenses allocated from Portfolio 11,361,954 Distribution fee Class A 4,245,423 Class B 1,877,379 Class C 32,180 Transfer agency fee 2,678,841 Incremental transfer agency fee Class A 170,292 Class B 63,865 Class C 1,139 Service fee -- Class Y 497,150 Administrative services fees and expenses 789,200 Compensation of board members 11,915 Printing and postage 248,741 Registration fees 52,449 Audit fees 10,750 Other 33,910 ------ Total expenses 22,075,188 Earnings credits on cash balances (Note 2) (25,827) ------- Total net expenses 22,049,361 ---------- Investment income (loss) -- net 24,794,317 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 197,091,813 Foreign currency transactions 544 --- Net realized gain (loss) on investments 197,092,357 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 6,926,582 --------- Net gain (loss) on investments and foreign currencies 204,018,939 ----------- Net increase (decrease) in net assets resulting from operations $228,813,256 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 24 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
Statements of changes in net assets AXP Stock Fund Year ended Sept. 30, 2004 2003 Operations and distributions Investment income (loss) -- net $ 24,794,317 $ 25,106,839 Net realized gain (loss) on investments 197,092,357 (141,711,183) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 6,926,582 456,755,465 --------- ----------- Net increase (decrease) in net assets resulting from operations 228,813,256 340,151,121 ----------- ----------- Distributions to shareholders from: Net investment income Class A (17,822,836) (18,542,175) Class B (462,784) (826,583) Class C (9,793) (10,675) Class I (73,594) -- Class Y (6,002,196) (6,585,430) ---------- ---------- Total distributions (24,371,203) (25,964,863) ----------- ----------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 63,479,881 90,579,699 Class B shares 12,358,184 26,213,929 Class C shares 856,199 1,157,982 Class I shares 13,794,550 -- Class Y shares 103,308,321 106,572,828 Reinvestment of distributions at net asset value Class A shares 16,110,619 16,713,646 Class B shares 454,174 811,027 Class C shares 9,509 10,411 Class I shares 73,495 -- Class Y shares 6,002,197 6,585,430 Payments for redemptions Class A shares (277,171,254) (273,416,766) Class B shares (Note 2) (73,507,847) (75,233,233) Class C shares (Note 2) (793,152) (682,062) Class I shares (1,535,947) -- Class Y shares (237,347,682) (150,728,449) ------------ ------------ Increase (decrease) in net assets from capital share transactions (373,908,753) (251,415,558) ------------ ------------ Total increase (decrease) in net assets (169,466,700) 62,770,700 Net assets at beginning of year 2,364,066,875 2,301,296,175 ------------- ------------- Net assets at end of year $2,194,600,175 $2,364,066,875 ============== ============== Undistributed net investment income $ 1,307,250 $ 883,592 -------------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 25 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Notes to Financial Statements AXP Stock Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Stock Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Stock Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth calendar year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. Effective March 4, 2004, the Fund offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. At Sept. 30, 2004, American Express Financial Corporation (AEFC) and the AXP Portfolio Builder Series funds owned 100% of Class I shares, which represents 0.56% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Investment in 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. In pursuit of its income objective, the Portfolio will invest in income-producing equity securities (such as convertible securities and preferred stocks) and short-term debt instruments (such as commercial paper). The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund at Sept. 30, 2004 was 99.99%. -------------------------------------------------------------------------------- 26 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Valuation of securities All securities held by the Portfolio are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Trustees of the portfolios, AEFC utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair NAV. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Guarantees and indemnifications Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. -------------------------------------------------------------------------------- 27 --- AXP STOCK FUND --- 2004 ANNUAL REPORT On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $544 and accumulated net realized loss has been increased by $544. The tax character of distributions paid for the years indicated is as follows: Year ended Sept. 30, 2004 2003 Class A Distributions paid from: Ordinary income $17,822,836 $18,542,175 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income 462,784 826,583 Long-term capital gain -- -- Class C Distributions paid from: Ordinary income 9,793 10,675 Long-term capital gain -- -- Class I* Distributions paid from: Ordinary income 73,594 N/A Long-term capital gain -- N/A Class Y Distributions paid from: Ordinary income 6,002,196 6,585,430 Long-term capital gain -- -- * Inception date was March 4, 2004. At Sept. 30, 2004, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ 1,307,250 Accumulated long-term gain (loss) $(256,397,902) Unrealized appreciation (depreciation) $ 146,344,154 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. -------------------------------------------------------------------------------- 28 --- AXP STOCK FUND --- 2004 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with AEFC to provide administrative services. Under an Administrative Services Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.04% to 0.02% annually as the Fund's assets increase. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the board. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other American Express mutual funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. The Fund pays AECSC an annual fee per shareholder account for this service as follows: o Class A $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. In addition, AECSC is entitled to charge an annual closed account fee of $5 per inactive account, charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system generally within one year. However, the closed account fee is currently not effective. The Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. -------------------------------------------------------------------------------- 29 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Sales charges received by the Distributor for distributing Fund shares were $696,194 for Class A, $134,762 for Class B and $582 for Class C for the year ended Sept. 30, 2004. During the year ended Sept. 30, 2004, the Fund's transfer agency fees were reduced by $25,827 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, 2004 Class A Class B Class C Class I* Class Y Sold 3,548,705 689,923 48,092 759,831 5,707,084 Issued for reinvested distributions 890,502 25,336 534 4,073 331,674 Redeemed (15,333,355) (4,140,596) (44,248) (87,121) (13,073,718) ----------- ---------- ------- ------- ----------- Net increase (decrease) (10,894,148) (3,425,337) 4,378 676,783 (7,034,960) ----------- ---------- ----- ------- ---------- * Inception date was March 4, 2004. Year ended Sept. 30, 2003 Class A Class B Class C Class I Class Y Sold 5,722,482 1,708,211 76,013 N/A 6,853,682 Issued for reinvested distributions 1,057,709 52,965 677 N/A 416,086 Redeemed (17,825,901) (4,838,376) (44,044) N/A (9,837,554) ----------- ---------- ------- ---------- Net increase (decrease) (11,045,710) (3,077,200) 32,646 N/A (2,567,786) ----------- ---------- ------ ----------
4. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by The Bank of New York, whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 21, 2004. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.50% or the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with Deutsche Bank. The Fund had no borrowings outstanding during the year ended Sept. 30, 2004. 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $256,397,902 at Sept. 30, 2004, that if not offset by capital gains will expire in 2011. 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. -------------------------------------------------------------------------------- 30 --- AXP STOCK FUND --- 2004 ANNUAL REPORT 6. FINANCIAL HIGHLIGHTS The tables below show certain important finanicial information for evaluating the Fund's results.
Class A Per share income and capital changes(a) Fiscal period ended Sept. 30, 2004 2003 2002 2001 2000 Net asset value, beginning of period $16.60 $14.47 $17.86 $27.12 $26.14 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .20 .18 .17 .20 .19 Net gains (losses) (both realized and unrealized) 1.41 2.13 (3.39) (6.47) 4.11 ------ ------ ------ ------ ------ Total from investment operations 1.61 2.31 (3.22) (6.27) 4.30 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (.19) (.18) (.17) (.18) (.18) Distributions from realized gains -- -- -- (2.81) (3.14) ------ ------ ------ ------ ------ Total distributions (.19) (.18) (.17) (2.99) (3.32) ------ ------ ------ ------ ------ Net asset value, end of period $18.02 $16.60 $14.47 $17.86 $27.12 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $1,596 $1,651 $1,599 $2,277 $3,358 Ratio of expenses to average daily net assets(b) .89% .92% .92% .87% .84% Ratio of net investment income (loss) to average daily net assets 1.06% 1.12% .93% .88% .67% Portfolio turnover rate (excluding short-term securities) 76% 68% 86% 87% 53% Total return(c) 9.72% 16.03% (18.20%) (24.87%) 16.59%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 31 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended Sept. 30, 2004 2003 2002 2001 2000 Net asset value, beginning of period $16.44 $14.34 $17.70 $26.90 $25.97 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .05 .06 .03 .01 -- Net gains (losses) (both realized and unrealized) 1.42 2.10 (3.36) (6.39) 4.07 ------ ------ ------ ------ ------ Total from investment operations 1.47 2.16 (3.33) (6.38) 4.07 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (.05) (.06) (.03) (.01) -- Distributions from realized gains -- -- -- (2.81) (3.14) ------ ------ ------ ------ ------ Total distributions (.05) (.06) (.03) (2.82) (3.14) ------ ------ ------ ------ ------ Net asset value, end of period $17.86 $16.44 $14.34 $17.70 $26.90 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $146 $190 $210 $306 $436 Ratio of expenses to average daily net assets(b) 1.67% 1.69% 1.69% 1.64% 1.60% Ratio of net investment income (loss) to average daily net assets .27% .35% .15% .11% (.09%) Portfolio turnover rate (excluding short-term securities) 76% 68% 86% 87% 53% Total return(c) 8.91% 15.09% (18.84%) (25.48%) 15.73%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 32 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended Sept. 30, 2004 2003 2002 2001 2000(b) Net asset value, beginning of period $16.39 $14.30 $17.66 $26.88 $26.70 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .06 .07 .04 .04 .05 Net gains (losses) (both realized and unrealized) 1.39 2.09 (3.36) (6.41) .17 ------ ------ ------ ------ ------ Total from investment operations 1.45 2.16 (3.32) (6.37) .22 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (.05) (.07) (.04) (.04) (.04) Distributions from realized gains -- -- -- (2.81) -- ------ ------ ------ ------ ------ Total distributions (.05) (.07) (.04) (2.85) (.04) ------ ------ ------ ------ ------ Net asset value, end of period $17.79 $16.39 $14.30 $17.66 $26.88 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $3 $3 $2 $2 $1 Ratio of expenses to average daily net assets(c) 1.67% 1.70% 1.71% 1.64% 1.60%(d) Ratio of net investment income (loss) to average daily net assets .29% .32% .14% .16% .02%(d) Portfolio turnover rate (excluding short-term securities) 76% 68% 86% 87% 53% Total return(e) 8.87% 15.11% (18.84%) (25.47%) .81%(f)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was June 26, 2000. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. -------------------------------------------------------------------------------- 33 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Class I Per share income and capital changes(a) Fiscal period ended Sept. 30, 2004(b) Net asset value, beginning of period $18.96 ------ Income from investment operations: Net investment income (loss) .20 Net gains (losses) (both realized and unrealized) (.96) ------ Total from investment operations (.76) ------ Less distributions: Dividends from net investment income (.19) ------ Net asset value, end of period $18.01 ------ Ratios/supplemental data Net assets, end of period (in millions) $12 Ratio of expenses to average daily net assets(c) .52%(d) Ratio of net investment income (loss) to average daily net assets 1.50%(d) Portfolio turnover rate (excluding short-term securities) 76% Total return(e) (4.03%)(f) (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was March 4, 2004. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. -------------------------------------------------------------------------------- 34 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended Sept. 30, 2004 2003 2002 2001 2000 Net asset value, beginning of period $16.59 $14.46 $17.86 $27.13 $26.14 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .23 .20 .20 .23 .23 Net gains (losses) (both realized and unrealized) 1.41 2.14 (3.40) (6.47) 4.13 ------ ------ ------ ------ ------ Total from investment operations 1.64 2.34 (3.20) (6.24) 4.36 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (.22) (.21) (.20) (.22) (.23) Distributions from realized gains -- -- -- (2.81) (3.14) ------ ------ ------ ------ ------ Total distributions (.22) (.21) (.20) (3.03) (3.37) ------ ------ ------ ------ ------ Net asset value, end of period $18.01 $16.59 $14.46 $17.86 $27.13 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $438 $520 $490 $694 $981 Ratio of expenses to average daily net assets(b) .73% .76% .76% .71% .69% Ratio of net investment income (loss) to average daily net assets 1.23% 1.28% 1.08% 1.04% .82% Portfolio turnover rate (excluding short-term securities) 76% 68% 86% 87% 53% Total return(c) 9.90% 16.23% (18.12%) (24.77%) 16.80%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 35 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD AND SHAREHOLDERS AXP STOCK SERIES, INC. We have audited the accompanying statement of assets and liabilities of AXP Stock Fund (a series of AXP Stock Series, Inc.) as of September 30, 2004, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended September 30, 2004, and the financial highlights for each of the years in the five-year period ended September 30, 2004. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP Stock Fund as of September 30, 2004, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota November 22, 2004 -------------------------------------------------------------------------------- 36 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Federal Income Tax Information (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. AXP Stock Fund Fiscal year ended Sept. 30, 2004 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share Dec. 19, 2003 $0.05586 March 23, 2004 0.04159 June 23, 2004 0.04134 Sept. 23, 2004 0.05370 Total distributions $0.19249 Class B Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share Dec. 19, 2003 $0.02216 March 23, 2004 0.00400 June 23, 2004 0.00520 Sept. 23, 2004 0.01416 Total distributions $0.04552 Class C Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share Dec. 19, 2003 $0.02386 March 23, 2004 0.00624 June 23, 2004 0.00539 Sept. 23, 2004 0.01910 Total distributions $0.05459 -------------------------------------------------------------------------------- 37 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Class I Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share March 23, 2004 0.05616 June 23, 2004 0.05871 Sept. 23, 2004 0.07081 Total $0.18568 Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share Dec. 19, 2003 $0.06295 March 23, 2004 0.04934 June 23, 2004 0.04894 Sept. 23, 2004 0.06068 Total distributions $0.22191 -------------------------------------------------------------------------------- 38 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Fund Expenses Example (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Sept. 30, 2004. Actual Expenses The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. -------------------------------------------------------------------------------- 39 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
Beginning Ending Expenses paid account value account value during the period April 1, 2004 Sept. 30, 2004 April 1, 2004-Sept. 30, 2004 Class A Actual(a) $1,000 $977.10 $4.30(b) Hypothetical (5% return before expenses) $1,000 $1,020.65 $4.39(b) Class B Actual(a) $1,000 $973.30 $8.09(c) Hypothetical (5% return before expenses) $1,000 $1,016.80 $8.27(c) Class C Actual(a) $1,000 $973.50 $8.14(d) Hypothetical (5% return before expenses) $1,000 $1,016.75 $8.32(d) Class I Actual(a) $1,000 $978.40 $2.57(e) Hypothetical (5% return before expenses) $1,000 $1,022.40 $2.63(e) Class Y Actual(a) $1,000 $977.30 $3.51(f) Hypothetical (5% return before expenses) $1,000 $1,021.45 $3.59(f)
(a) Based on the actual return for the six months ended Sept. 30, 2004: (2.29%) for Class A, (2.67%) for Class B, (2.65%) for Class C, (2.16%) for Class I and (2.27%) for Class Y. (b) Expenses are equal to the Fund's Class A annualized expense ratio of 0.87%, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). (c) Expenses are equal to the Fund's Class B annualized expense ratio of 1.64%, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). (d) Expenses are equal to the Fund's Class C annualized expense ratio of 1.65%, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). (e) Expenses are equal to the Fund's Class I annualized expense ratio of 0.52%, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). (f) Expenses are equal to the Fund's Class Y annualized expense ratio of 0.71%, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). -------------------------------------------------------------------------------- 40 --- AXP STOCK FUND --- 2004 ANNUAL REPORT Board Members and Officers Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. Each member oversees 14 Master Trust portfolios and 89 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 occupation during past five Other directorships with Fund and years length of service ---------------------------------- ---------------- --------------------------------------- ------------------------------- Arne H. Carlson Board member Chair, Board Services Corporation 901 S. Marquette Ave. since 1999 (provides administrative services to Minneapolis, MN 55402 boards). Former Governor of Minnesota Age 69 ---------------------------------- ---------------- --------------------------------------- ------------------------------- Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan 901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc. Minneapolis, MN 55402 construction) since 1998 (construction Age 66 materials/chemicals) ---------------------------------- ---------------- --------------------------------------- ------------------------------- Livio D. DeSimone Board member Retired Chair of the Board and Chief Cargill, Incorporated 30 Seventh Street East since 2001 Executive Officer, Minnesota Mining (commodity merchants and Suite 3050 and Manufacturing (3M) processors), General Mills, St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan Age 70 Materials Company (construction materials/ chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. ---------------------------------- ---------------- --------------------------------------- ------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics and BostonFed Bancorp, Inc. 901 S. Marquette Ave. since 2004 Management, Bentley College since (holding company and its Minneapolis, MN 55402 2002; former Dean, McCallum Graduate subsidiary Boston Federal Age 53 School of Business, Bentley College Savings Bank from 1999 to 2002 ---------------------------------- ---------------- --------------------------------------- ------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 69 ---------------------------------- ---------------- --------------------------------------- ------------------------------- Stephen R. Lewis, Jr.* Board member Retired President and Professor of Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 65 ---------------------------------- ---------------- --------------------------------------- -------------------------------
* Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of Bank of America Corporation, parent company of Columbia Wanger Asset Management, L.P., one of the fund's subadvisers. -------------------------------------------------------------------------------- 41 --- AXP STOCK FUND --- 2004 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held Principal occupation during past five Other directorships with Fund and years length of service ---------------------------------- ---------------- --------------------------------------- ------------------------------- Catherine James Paglia Board member Enterprise Asset Management, Inc. Strategic Distribution, Inc. 901 S. Marquette Ave. since 2004 (private real estate and asset (transportation, distribution Minneapolis, MN 55402 management company) since 1999 and logistics consultants) Age 52 ---------------------------------- ---------------- --------------------------------------- ------------------------------- Alan K. Simpson Board member Former three-term United States 1201 Sunshine Ave. since 1997 Senator for Wyoming Cody, WY 82414 Age 72 ---------------------------------- ---------------- --------------------------------------- ------------------------------- Alison Taunton-Rigby Board member Founder and Chief Executive Officer, 901 S. Marquette Ave. since 2002 RiboNovix, Inc. since 2004; Minneapolis, MN 55402 President, Forester Biotech since Age 60 2000; prior to that, President and CEO, Aquila Biopharmaceuticals, Inc. ---------------------------------- ---------------- --------------------------------------- ------------------------------- Board Member Affiliated with AEFC** Name, address, age Position held Principal occupation during past five Other directorships with Fund and years length of service ---------------------------------- ---------------- --------------------------------------- ------------------------------- William F. Truscott Board member Senior Vice President - Chief 53600 AXP Financial Center since 2001, Investment Officer of AEFC since Minneapolis, MN 55474 Vice 2001. Former Chief Investment Officer Age 43 President and Managing Director, Zurich Scudder since 2002 Investments ---------------------------------- ---------------- --------------------------------------- -------------------------------
** Interested person by reason of being an officer, director and/or employee of AEFC. -------------------------------------------------------------------------------- 42 --- AXP STOCK FUND --- 2004 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers Name, address, age Position held Principal occupation during past five Other directorships with Fund and years length of service ---------------------------------- ---------------- --------------------------------------- ------------------------------- Jeffrey P. Fox Treasurer Vice President - Investment 50005 AXP Financial Center since 2002 Accounting, AEFC, since 2002; Vice Minneapolis, MN 55474 President - Finance, American Express Age 49 Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 ---------------------------------- ---------------- --------------------------------------- ------------------------------- Paula R. Meyer President Senior Vice President and General 596 AXP Financial Center since 2002 Manager - Mutual Funds, AEFC, since Minneapolis, MN 55474 2002; Vice President and Managing Age 50 Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 ---------------------------------- ---------------- --------------------------------------- ------------------------------- Leslie L. Ogg Vice President of Board Services 901 S. Marquette Ave. President, Corporation Minneapolis, MN 55402 General Age 65 Counsel, and Secretary since 1978 ---------------------------------- ---------------- --------------------------------------- -------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website americanexpress.com/funds; or by searching the website of the Securities and Exchange Commission http://www.sec.gov. You may view the Fund's voting record for all portfolio companies whose shareholders meetings were completed the previous quarter on americanexpress.com/funds or obtain a copy by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283. In addition, information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available at http://www.sec.gov. -------------------------------------------------------------------------------- 43 --- AXP STOCK FUND --- 2004 ANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Livio D. DeSimone and Anne P. Jones, each qualify as audit committee financial experts. Item 4. Principal Accountant Fees and Services Fund - Related Fees* (a) Audit Fees. The fees paid for the years ended Sept. 30, to KPMG LLP for professional services rendered for the audits of the annual financial statements for AXP Stock Series, Inc. were as follows: 2004 - $11,052; 2003 - $11,005 (b) Audit - Related Fees. The fees paid for the years ended Sept. 30, to KPMG LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 for AXP Stock Series, Inc. were as follows: 2004 - $502; 2003 - $424 (c) Tax Fees. The fees paid for the years ended Sept. 30, to KPMG LLP for tax compliance related services for AXP Stock Series, Inc. were as follows: 2004 - $2,559; 2003 - $2,350 (d) All Other Fees. The fees paid for the years ended Sept. 30, to KPMG LLP for additional professional services rendered in connection to proxy filing for AXP Stock Series, Inc. were as follows: 2004 - None; 2003 - $29 (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by KPMG LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2004 and 2003 were pre-approved by the audit committee with the exception of the 2003 tax fees. (f) Not applicable. (g) Non-Audit Fees. The fees paid for the years ended Sept. 30, by the registrant for non-audit services to KPMG LLP were as follows: 2004 - None; 2003 - None The fees paid for the years ended Sept. 30, to KPMG LLP by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2004 - $126,900; 2003 - $184,000 (h) For the fees disclosed in item (g) above, 100% and 97% of the fees for services performed during 2004 and 2003, respectively, were pre-approved by the audit committee. The exception was a 2003 tax research request by the adviser on defaulted securities for $5,000. The amounts not pre-approved are compatible with maintaining KPMG LLP's independence. * 2003 represents bills paid 10/1/02 - 9/30/03 2004 represents bills paid 10/1/03 - 9/30/04 Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 9. Submission of matters to a vote of security holders. Not applicable. Item 10. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. Exhibits. (a)(1) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) AXP Stock Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date December 1, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date December 1, 2004 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date December 1, 2004