AXP(SM) Research
Opportunities
Fund
2000 SEMIANNUAL REPORT
American
Express(R)
Funds
(icon of) ruler
AXP Research Opportunities seeks to provide shareholders with long-term capital
growth.
<PAGE>
The Rewards
of Research
Behind every decision to buy or sell a stock is information -- in most cases,
informationgathered by a research analyst. AXPResearch Opportunities Fund is
designed to make the most of that research by investing only in Standard &
Poor's 500 stocks that carry our analysts' highest rating. The intention is to
construct a portfolio that has the potential to outperform the stock market as a
whole.
Contents
From the Chairman 3
From the Portfolio Managers 3
Fund Facts 5
The 10 Largest Holdings 6
Financial Statements (Fund) 7
Notes to Financial Statements (Fund) 10
Financial Statements (Portfolio) 16
Notes to Financial Statements (Portfolio) 19
Investments in Securities 24
<PAGE>
(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
We are in an extraordinary period for investing in financial assets, with many
stocks at their all-time highs. Looking at year 2000, American Express Financial
Corporation, the Fund's investment manager, expects the economy to continue to
grow and long-term interest rates to rise only slightly. This is a great time to
take a close look at your goals and investments. We encourage you to:
o Consult a professional investment adviser who can help you cut through
mountains of data.
o Set financial goals that extend beyond those achievable through retirement
plans of your employer.
o Learn as much as you can about your current investments.
The portfolio manager's letter that follows provides a review of the Fund's
investment strategies and performance. The annual report contains other
valuable information as well. The Fund's prospectus describes its investment
objectives and how it intends to achieve those objectives. As experienced
investors know, information is vital to making good investment decisions.
So, take a moment and decide again whether the Fund's investment objectives and
management style fit with your other investments to help you reach your
financial goals. And make it a practice on a regular basis to assess your
investment options.
Sincerely,
Arne H. Carlson
<PAGE>
(picture of) Keith Tufte
Keith Tufte
Portfolio Manager
(picture of) James M Johnson Jr.
James M Johnson Jr.
Portfolio Manager
From the Portfolio Managers
The past six months was a volatile but overall productive period for the U.S.
stock market and AXP Research Opportunities Fund. For the first half of the
fiscal year -- August 1999 through January 2000 -- the Fund's Class A shares
generated a total return (excluding the sales charge) of 7.73%. This compares
with 6.00% for the Standard & Poor's 500 (an unmanaged index of stocks commonly
used to gauge the performance of the market as a whole).
The stock market was in a moderate slump when the period began, as concerns
about higher interest rates, a potential run-up in inflation and the uncertainty
regarding the impact of the Y2K computer bug weighed on investors' minds.
As a result, both the market and the Fund lost ground through September.
THE MARKET TURNS AROUND
In early October, though, the mood began to brighten, thanks to fresh reports of
still-tame inflation and generally healthy corporate profits. Soon, with another
example of the remarkable resilience it has displayed in recent years, the
market was again on the advance. Over the next 10 weeks and with only the
briefest of interruptions, stocks continued to gather momentum, powering to an
all-time high by the end of 1999. Reflecting the positive environment, the Fund
gained about 17% from October through December. The period ended on a down note,
though, as renewed concern about inflation and interest rates drove the market
into retreat in January.
As was the case for the market as a whole, technology-related stocks were the
driving force behind the Fund's positive performance during the period. To the
Fund's benefit, we kept a substantial exposure to the tech sector (approaching
40% at times). Among the biggest winners were Intel, National Semiconductor,
America Online, 3Com, IBM, Cisco System and EMC.
Among other sectors, retailing, led by Wal-Mart and Home Depot, also made a
strong contribution. General Electric, in the conglomerate group, was another
good performer. Also to the Fund's benefit, it had only a small exposure to
building materials, industrial transportation and tobacco stocks, which were
weak. On the negative side were holdings in the telecommunications and financial
services sectors.
Looking at changes to the portfolio, we reduced the exposure to retailing and
financial services, and added to technology and "cyclical" stocks such as
chemicals, paper, basic metals and energy. The cyclical additions reflect our
view that the economy will remain robust and that interest rates are likely to
rise; in such an environment, those stocks should fare relatively well. We also
added a bit to the drug sector, which is experiencing improving fundamentals and
merger activity. However, as the second half of the fiscal year begins, the
largest area of investment is still technology, which continues to boast very
strong fundamentals.
Keith Tufte
James M. Johnson, Jr.
<PAGE>
Fund Facts
Class A -- 6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 2000 $7.61
July 31, 1999 $7.94
Decrease $0.33
Distributions -- Aug. 1, 1999 - Jan. 31, 2000
From income $0.38
From capital gai $0.61
Total distributi $0.99
Total return* +7.73%**
Class B -- 6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 2000 $7.38
July 31, 1999 $7.76
Decrease $0.38
Distributions -- Aug. 1, 1999 - Jan. 31, 2000
From income $0.38
From capital $0.61
Total distributions $0.99
Total return* +7.32%**
Class Y -- 6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 2000 $7.64
July 31, 1999 $7.96
Decrease $0.32
Distributions -- Aug. 1, 1999 - Jan. 31, 2000
From income $0.38
From capital gains $0.61
Total distributions $0.99
Total return* +7.85%**
*The prospectus discusses the effect of sales charges, if any, on the various
classes.
**The total return is a hypothetical investment in the Fund with all
distributions reinvested.
<PAGE>
The 10 Largest Holdings
Percent Value
(of net assets) (as of Jan. 31, 2000)
Microsoft 5.57% $49,793,905
Intel 3.06 27,386,888
Lucent Technologies 2.62 23,401,966
AT&T 2.48 22,201,683
Coca-Cola 2.45 21,915,278
Hewlett-Packard 2.34 20,959,364
SBC Communications 2.20 19,721,666
Pfizer 2.13 19,042,312
MCI WorldCom 2.07 18,514,305
Motorola 2.02 18,107,068
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 26.94% of net assets
(icon of) pie chart
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
AXP Research Opportunities Fund
Jan. 31, 2000 (Unaudited)
Assets
<S> <C> <C>
Investments in Aggressive Growth Portfolio (Note 1) $892,735,263
Liabilities
Accrued distribution fee 38,931
Accrued service fee 3
Accrued transfer agency fee 12,847
Accrued administrative services fee 3,957
Other accrued expenses 55,549
------
Total liabilities 111,287
-------
Net assets applicable to outstanding capital stock $892,623,976
============
Represented by
Capital stock-- $.01 par value (Note 1) $ 1,186,171
Additional paid-in capital 786,705,563
Net operating loss (1,567,634)
Accumulated net realized gain (loss) 71,130,821
Unrealized appreciation (depreciation) on investments 35,169,055
----------
Total-- representing net assets applicable to outstanding capital stock $892,623,976
============
Net assets applicable to outstanding shares: Class A $554,851,318
Class B $337,459,535
Class Y $ 313,123
Net asset value per share of outstanding capital stock: Class A shares 72,874,413 $ 7.61
Class B shares 45,701,665 $ 7.38
Class Y shares 40,975 $ 7.64
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
AXP Research Opportunities Fund
Six months ended Jan. 31, 2000 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 3,408,116
Interest 989,648
Total income 4,397,764
Expenses (Note 2):
Expenses allocated from Aggressive Growth Portfolio 2,641,225
Distribution fee
Class A 654,792
Class B 1,543,688
Transfer agency fee 701,271
Incremental transfer agency fee
Class A 49,900
Class B 48,858
Service fee-- Class Y 207
Administrative services fees and expenses 228,155
Compensation of board members 3,759
Printing and postage 42,114
Registration fees 59,588
Audit fees 2,750
Other 1,164
-----
Total expenses 5,977,471
Earnings credits on cash balances (Note 2) (12,073)
-------
Total net expenses 5,965,398
---------
Investment income (loss) -- net (1,567,634)
----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions 89,734,408
Financial futures contracts 292,978
-------
Net realized gain (loss) on investments 90,027,386
----------
Net change in unrealized appreciation (depreciation) on investments (26,288,048)
-----------
Net gain (loss) on investments 63,739,338
----------
Net increase (decrease) in net assets resulting from operations $ 62,171,704
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
AXP Research Opportunities Fund
Jan. 31, 2000 July 31,1999
Six months ended Year ended
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income (loss) -- net $ (1,567,634) $ (1,419,662)
Net realized gain (loss) on investments 90,027,386 85,925,568
Net change in unrealized appreciation (depreciation) on investments (26,288,048) 18,671,763
----------- ----------
Net increase (decrease) in net assets resulting from operations 62,171,704 103,177,669
---------- -----------
Distributions to shareholders from:
Net investment income
Class A -- (167,981)
Class Y -- (840)
Net realized gain
Class A (63,714,601) (17,205,662)
Class B (39,240,635) (9,873,913)
Class Y (48,595) (15,203)
------- -------
Total distributions (103,003,831) (27,263,599)
------------ -----------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 94,702,359 146,775,769
Class B shares 56,331,364 86,101,455
Class Y shares 12,386 378,451
Reinvestment of distributions at net asset value
Class A shares 60,903,968 16,502,649
Class B shares 39,012,861 9,816,826
Class Y shares 48,595 16,043
Payments for redemptions
Class A shares (57,576,629) (69,195,817)
Class B shares (Note 2) (17,004,249) (30,310,794)
Class Y shares (128,607) (72,990)
-------- -------
Increase (decrease) in net assets from capital share transactions 176,302,048 160,011,592
----------- ----------
Total increase (decrease) in net assets 135,469,921 235,925,662
Net assets at beginning of period 757,154,055 521,228,393
----------- -----------
Net assets at end of period $892,623,976 $757,154,055
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
AXP Research Opportunities Fund
(Unaudited as to Jan. 31, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth Series, Inc. has 10 billion authorized
shares of capital stock that can be allocated among the separate series as
designated by the board.
The Fund offers Class A, Class B 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 and
automatically convert to Class A shares during the ninth calendar year of
ownership.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differs 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 Aggressive Growth Portfolio
The Fund invests all of its assets in Aggressive Growth Portfolio (the
Portfolio), a series of Growth Trust (the Trust), an open-end investment company
that has the same objectives as the Fund. The Portfolio invests primarily in
equity securities of companies that comprise the S&P 500.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at the value that is equal to
the Fund's proportionate ownership interest in the Portfolio's net assets. The
percentage of the Portfolio owned by the Fund as of Jan. 31, 2000, was 99.78%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements" (included elsewhere in this report).
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to the shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes, and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
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 American Express Financial Corporation (AEFC) to
provide administrative services. Under an Administrative Services Agreement, the
Fund pays AEFC a fee for administration and accounting services at a percentage
of the Fund's average daily net assets in reducing percentages from 0.06% to
0.03% annually. A minor portion of additional administrative service expenses
paid by the Fund are consultants' fees and fund office expenses. Under this
agreement, the Fund also pays taxes, audit and certain legal fees, registration
fees for shares, compensation of board members, corporate filing fees and any
other expenses properly payable by the Fund and approved by the board.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $19
o Class B $20
o Class Y $17
The Fund has agreements with American Express Financial Advisors Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution, the Fund pays a distribution fee at an annual rate up
to 0.25% of the Fund's average daily net assets attributable to Class A shares
and up to 1.00% for Class B shares.
Under a Shareholder Service Agreement, the Fund's Class Y shares pay a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$1,280,092 for Class A and $111,512 for Class B for the six months ended Jan.
31, 2000.
During the six months ended Jan. 31, 2000, the Fund's transfer agency fees were
reduced by $12,073 as a result of earnings credits from overnight cash balances.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Jan. 31, 2000
Class A Class B Class Y
Sold 11,913,347 7,269,011 1,566
Issued for reinvested distributions 7,629,392 5,032,380 6,067
Redeemed (7,177,764) (2,181,061) (16,654)
---------- ---------- -------
Net increase (decrease) 12,364,975 10,120,330 (9,021)
---------- ---------- ------
Year ended July 31, 1999
Class A Class B Class Y
Sold 19,385,593 11,676,332 57,556
Issued for reinvested distributions 2,251,690 1,365,120 2,185
Redeemed (9,439,919) (4,195,350) (9,963)
---------- ---------- ------
Net increase (decrease) 12,197,364 8,846,102 49,778
---------- --------- ------
4. BANK BORROWINGS
The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund
is permitted to have bank borrowings for temporary or emergency purposes to fund
shareholder redemptions. The Fund must have asset coverage for borrowings not to
exceed the aggregate of 333% of advances equal to or less than five business
days plus 367% of advances over five business days. The agreement, which enables
the Fund to participate with other American Express mutual funds, permits
borrowings up to $200 million, collectively. Interest is charged to each Fund
based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or
the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to
90 days after such loan is executed. The Fund also pays a commitment fee equal
to its pro rata share of the amount of the credit facility at a rate of 0.05%
per annum. The Fund had no borrowings outstanding during the six months ended
Jan. 31, 2000.
<PAGE>
<TABLE>
<CAPTION>
5. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
Fiscal period ended July 31,
Per share income and capital changesa
Class A
2000f 1999 1998 1997b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $7.94 $6.98 $6.86 $5.00
Income from investment operations:
Net investment income (loss) -- (.01) .02 .01
Net gains (losses) (both realized and unrealized) .66 1.32 .65 1.86
Total from investment operations .66 1.31 .67 1.87
Less distributions:
Dividends from net investment income -- -- -- --
Distributions from realized gains (.99) (.35) (.55) (.01)
Total distributions (.99) (.35) (.55) (.01)
Net asset value, end of period $7.61 $7.94 $6.98 $6.86
Ratios/supplemental data
Net assets, end of period (in millions) $555 $481 $337 $205
Ratio of expenses to average daily net assetsd 1.15%c 1.12% 1.12% 1.52%c
Ratio of net investment income (loss)
to average daily net assets (.10%)c .04% .30% .20%c
Portfolio turnover rate
(excluding short-term securities) 72% 143% 148% 171%
Total returne 7.73% 19.21% 10.76% 37.44%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was Aug. 19, 1996.
c Adjusted to an annual basis.
d Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
e Total return does not reflect payment of a sales charge.
f Six months ended Jan. 31, 2000 (Unaudited).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended July 31,
Per share income and capital changesa
Class B Class Y
2000f 1999 1998 1997b 2000f 1999 1998 1997b
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.76 $6.88 $6.82 $5.00 $7.96 $7.01 $6.88 $5.00
Income from investment operations:
Net investment income (loss) (.03) (.02) (.02) (.02) -- -- .03 .01
Net gains (losses) (both realized and unrealized) .64 1.25 .63 1.85 .67 1.32 .65 1.88
Total from investment operations .61 1.23 .61 1.83 .67 1.32 .68 1.89
Less distributions:
Dividends from net investment income -- -- -- -- -- (.02) -- --
Distributions from realized gains (.99) (.35) (.55) (.01) (.99) (.35) (.55) (.01)
Total distributions (.99) (.35) (.55) (.01) (.99) (.37) (.55) (.01)
Net asset value, end of period $7.38 $7.76 $6.88 $6.82 $7.64 $7.96 $7.01 $6.88
Ratios/supplemental data
Net assets, end of period (in millions) $337 $276 $184 $96 $-- $-- $-- $--
Ratio of expenses to average daily net assetsd 1.91%c 1.88% 1.88% 2.25%c .98%c 1.02% .87% .45%c
Ratio of net investment income (loss)
to average daily net assets (.85%)c (.72%) (.46%) (.53%)c .08%c .12% .40% .33%c
Portfolio turnover rate
(excluding short-term securities) 72% 143% 148% 171% 72% 143% 148% 171%
Total returne 7.32% 18.31% 9.92% 36.48% 7.85% 19.34% 10.93% 37.66%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was Aug. 19, 1996.
c Adjusted to an annual basis.
d Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
e Total return does not reflect payment of a
sales charge.
f Six months ended Jan. 31, 2000 (Unaudited).
</TABLE>
<PAGE>
Financial Statements
Statement of assets and liabilities
Aggressive Growth Portfolio
Jan. 31, 2000 (Unaudited)
Assets
Investments in securities, at value (Note 1)
(identified cost $872,108,680) $908,158,746
Cash in bank on demand deposit 78,673
Dividends and accrued interest receivable 577,251
Receivable for investment securities sold 1,837,934
---------
Total assets 910,652,604
-----------
Liabilities
Payable for investment securities purchased 15,903,026
Accrued investment management services fee 45,459
Other accrued expenses 10,848
------
Total liabilities 15,959,333
----------
Net assets $894,693,271
============
See accompanying notes to financial statements.
<PAGE>
Statement of operations
Aggressive Growth Portfolio
Six months ended Jan. 31, 2000 (Unaudited)
Investment income
Income:
Dividends $ 3,416,114
Interest 991,283
-------
Total income 4,407,397
---------
Expenses (Note 2):
Investment management services fee 2,602,413
Compensation of board members 4,118
Custodian fees 28,371
Audit fees 8,250
Other 6,391
-----
Total expenses 2,649,543
Earnings credits on cash balances (Note 2) (2,152)
------
Total net expenses 2,647,391
---------
Investment income (loss) -- net 1,760,006
---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 89,972,389
Financial future contracts 293,620
-------
Net realized gain (loss) on investments 90,266,009
Net change in unrealized appreciation (depreciation) on investments(26,378,376)
-----------
Net gain (loss) on investments 63,887,633
----------
Net increase (decrease) in net assets resulting from operations $ 65,647,639
============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Aggressive Growth Portfolio
Jan. 31, 2000 July 31, 1999
Six months ended Year ended
(Unaudited)
Operations
Investment income (loss)-- net
<S> <C> <C>
$ 1,760,006 $ 3,142,262
Net realized gain (loss) on investments 90,266,009 86,175,979
Net change in unrealized appreciation (depreciation) on investments (26,378,376) 18,690,185
----------- ----------
Net increase (decrease) in net assets resulting from operations 65,647,639 108,008,426
Net contributions (withdrawals) from partners 69,947,062 127,976,287
---------- -----------
Total increase (decrease) in net assets 135,594,701 235,984,713
Net assets at beginning of period 759,098,570 523,113,857
----------- -----------
Net assets at end of period $894,693,271 $759,098,570
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
Aggressive Growth Portfolio
(Unaudited as to Jan. 31, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Aggressive Growth Portfolio (the Portfolio) is a series of Growth Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company. Aggressive Growth
Portfolio invests primarily in equity securities of companies that comprise the
S&P 500. 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 generally accepted accounting
principles requires management to make estimates (e.g., on 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 independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends upon the credit standing of the other party. The
Portfolio also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Portfolio may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an option is
that the Portfolio pays a premium whether or not the option is exercised. The
Portfolio also has the additional risk of being unable to enter into a closing
transaction if a liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss when the option transaction expires or closes. When
an option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Futures transactions
To gain exposure to or protect itself from market changes, the Portfolio may buy
and sell financial futures contracts traded on any U.S. or foreign exchange. The
Portfolio also may buy and write put and call options on these futures
contracts. Risks of entering into futures contracts and related options include
the possibility of an illiquid market and that a change in the value of the
contract or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete its contract obligations.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including level-yield amortization of premium and discount, is accrued daily.
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with AEFC to manage its portfolio. Under this agreement, AEFC
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Portfolio's average daily net assets in reducing
percentages from 0.65% to 0.5% annually. Effective with the new Investment
Management Services Agreement, the fee will be adjusted upward or downward by a
performance incentive adjustment based on a comparison of the performance of
Class A shares of AXP Research Opportunities Fund to the Lipper Growth Fund
Index. The maximum adjustment is 0.12% of the Portfolio's average daily net
assets after deducting 1% from the performance difference. If the performance
difference is less than 1% the adjustment will be zero.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the six months ended Jan. 31, 2000, the Portfolio's custodian fees were
reduced by $2,152 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 $618,077,097 and $568,741,085 respectively, for the six
months ended Jan. 31, 2000. For the same period, the portfolio turnover rate was
72%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $45,930 for the
six months ended Jan. 31, 2000.
4. STOCK INDEX FUTURES CONTRACTS
As of Jan. 31, 2000, investments in securities included securities valued at
$8,169,063 that were pledged as collateral to cover initial margin deposits on
79 open purchase contracts. The market value of the open purchase contracts as
of Jan. 31, 2000 was $27,669,750 with a net unrealized loss of $795,787.
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
Aggressive Growth Portfolio
Jan. 31, 2000 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (96.6%)
Issuer Shares Value(a)
Aerospace & defense (1.2%)
<S> <C> <C>
Goodrich (BF) 157,900 $3,947,500
Honeywell Intl 136,250 6,540,000
Total 10,487,500
Airlines (2.5%)
AMR 187,860(b) 10,109,216
Southwest Airlines 747,950 11,920,453
Total 22,029,669
Automotive & related (1.0%)
Delphi Automotive Systems 289,796 5,017,093
Ford Motor 80,550 4,007,363
Total 9,024,456
Banks and savings & loans (3.3%)
Bank of New York 223,710 9,088,219
SLM Holding 85,600 3,333,050
Wachovia 92,480 5,924,500
Wells Fargo 278,250 11,130,000
Total 29,475,769
Beverages & tobacco (2.4%)
Coca-Cola 381,550 21,915,278
Building materials & construction (0.5%)
Weyerhaeuser 72,410 4,154,524
Chemicals (0.5%)
Du Pont (EI) de Nemours 79,700 4,702,300
Communications equipment & services (5.8%)
Lucent Technologies 423,565 23,401,966
Motorola 132,410 18,107,068
Tellabs 186,570(b) 10,074,780
Total 51,583,814
Computers & office equipment (23.1%)
3Com 332,990(b,e) 16,899,242
Automatic Data Processing 202,200 9,591,863
BMC Software 176,050(b) 6,667,894
Citrix Systems 27,300(b) 3,746,925
Compaq Computer 478,500 13,098,938
Computer Sciences 118,480(b) 10,885,350
Electronic Data Systems 132,990 8,993,449
First Data 215,080 10,552,363
Hewlett-Packard 193,620 20,959,364
Lexmark Intl Group Cl A 151,550(b) 14,283,587
Microsoft 508,750(b) 49,793,905
Novell 210,900(b) 7,038,788
Oracle 342,000(b) 17,083,968
Parametric Technology 308,800(b) 6,619,900
Solectron 57,220(b) 4,155,603
Unisys 233,100(b) 7,430,063
Total 207,801,202
Electronics (7.5%)
Applied Materials 49,100(b) 6,738,975
Corning 39,150 6,038,888
Intel 276,810 27,386,888
KLA-Tencor 72,920(b) 4,274,935
LSI Logic 52,150(b) 4,263,263
Natl Semiconductor 87,290(b) 4,582,725
Teradyne 55,800(b) 3,613,050
Texas Instruments 93,090 10,042,083
Total 66,940,807
Energy (3.9%)
Chevron 157,550 13,165,271
Conoco Cl B 448,640 10,571,080
Texaco 215,260 11,381,873
Total 35,118,224
Energy equipment & services (0.7%)
Halliburton 164,700 5,929,200
Financial services (2.2%)
Capital One Financial 100,680 4,127,880
Kansas City Southern Inds 58,730 4,063,382
MBNA 252,580 6,377,645
Providian Financial 65,210 5,502,094
Total 20,071,001
Food (1.5%)
Bestfoods 68,530 2,981,055
General Mills 96,820(e) 3,019,574
Sara Lee 184,990 3,410,753
SUPERVALU 237,380 4,272,840
Total 13,684,222
Health care (11.7%)
Amgen 196,880(b) 12,538,795
Baxter Intl 96,440 6,160,105
Biomet 32,800 1,305,850
Boston Scientific 233,900(b) 4,853,425
Bristol-Myers Squibb 267,230 17,637,180
Guidant 112,970(b) 5,945,046
Medtronic 207,040 9,472,080
Pfizer 523,500 19,042,312
Schering-Plough 280,920 12,360,480
Warner-Lambert 158,320 15,030,505
Total 104,345,778
Health care services (0.4%)
Cardinal Health 68,280 3,264,638
Household products (2.7%)
Colgate-Palmolive 203,300 12,045,525
Kimberly-Clark 189,800 11,755,738
Total 23,801,263
Industrial equipment & services (0.3%)
Parker-Hannifin 61,580 2,663,335
Leisure time & entertainment (1.0%)
Disney (Walt) 30,090 1,092,643
Viacom Cl B 136,970(b) 7,584,714
Total 8,677,357
Media (3.1%)
CBS 154,840(b) 9,029,108
Comcast Special Cl A 192,710 8,864,660
MediaOne Group 127,890(b) 10,167,255
Total 28,061,023
Metals (0.3%)
Nucor 51,310 2,552,673
Multi-industry conglomerates (3.1%)
Danaher 92,620 3,994,238
General Electric 56,310 7,510,346
Grainger (WW) 91,460 4,384,364
Tyco Intl 268,600(c) 11,482,650
Total 27,371,598
Paper & packaging (0.9%)
Fort James 142,300 3,806,525
Intl Paper 92,990 4,428,649
Total 8,235,174
Restaurants & lodging (0.2%)
Wendy's Intl 101,940 1,917,746
Retail (5.9%)
Bed Bath & Beyond 55,400(b) 1,506,188
Best Buy 92,000(b) 4,393,000
Circuit City Stores-Circuit City Group 107,930 4,155,305
Costco Wholesale 128,680(b) 6,297,278
CVS 147,200 5,142,800
Home Depot 35 1,982
Kroger 297,050(b) 5,161,244
Safeway 162,390(b) 6,201,268
Target 242,070(b) 15,991,748
TJX Companies 241,820 3,944,689
Total 52,795,502
Transportation (0.7%)
Burlington Northern Santa Fe 178,640 4,298,525
Union Pacific 39,000 1,560,000
Total 5,858,525
Utilities -- electric (0.3%)
CMS Energy 92,800 2,784,000
Utilities -- telephone (9.9%)
AT&T 420,885 22,201,683
Bell Atlantic 268,740 16,645,084
MCI WorldCom 403,032(b) 18,514,305
SBC Communications 457,314 19,721,666
U S WEST Communications Group 174,250 11,587,625
Total 88,670,363
Total common stocks
(Cost: $827,848,320) $863,916,941
Short-term securities (4.9%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (4.2%)
Federal Home Loan Bank Disc Nts
02-16-00 5.55% $1,100,000 $1,096,920
03-08-00 5.79 1,600,000 1,590,511
Federal Home Loan Mtge Corp Disc Nts
02-01-00 5.53 1,300,000 1,299,783
02-23-00 5.62 1,400,000 1,394,273
03-29-00 5.78 4,400,000 4,358,034
04-04-00 5.76 5,100,000 5,046,325
Federal Natl Mtge Assn Disc Nts
03-01-00 5.63 4,800,000 4,777,580
03-02-00 5.63 1,900,000 1,890,438
03-02-00 5.83 1,300,000 1,293,458
03-23-00 5.73 4,200,000 4,164,113
04-13-00 5.78 6,200,000 6,125,573
04-20-00 5.83 5,000,000 4,934,222
Total 37,971,230
Commercial paper (0.7%)
Abbey Natl North America
02-16-00 5.68 2,600,000 2,593,448
Falcon Assets
03-10-00 5.81 1,500,000(d) 1,490,624
Ford Motor Credit
03-03-00 5.56 600,000 596,833
Windmill Funding
03-10-00 5.80 1,600,000(d) 1,589,670
Total 6,270,575
Total short-term securities
(Cost: $44,260,360) $44,241,805
Total investments in securities
(Cost: $872,108,680)(f) $908,158,746
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of Jan. 31, 2000, the
value of foreign securities represented 1.28% of net assets.
(d) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(e) Partially pledged as initial margin deposit on the following open stock
index futures purchase contracts (see Note 4 to the financial statements):
Type of security Contracts
S&P 500 Index, March 2000 79
(f) At Jan. 31, 2000, the cost of securities for federal income tax purposes was
approximately $872,109,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $78,546,000
Unrealized depreciation (42,496,000)
-----------
Net unrealized appreciation $36,050,000
<PAGE>
American
Express
Funds
AXP Research Opportunities Fund
200 AXP Financial Center
Minneapolis, MN 55474
TICKER SYMBOL
Class A:IRDAX Class B:IROBX Class Y:N/A
PRSRT STD AUTO
U.S. POSTAGE
PAID
SPENCER, IA
PERMIT NO. 85
S-6359 E (3/00)
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.
