AXP(SM) Research
Opportunities
Fund
2000 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
American
Express(R)
Funds
(icon of) ruler
AXP Research Opportunities Fund seeks to provide shareholders with long-term
capital growth.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send
money.)
AMERICAN EXPRESS (R) (logo)
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The Rewards of Research
Behind every decision to buy or sell a stock is information -- in most
cases, information gathered by a research analyst. AXP Research 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.
AXP RESEARCH OPPORTUNITIES FUND
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Table of Contents
2000 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Managers 4
Fund Facts 6
The 10 Largest Holdings 8
Making the Most of the Fund 9
The Fund's Long-term Performance 10
Independent Auditors' Report (Fund) 12
Financial Statements (Fund) 13
Notes to Financial Statements (Fund) 16
Independent Auditors' Report
(Portfolio) 25
Financial Statements (Portfolio) 26
Notes to Financial Statements
(Portfolio) 29
Investments in Securities 34
Federal Income Tax Information 41
ANNUAL REPORT - 2000
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(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
The financial markets have always had their ups and downs, but in recent months
volatility has become more frequent and intense. While no one can say with
certainty what the markets will do, American Express Financial Corporation, the
Fund's investment manager, expects economic growth to continue this year,
accompanied by a modest rise in long-term interest rates. But no matter what
transpires, this is a great time to take a close look at your goals and
investments. We encourage you to:
o Consult a professional investment advisor 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 managers' 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.
On behalf of the Board,
Arne H. Carlson
(picture of) Keith Tufte
Keith Tufte
Portfolio Manager
From the Portfolio Managers
The stock market experienced considerable volatility during the past 12 months,
but it ultimately finished the period moderately higher. The same held true for
AXP Research Opportunities Fund, as its Class A shares generated a total return
(excluding the sales charge) of 7.73% for the fiscal year -- August 1999 through
July 2000.
AXP RESEARCH OPPORTUNITIES
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(picture of) James M. Johnson Jr
James M. Johnson Jr.
Portfolio Manager
The stock market was in a 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. In
early October, though, the mood began to brighten, thanks to fresh reports of
still-tame inflation and generally healthy corporate profits. Soon, in another
example of the remarkable resilience it has displayed in recent years, the
market was again on the advance, powering to an all-time high in early January.
SPRING SELL-OFF
At that point, concern about inflation, interest rates and the sustainability of
sky-high stock prices drove the market into a two-month retreat. Stocks managed
to recover some of the lost ground over the final four months of the period, as
investors began to anticipate that the red-hot economy would cool off and
thereby take upward pressure off inflation and interest rates.
As was the case for the market as a whole, technology-related stocks were the
driving force behind the Fund's performance during the period. To the Fund's
overall benefit, we kept a substantial exposure to the tech sector (approaching
40% at times). Among the biggest winners were Intel, Oracle, 3Com, Texas
Instruments and EMC. On the losing side were Microsoft, Lucent, BMC and Novell.
Among other sectors, health-care stocks such as Amgen, Medtronic, Warner Lambert
and Pfizer provided strong performance. Conversely, the Fund also benefited from
having few holdings in the hospital and HMO areas, which were weak. In the
consumer cyclical area, retailers such as Wal-Mart, Home Depot, Best Buy and
Costco generated good returns. The biggest detractors to performance were
telecommunications, basic materials, energy and utility stocks.
The make-up of the portfolio changed only modestly over the 12 months. The most
notable shift was a reduction in telecommunications stocks and an increase in
financial services stocks. The latter reflected our view that the threat of
higher interest rates would dissipate as the year progressed. If that
expectation proves true, we think that will provide some support for stocks in
the new fiscal year.
Keith Tufte
James M. Johnson, Jr.
ANNUAL REPORT - 2000
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
July 31, 2000 $7.61
July 31, 1999 $7.94
Decrease $0.33
Distributions -- Aug. 1, 1999 - July 31, 2000
From income $0.38
From capital gains $0.61
Total distributions $0.99
Total return** +7.73%***
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
July 31, 2000 $7.36
July 31, 1999 $7.76
Decrease $0.40
Distributions -- Aug. 1, 1999 - July 31, 2000
From income $0.38
From capital gains $0.61
Total distributions $0.99
Total return** +7.03%***
AXP RESEARCH OPPORTUNITIES
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Class C -- June 26, 2000* - July 31, 2000 (All
figures per share)
Net asset value (NAV)
July 31, 2000 $7.36
June 26, 2000* $7.50
Decrease $0.14
Distributions -- June 26, 2000* - July 31, 2000
From income $ --
From capital gains $ --
Total distributions $ --
Total return** -1.87%***
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
July 31, 2000 $7.65
July 31, 1999 $7.96
Decrease $0.31
Distributions -- Aug. 1, 1999 - July 31, 2000
From income $0.38
From capital gains $0.61
Total distributions $0.99
Total return** +7.99%***
*Inception date.
**Returns do not include sales load. 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.
ANNUAL REPORT - 2000
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The 10 Largest Holdings
Percent Value
(of net assets) (as of July 31, 2000)
Cisco Systems 4.31% $37,803,243
Intel 3.58 31,429,904
Pfizer 2.83 24,806,449
Exxon Mobil 2.42 21,199,999
Lucent Technologies 2.02 17,682,875
EMC 2.00 17,501,699
Oracle 1.91 16,740,497
WorldCom 1.91 16,730,937
AT&T 1.88 16,462,249
Bank of America 1.78 15,616,221
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 24.64% of net assets
AXP RESEARCH OPPORTUNITIES
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Making the Most of the Fund
Build your assets systematically
One of the best ways to invest in the Fund is by dollar-cost averaging -- a
time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is low, fewer shares
when it is high. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy does not ensure a profit or avoid a loss if the market declines.
But, if you can continue to invest regularly through changing market conditions
even when the price of your shares falls or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
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Jan Feb Mar Apr May Jun
$15
$10 $10 $10
$ 5 $8 $5 $5 $8
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
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Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $6 $7
$ 5 $4 $4
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
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$100 invested per month. Total invested: $600.
* Shares purchased is determined by dividing the amount invested per month by
the current share price.
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the Fund
exceed losses
o you receive income when the Fund's stock dividends, interest and short-term
gains exceed its expenses.
All three make up your total return. You potentially can increase your
investment if, like most investors, you reinvest your dividends and capital
gain distributions to buy additional shares of the Fund or another fund.
ANNUAL REPORT - 2000
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The Fund's Long-term Performance
How $10,000 has grown in AXP Research Opportunities Fund
$30,000
X S&P 500 Index
$20,000
X $18,959
AXP Research Opportunities Fund
Class A
X Lipper large-Cap
Core Index
$10,000
$9,425
9/1/96 7/97 7/98 7/99 7/00
(The printed version of this chart contains a line graph with three lines
corresponding to the two Indexes and Fund noted above.)
Average Annual Total Returns (as of July 31, 2000)
1 year Since inception*
Class A +1.53% +16.74%
Class B +3.23% +17.33%
Class Y +7.99% +18.71%
* Inception date was August 19, 1996.
Assumes: Holding period from 9/1/96 to 7/31/00. Returns do not reflect
taxes payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund has a value of $4,455. Also see "Past Performance" in
the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, Standard & Poor's 500 Index (S&P 500 Index)
and Lipper Large-Cap Core Index. In comparing AXP Research Opportunities Fund
(Class A) to these indexes, you should take into account the fact that the
Fund's performance reflects the maximum sales charge of 5.75%, while such
charges are not reflected in the performance of the indexes. Class C went
effective June 26, 2000 and therefore performance information is not presented.
Your investment and return values fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Average annual total return
figures reflect the impact of the applicable sales charge up to a maximum of
5.75%. This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results.
AXP RESEARCH OPPORTUNITIES FUND
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S&P 500 Index, an unmanaged list of common stocks, is frequently used as a
general measure of market performance. The index reflects reinvestment of all
distributions and changes in market prices, but excludes brokerage commissions
or other fees. However, the S&P 500 companies may be generally larger than those
in which the Fund invests.
Lipper Large-Cap Core Index, an unmanaged index published by Lipper Inc.,
includes the 30 largest funds that are generally similar to the Fund, although
some funds in the index may have somewhat different investment policies or
objectives.
ANNUAL REPORT - 2000
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The financial statements contained in Post-Effective Amendment #66 to
Registration Statement No. 2-38355 filed on or about September 27, 2000.
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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 Research Opportunities Fund Fiscal year ended July 31, 2000
Class A
Income distribution taxable as dividend income, 7.57% qualifying for deduction
by corporations.
Payable date Per share
Dec. 23, 1999 $0.38606
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1999 $0.60804
Total distributions $0.99410
The distributions of $0.99410 per share, payable Dec. 23, 1999, consisted of
$0.38606 from net short-term capital gains and $0.60804 from net long-term
capital gains.
ANNUAL REPORT - 2000
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Class B
Income distribution taxable as dividend income, 7.57% qualifying for deduction
by corporations.
Payable date Per share
Dec. 23, 1999 $0.38606
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1999 $0.60804
Total distributions $0.99410
The distributions of $0.99410 per share, payable Dec. 23, 1999, consisted of
$0.38606 from net short-term capital gains and $0.60804 from net long-term
capital gains.
Class Y
Income distribution taxable as dividend income, 7.57% qualifying for deduction
by corporations.
Payable date Per share
Dec. 23, 1999 $0.38606
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1999 $0.60804
Total distributions $0.99410
The distributions of $0.99410 per share, payable Dec. 23, 1999, consisted of
$0.38606 from net short-term capital gains and $0.60804 from net long-term
capital gains.
AXP RESEARCH OPPORTUNITIES FUND
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American
Express(R)
Funds
AXP Research Opportunities Fund
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.
AMERICAN
EXPRESS (R) (logo)
S-6356 H (9/00)
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) There are pictures, icons 2) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
