AXP(SM)
Equity Select
Fund
1999 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
American
Express(R)
Funds
(icon of) ruler
AXP Equity Select Fund seeks to provide shareholders with growth of capital.
(This annual report includes a prospectus that describes in detail the Fund's
objectives, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send
money.)
AMERICAN EXPRESS (logo)
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Budding Blue Chips
When most people think of stocks, they tend to focus on the notable names in
American business -- the blue chips, as they're known. But there's another group
of companies that, though smaller and less well-known, boast impressive business
histories. These mid-size companies, which we call "budding blue chips," are the
foundation of AXP Equity Select Fund. Often, they enjoy a dominant position in
their business. For an investor, this means an opportunity to participate in the
growth that's likely for these companies and the potential for rising stock
prices.
AXP EQUITY SELECT FUND (This annual report is not part of the prospectus.)
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Table of Contents
1999 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Manager 4
Fund Facts 6
The 10 Largest Holdings 7
Making the Most of the Fund 8
The Fund's Long-term Performance 9
Independent Auditors' Report 11
Financial Statements 12
Notes to Financial Statements 15
Investments in Securities 23
Federal Income Tax Information 29
2000 PROSPECTUS
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 4p
Past Performance 5p
Fees and Expenses 7p
Management 8p
Buying and Selling Shares 8p
Valuing Fund Shares 8p
Investment Options 9p
Purchasing Shares 10p
Transactions through Third Parties 13p
Sales Charges 13p
Exchanging/Selling Shares 18p
Distributions and Taxes 23p
Other Information 25p
Financial Highlights 26p
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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(picture of) Arne H. Carlson
Arne H. Carlson
Chariman 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
(picture of) Betty J. Tebault
Betty J. Tebault
Portfolio manager
From the Portfolio Manager
AXP Equity Select Fund enjoyed a productive fiscal year, as it took advantage of
strong rallies by the stock market. For the 12 months -- December 1998 through
November 1999 -- the total return for the Fund's Class A shares (excluding the
sales charge) was 28.70%. (In comparison, the Standard & Poor's 500 Index, an
unmanaged index of stocks commonly used to gauge the performance of the stock
market as a whole, returned 20.92% during that time.)
AXP EQUITY SELECT FUND (This annual report is not part of the prospectus.)
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The period could hardly have gotten off to a better start. Buoyed by three
reductions in short-term interest rates by the Federal Reserve during the fall
of 1998, as well as ongoing economic strength and continued reports of low
inflation, the stock market responded with a December surge that set the stage
for a gain of nearly 12% by the Fund.
After a modest setback in the following months, the market and the Fund got back
on the positive track during the spring and early summer. Although renewed
concern about inflation and interest rates led to a retreat during the late
summer and early fall, a sharp rebound in October and November allowed the
period to end on a positive note.
GROWTH IS GOOD
As has been the case in recent years, the market's gains were, for the most
part, driven by a relatively small number of large-capitalization growth stocks.
While that sometimes worked to the disadvantage of the Fund, whose main emphasis
is on mid-cap stocks, the portfolio did include some large-cap names that
experienced substantial gains. Also benefiting the Fund was a mid-period change
in its investment goal from growth of capital and income to solely growth of
capital.
On a sector basis, holdings in technology, electronics, media and biotechnology
made the biggest contributions to the Fund's performance. Providing either
negative or lackluster results were stocks in the food, financial services and
drug-retailing groups.
Looking at changes to the portfolio, I did a fair amount of stock-trading in
order to bring the Fund more firmly into the mid-cap category. This
re-positioning effort included the addition of some biotechnology, electronics
and Internet-related stocks, sectors that boasted very strong earnings growth
and were previously under-represented in the portfolio. Concurrently, I reduced
exposure to stocks of companies with relatively steady earnings patterns or
which were vulnerable to rising interest rates.
As we begin the new fiscal year, I'm encouraged by the improved performance of
mid-cap stocks in recent months. That could indicate that the stock market is
"broadening out" -- that is, a greater variety of stocks are beginning to
participate in market upturns. If so, I expect that a continuation of the trend
would benefit the Fund.
Betty J. Tebault
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1999 $16.90
Nov. 30, 1998 $14.59
Increase $ 2.31
Distributions -- Dec. 1, 1998 - Nov. 30, 1999
From income $ 0.01
From capital gains $ 1.51
Total distribution $ 1.52
Total return* +28.70%**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1999 $16.46
Nov. 30, 1998 $14.34
Increase $ 2.12
Distributions -- Dec. 1, 1998 - Nov. 30, 1999
From income $ --
From capital gains $ 1.51
Total distribution $ 1.51
Total return* +27.69%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1999 $16.94
Nov. 30, 1998 $14.60
Increase $ 2.34
Distributions -- Dec. 1, 1998 - Nov. 30, 1999
From income $ 0.01
From capital gains $ 1.51
Total distribution $ 1.52
Total return* +28.90%**
*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.
AXP EQUITY SELECT FUND (This annual report is not part of the prospectus.)
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The 10 Largest Holdings
Percent Value
(of net assets) (as of Nov. 30, 1999)
Immunex 4.18% $61,661,249
JDS Uniphase 2.95 43,462,499
Cisco Systems 2.85 41,918,124
Mettler-Toledo Intl 2.74 40,434,562
Infinity Broadcasting Cl A 2.62 38,646,705
Lamar Advertising 2.53 37,293,750
America Online 2.53 37,215,999
Solectron 2.42 35,668,375
Tyco Intl 2.29 33,676,538
Costco Wholesale 2.27 33,465,937
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 27.38% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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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 fall 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.
AXP EQUITY SELECT FUND (This annual report is not part of the prospectus.)
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The Fund's Long-term Performance
How $10,000 has grown in AXP Equity Select Fund
$50,000
AXP Equity Select Fund Class A x
$40,000
xS&P 500 Index
$30,000 xLipper xS&P MidCap
Multi-Cap 400 Index
$20,000 Growth Funds
Index
$10,000 xRussell Midcap(tm)
x Growth Index
$ 9,500
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'89 '90 91 '92 '93 '94 '95 '96 '97 '98 '99
Average annual total returns (as of Nov. 30, 1999)
Since
1 year 5 years 10 years inception*
Class A +22.26% +22.31% +15.30% --%
Class B +23.69% --% --% +22.59%
Class Y +28.90% --% --% +23.89%
*Inception date was March 20, 1995.
Assumes: Holding period from 12/1/89 to 11/30/99. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund has a value of $26,838. Also see "Past Performance"
in the Fund's current prospectus.
On the graph above you can see how the Fund's total returncompared to four
widely cited performance indexes, the Standard &Poor's MidCap 400 Index
(S&PMidCap 400 Index), the Russell MidcapTM Growth Index, the Lipper Multi-Cap
Growth Funds Index, and the Standard & Poor's 500 Index (S&P 500 Index).
Recently, the Fund changed its comparative index from the S&P 500 Index to the
S&P MidCap 400 Index. The Fund changed indexes because the new index more
closely represents the Fund's focus on medium-sized holdings. In comparing AXP
Equity Select Fund (Class A) to the four indexes, you should take into account
the fact that the Fund's performance reflects the maximum sales charge of 5%,
while such charges are not reflected in the performance of the indexes.
Your investment and return values fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Average annual total return
figures reflect the impact of the applicable sales charge up to a maximum of 5%.
This was a period of widely fluctuating security prices. Past performance is no
guarantee of future results.
S&P MidCap 400 Index consists of 400 domestic stocks chosen for market size,
liquidity and industry group representation. The Fund may invest in stocks that
may not be listed in the Index.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Russell MidcapTM Growth Index measures the performance of those Russell Midcap
companies with higher price-to-book ratios and higher forecasted growth values.
The stocks are also members of the Russell 1000 Growth index.
The Lipper Multi-Cap Growth Funds Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that, by portfolio practice, invest
in a variety of market capitalization ranges, without concentrating 75% of their
equity assets in any one market capitalization range over an extended period of
time. Multi-Cap Growth funds normally invest in companies with long-term
earnings expected to grow significantly faster than the earnings of the stocks
represented in a major unmanaged stock index.
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 are generally larger than those in
which the Fund invests.
AXP EQUITY SELECT FUND (This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment #89 to
Registration Statement No. 2-13188 filed on or about Jan. 27, 2000, are
incorporated herein by reference.
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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 Equity Select Fund, Inc.
Fiscal year ended Nov. 30, 1999
Class A
Income distributions taxable as dividend income, none qualifying for deduction
by corporations.
Payable date Per share
Dec. 22, 1998 $0.01110
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 22, 1998 $1.51140
Total distributions $1.52250
Class B
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 22, 1998 $1.51140
Total distributions $1.51140
Class Y
Income distributions taxable as dividend income, none qualifying for deduction
by corporations.
Payable date Per share
Dec. 22, 1998 $0.01198
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 22, 1998 $1.51140
Total distributions $1.52338
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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American
Express(R)
Funds
AXP Equity Select Fund
IDS Tower 10
Minneapolis, MN 55440-0010
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 (logo)
S-6426 R (1/00)
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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.
