AXP(SM)
Small Cap Advantage
Fund
1999 SEMIANNUAL REPORT
(icon of) ruler
AXP Small Cap Advantage Fund seeks to provide shareholders with long-term
capital growth.
Distributed by American Express Financial Advisors Inc.
AMERICAN EXPRESS Financial Advisors
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Good Things,
Small Packages
Small-capitalization stocks may not measure up to the big blue-chips in terms of
market value, but that doesn't mean they have to take a back seat when it comes
to investment performance. To get the most out of the small-cap sector, this
Fund spreads its holdings among growth and value stocks that meet a variety of
strict selection criteria. The result is a portfolio of about 200 stocks that
provide broad representation in the small-cap sector.
CONTENTS
From the Chairman.........................3
From the Portfolio Managers...............3
Fund Facts................................5
The 10 Largest Holdings...................6
Financial Statements......................7
Notes to Financial Statements............10
Investments in Securities................18
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(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
It is an honor for me to join American Express(R) Funds as chairman of the board
and chief executive officer for each of the funds. I have served for the past
eight years as governor of Minnesota and also for the past 20 years as a
constitutional officer responsible for the pension investments made on behalf of
government employees. My responsibility in the upcoming years is to serve your
interests.
By law, half the members of a mutual fund board must be independent of their
investment manager and distributor. I am one of those persons. I am not an
employee of American Express Financial Corporation (AEFC), nor do I own stock in
American Express Company. Both are fine companies, but the law clearly states
that to fully represent your interests I must be independent.
Having said that, I have a great deal of respect for the capabilities of AEFC
and for the services it provides to investors. Your financial advisor assists
you in financial planning, conducts regular investment reviews and responds to
your questions and needs. This is a very personal service that makes AEFC a
partner in your financial future. I know that AEFC has an investment focus on
the long-term performance of our economy and that it wants you to participate in
that growth. Consistent with that, our board is here to serve you and represent
your interests in a professional manner.
Arne H. Carlson
(picture of) Kent Kelley
Kent Kelley
Portfolio Manager
(picture of) Jacob Hurwitz
Jacob Hurwitz
Portfolio Manager
From the Portfolio Managers
Despite an often-difficult period for the equity market overall,
small-capitalization stocks held up relatively well during the past several
months. For AXP Small Cap Advantage Fund, the result was a gain of 3.20% for
Class A shares during its initial reporting period -- May 4 (the Fund's
inception date) through September 30, 1999.
During this period, investors had one overriding worry: inflation. The economy
continued to show surprising strength in both the consumer and manufacturing
sectors. Yet, investors became worried about too much of a good thing amid
reports of labor shortages and increased pricing pressures in the manufacturing
supply chain. The bond market soured first, as the yield on the 30-year U.S.
Treasury bond ultimately climbed back above 6%. As for the stock market, it
slumped in May, came back strongly in June (when the Fund was up more than 6%),
then steadily retreated during the final three months under the pressure of
higher interest rates.
Of particular importance to this Fund, small-cap stocks displayed a measure of
support, especially during the market's downturn. To illustrate, the Standard &
Poor's 500 (an unmanaged index of large-capitalization stocks) was down 6.56%
from July through September, while the S&P SmallCap 600 (an unmanaged index of
small-cap stocks) was down 5.03%. The Fund, on the other hand, lost just 2.24%.
Much of the period was spent putting shareholders' money to work, and from its
inception in May, we kept the Fund fully invested in stocks. By the end of the
period, the portfolio held about 200 issues, with a mix of about 55% small-cap
growth stocks and 45% small-cap value stocks. This is in keeping with our
investment style, which aims to provide diversification through a blend of
growth and value investments.
When making stock selections, we use what's called a "bottom-up" approach. That
is, we focus primarily on the merits of each individual company/stock.
Specifically, we look for a consistent earnings history, as well as the
potential for earnings improvement. No matter which style group a stock belongs
to -- growth or value -- we require that its price reflects reasonable valuation
relative to the company's free cash flow and earnings potential. (Conversely,
should the price of any stock rise to where it breaks out of an acceptable
valuation range, we usually sell it, as was the case with some issues during the
past five months.)
Beyond that, we do not make "sector bets" -- loading up on certain groups of
stocks such as technology, retailing, chemicals, etc. Instead, we allocate
investments in accordance with the composition of the S&P SmallCap 600 Index.
That is, we hold stocks in all economic sectors and in similar "weightings"
represented in the index. The result is a highly diversified portfolio that, by
virtue of good individual stock selection, has the potential to outperform the
index. Thanks mainly to some strong performers among our holdings in the
technology, health care and consumer sectors, that proved to be the case in the
past period.
As we begin the second half of the fiscal year, small-cap stocks as a whole
continue to offer what we believe is excellent investment value compared with
large-caps. Also, we're encouraged by the relatively resilient performance by
small-caps during the past period and the potential for small companies to show
strong earnings improvement during the next few quarters. In the months ahead,
investors' nervousness about the direction of interest rates could present a
hurdle for stocks in general. But, looking out further, we're genuinely
enthusiastic about the potential for the small-cap segment of the market.
Kent Kelley
Jacob (Jake) Hurwitz
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Fund Facts
Class A -- May 4, 1999* - Sept. 30, 1999.
(All figures per share)
Net asset value (NAV)
Sept. 30, 1999 $5.16
May 4, 1999* $5.00
Increase $0.16
Distributions -- May 4, 1999* - Sept. 30, 1999
From income $ --
From capital gains $ --
Total distribution $ --
Total return** +3.20%***
Class B -- May 4, 1999* - Sept. 30, 1999.
(All figures per share)
Net asset value (NAV)
Sept. 30, 1999 $5.15
May 4, 1999* $5.00
Increase $0.15
Distributions -- May 4, 1999* - Sept. 30, 1999
From income $ --
From capital gains $ --
Total distribution $ --
Total return** +3.00%***
Class Y -- May 4, 1999* - Sept. 30, 1999.
(All figures per share)
Net asset value (NAV)
Sept. 30, 1999 $5.16
May 4, 1999* $5.00
Increase $0.16
Distributions -- May 4, 1999* - Sept. 30, 1999
From income $ --
From capital gains $ --
Total distribution $ --
Total return** +3.20%***
*Inception date.
**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.
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The 10 Largest Holdings
Percent Value
(of net assets) (as of Sept. 30, 1999)
Profit Recovery Group Intl 1.36% $1,829,624
Mercury Interactive 1.05 1,413,918
CommScope .93 1,257,750
Zale .93 1,252,818
CTS .91 1,224,749
Macromedia .90 1,218,074
Canandaigua Wine Cl A .88 1,189,025
AnnTaylor Stores .85 1,144,500
Gentex .84 1,136,093
Hambrecht & Quist Group .84 1,135,350
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 9.49% of net assets
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Financial Statements
Statement of assets and liabilities
AXP Small Cap Advantage Fund
Sept. 30, 1999 (Unaudited)
Assets
Investments in securities, at value (Note 1)
<S> <C> <C>
(identified cost $137,138,747) $135,390,293
Cash in bank on demand deposit 747
Dividends and accrued interest receivable 53,119
Receivable for investment securities sold 8,999,986
---------
Total assets 144,444,145
Liabilities
Payable for investment securities purchased 9,686,384
Accrued investment management services fee 2,604
Accrued distribution fee 1,700
Accrued transfer agency fee 1,075
Accrued administrative services fee 211
Other accrued expenses 49,361
------
Total liabilities 9,741,335
---------
Net assets applicable to outstanding capital stock $134,702,810
============
Represented by
Capital stock-- $.01 par value (Note 1) $ 261,212
Additional paid-in capital 134,323,597
Net operating loss (122,779)
Accumulated net realized gain (loss) 1,989,234
Unrealized appreciation (depreciation) on investments (1,748,454)
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Total -- representing net assets applicable to outstanding capital stock $134,702,810
============
Net assets applicable to outstanding shares: Class A $ 92,484,086
Class B $ 42,216,659
Class Y $ 2,065
Net asset value per share of outstanding capital stock: Class A shares 17,918,305 $ 5.16
Class B shares 8,202,449 $ 5.15
Class Y shares 400 $ 5.16
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See accompanying notes to financial statements.
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<CAPTION>
Statement of operations
AXP Small Cap Advantage Fund
For the period from May 4, 1999 (commencement of operations) to Sept. 30, 1999
(Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 158,162
Interest 125,970
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Total income 284,132
-------
Expenses (Note 2):
Investment management services fee 193,572
Distribution fee
Class A 46,034
Class B 77,439
Transfer agency fee 64,373
Incremental transfer agency fee
Class A 5,116
Class B 3,684
Service fee
Class Y 1
Administrative services fees and expenses 15,673
Compensation of board members 761
Custodian fees 49,650
Printing and postage 26,250
Registration fees 42,435
Audit fees 7,000
Other 19,382
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Total expenses 551,370
Expenses voluntarily reimbursed by AEFC (Note2) (141,298)
--------
410,072
Earnings credits on cash balances (Note 2) (3,161
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Total net expenses 406,911
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Investment income (loss) -- net (122,779)
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Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 1,996,765
Financial futures contacts (5,158)
Options contracts written (Note 5) (2,373)
------
Net realized gain (loss) on investmes 1,989,234
Net change in unrealized appreciation (depreciation) on investments (1,748,454)
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Net gain (loss) on investments 240,780
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Net increase (decrease) in net assets resulting from operations $ 118,001
============
See accompanying notes to financial statements.
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<CAPTION>
Statement of changes in net assets
AXP Small Cap Advantage Fund For the period from May 4, 1999 (commencement of
operations) to Sept. 30, 1999 (Unaudited)
Operations and distributions
<S> <C>
Investment income (loss)-- net $ (122,779)
Net realized gain (loss) on investments 1,989,234
Net change in unrealized appreciation (depreciation) on investments (1,748,454)
----------
Net increase (decrease) in net assets resulting from operations 118,001
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Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 97,185,436
Class B shares 42,907,184
Payments for redemptions
Class A shares (4,886,146)
Class B shares (Note 2) (627,665)
- --------
Increase (decrease) in net assets from capital share transactions 134,578,809
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Total increase (decrease) in net assets 134,696,810
Net assets at beginning of period 6,000
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Net assets at end of period $134,702,810
============
See accompanying notes to financial statements.
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Notes to Financial Statements
AXP Small Cap Advantage Fund
(Unaudited as to Sept. 30, 1999)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Strategy Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Strategy 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 invests primarily in equity
securities of small companies. On May 3, 1999, American Express Financial
Corporation (AEFC) invested $6,000 in the Fund which represented 400 shares for
Class A, Class B and Class Y, respectively.
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.
The Fund'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 an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
Option transactions To produce incremental earnings, protect gains, and
facilitate buying and selling of securities for investments, the Fund 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 Fund 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 Fund
gives up the opportunity for profit if the market price of the security
increases. The risk in writing a put option is that the Fund 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 Fund pays a premium whether or not the option is
exercised. The Fund 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 Fund 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 Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund 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 Fund 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 Fund 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 Fund recognizes a realized gain or loss whenthe 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 Fund 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 Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete its contract obligations.
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 all of its
taxable income to shareholders. No provision for income or excise taxes is thus
required.
Net investment income (loss) and net realized gains (losses) may differ for
financialstatement 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, 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.
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. EXPENSES AND SALES CHARGES
The Fund has agreements with AEFC to manage its portfolio and provide
administrative services. Under an Investment Management Services Agreement, AEFC
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets in reducing percentages
from 0.74% to 0.615% annually. The fee is adjusted upward or downward by a
performance incentive adjustment based on the Fund's average daily net assets
over a rolling 12-month period measured against the change in the Lipper Small
Cap Fund Index. The maximum adjustment is 0.12% of the Fund'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 an Administrative Service Agreement, the Fund pays AEFC a fee for
administrationand accounting services at a percentage of the Fund's average net
daily assets in reducing percentages from 0.06% to 0.035% annually. Additional
administrative service expenses paid by the Fund are office expenses,
consultants' fees and compensation of officers and employees. 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.
AEFC has a Sub-investment Advisory Agreement with Kenwood Capital Management
LLC, an indirect subsidiary of AEFC.
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. for
distribution and shareholder services. Under a Plan and Agreement of
Distribution (the Plan), 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 American Express Financial Advisors Inc. for
distributing Fund shares were $933,561 for Class A and $6,119 for Class B for
the period ended Sept. 30, 1999.
AEFC and American Express Financial Advisors Inc. have agreed to waive certain
fees and reimburse expenses to the extent that total expenses exceed 1.275% for
Class A shares, 2.045% for Class B shares and 1.085% for Class Y shares. For the
remainder of the first fiscal year, they have agreed to cap total expenses at
1.35% for Class A shares, 2.12% for Class B shares and 1.16% for Class Y shares.
In addition, for the period ended Sept. 30, 1999, AEFC and American Express
Financial Advisors Inc. further voluntarily agreed to waive certain fees and
reimburse expenses to 1.33% for Class A shares, 2.10% for Class B shares and
1.13% for Class Y shares.
During the period ended Sept. 30, 1999, the Fund's custodian and transfer agency
fees were reduced by $3,161 as a result of earnings credits from overnight cash
balances. The Fundalso pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $157,195,560 and $26,753,578 respectively, for the
period ended Sept 30, 1999. Realized gains and losses are determined on an
identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $96 for the
period ended Sept. 30, 1999.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the period indicated is as follows:
Period ended Sept. 30, 1999*
Class A Class B Class Y
Sold 18,867,920 8,323,813 --
Issued for reinvested distributions -- -- --
Redeemed (950,015) (121,764) --
-------- --------
Net increase (decrease) 17,917,905 8,202,049 --
*Inception date was May 4, 1999.
5. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written are as
follows:
Period ended Sept. 30, 1999*
Puts
Contracts Premium
Balance May 4, 1999 -- $ --
Opened 494 365,693
Closed (401) (307,849)
Expired (93) (57,844)
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Balance Sept. 30, 1999 -- $ --
*Inception date was May 4, 1999.
See "Summary of significant accounting policies."
6. 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 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 period ended Sept. 30,
1999.
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<CAPTION>
7. FINANCIAL HIGHLIGHTS
The table below shows certain important financial information for evaluating the
Fund's results.
For the period ended Sept. 30,
Per share income and capital changesa
Class A Class B Class Y
1999b 1999b 1999b
<S> <C> <C> <C>
Net asset value, beginning of period $5.00 $5.00 $5.00
Income from investment operations:
Net investment income (loss) -- (.01) --
Net gains (losses) (both realized and unrealized) .16 .16 .16
Total from investment operations .16 .15 .16
Net asset value, end of period $5.16 $5.15 $5.16
Ratios/supplemental data
Net assets, end of period (in millions) $92 $42 $--
Ratio of expenses to average daily net assetsd 1.33%c,f 2.10%c,f 1.13%c,f
Ratio of net investment income (loss)
to average daily net assets (.23%)d (1.03%)d (.31%)d
Portfolio turnover rate
(excluding short-term securities) 36% 36% 36%
Total returne 3.20% 3.00% 3.20%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b For the period from May 4, 1999 (commencement of operations) to
Sept. 30, 1999(Unaudited).
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 AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.89% for Class A, 2.63% for
Class B and 1.63% for Class Y for the period ended Sept. 30, 1999.
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<TABLE>
<CAPTION>
Investments in Securities
AXP Small Cap Advantage Fund
Sept. 30, 1999 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (97.0%)
Issuer Shares Value(a)
Aerospace & defense (0.5%)
<S> <C> <C>
Alliant Techsystems 9,800(b) $ 679,263
Airlines (1.0%)
America West Holdings Cl B 26,400(b) 457,050
Amtran 18,200(b) 341,250
SkyWest 26,900 590,119
Total 1,388,419
Automotive & related (3.2%)
DollarThrifty Automotive Group 14,500(b) 299,969
Gentex 55,000(b) 1,136,093
Myers Inds 30,210 536,228
Smith (AO) 27,200 822,800
Tower Automotive 45,900(b) 909,394
Winnebago Inds 26,800 641,525
Total 4,346,009
Banks and savings & loans (5.9%)
Advest Group 18,500 337,625
Anchor Bancorp Wisconsin 21,000 341,250
Cullen/Frost Bankers 40,100 1,002,500
Dime Community Bancshares 18,900 392,175
FirstMerit 40,400 1,025,150
Flagstar Bancorp 28,900 444,338
Hamilton Bancorp 18,700(b) 397,375
Hudson United Bancorp 8,900 274,231
MAF Bancorp 18,700(c) 371,663
NBT Bancorp 11,600 200,825
Provident Bankshares 11,400 242,606
Queens County Bancorp 22,000 607,750
Republic Bancorp 33,300 385,031
Southwest Bancorp of Texas 17,900(b) 312,131
U.S. Trust 12,100 972,538
Webster Financial 26,900 685,950
Total 7,993,138
Beverages & tobacco (1.3%)
Beringer Wine Estates Holdings Cl B 12,600(b) 517,388
Canandaigua Wine Cl A 19,900(b) 1,189,025
Total 1,706,413
Building materials & construction (4.5%)
Dycom Inds 19,200(b) 810,000
Florida Rock Inds 19,500 677,625
Granite Construction 15,800 411,788
Horton (DR) 56,200 727,088
Insituform Technologies Cl A 40,200(b) 1,004,999
NCI Building Systems 19,200(b) 318,000
Pulte 18,600 404,550
Ryland Group 27,500 625,625
TJ Intl 21,400 537,675
URS 21,200 519,400
Total 6,036,750
Chemicals (1.1%)
Geon 21,800 561,350
MacDermid 9,300 316,781
Spartech 18,800 551,075
Total 1,429,206
Communications equipment & services (2.6%)
CommScope 38,700(b) 1,257,750
Digital Microwave 30,300(b) 475,331
Oak Inds 19,200 652,800
Orbital Sciences 14,800(b) 259,000
Plantronics 9,200(b) 457,700
SymmetriCom 58,700(b) 440,250
Total 3,542,831
Computers & office equipment (10.4%)
Acxiom 15,000(b) 294,844
American Management Systems 37,100(b) 951,847
BISYS Group 9,800(b) 459,681
Cognex 26,900(b) 812,044
Dendrite Intl 8,700(b) 411,075
FactSet Research Systems 15,300 870,188
Hadco 23,300(b) 1,007,725
Henry (Jack) & Associates 19,900 735,056
Insight Enterprises 10,100(b) 328,250
Kronos 13,000(b) 476,938
Macromedia 29,800(b) 1,218,074
MedQuist 22,200(b) 742,313
Mercury Interactive 21,900(b) 1,413,918
Natl Computer Systems 12,300 471,628
New Era of Networks 12,200(b) 263,825
Profit Recovery Group Intl 41,000(b) 1,829,624
Whittman-Hart 22,100(b) 857,066
Xircom 19,400(b) 828,138
Total 13,972,234
Electronics (11.8%)
Actel 21,000(b) 399,000
AFC Cable Systems 10,300(b) 437,750
Alpha Inds 16,200 913,781
Anixter Intl 43,300(b) 1,006,725
Burr-Brown 15,100(b) 596,450
C-Cube Microsystems 15,100(b) 656,850
CTS 21,300 1,224,749
Dionex 18,500(b) 790,875
DSP Communications 8,700(b) 165,300
Electro Scientific Inds 13,500(b) 719,297
Etec Systems 9,700(b) 364,963
Helix Technology 26,600 884,450
Intl Rectifier 49,200(b) 750,300
Kulicke & Soffa Inds 25,100(b) 610,244
Lattice Semiconductor 37,800(b) 1,122,187
Micrel 20,000(b) 867,500
Novellus Systems 9,000(b) 606,938
Park Electrochemical 26,200 861,325
Power Integrations 8,300(b) 574,775
Powerwave Technologies 20,500(b) 988,484
S3 54,000(b) 563,625
Varian Medical Systems 29,700 649,688
Total 15,755,256
Energy (1.4%)
Barrett Resources 27,800(b) 1,026,862
Forest Oil 32,900(b) 561,356
HS Resources 15,500(b) 253,813
Total 1,842,031
Energy equipment & services (1.3%)
Marine Drilling 27,200(b) 430,100
Pride Intl 59,700(b) 846,993
Tuboscope 36,600(b) 455,213
Total 1,732,306
Financial services (4.3%)
Delphi Financial Group Cl A 17,734(b) 535,345
Financial Federal 31,300(b) 590,788
Hambrecht & Quist Group 23,200(b) 1,135,350
Investment Technology Group 18,800 392,450
Legg Mason 15,700 601,506
Mutual Risk Management 26,900 329,525
Radian Group 23,900 1,026,206
Raymond James Financial 16,900 336,944
SEI Investments 8,900 794,603
Total 5,742,717
Food (2.1%)
Corn Products Intl 26,700 812,681
Earthgrains 35,800 792,075
Performance Food Group 18,900(b) 484,313
Smithfield Foods 28,600(b) 765,050
Total 2,854,119
Furniture & appliances (1.6%)
Briggs & Stratton 9,700 566,238
Ethan Allen Interiors 27,750 882,796
La-Z-Boy 40,200 766,313
Total 2,215,347
Health care (5.4%)
Alpharma Cl A 30,000 1,059,375
IDEC Pharmaceuticals 9,600(b) 902,700
Jones Pharma 32,200 1,061,593
Liposome 41,300(b) 314,267
Priority Healthcare Cl B 27,900(b) 861,413
Quest Diagnostics 31,600(b) 821,600
Roberts Pharmaceutical 30,200(b) 913,550
Summit Technology 13,600(b) 249,050
Syncor Intl 13,600(b) 510,000
Techne 18,800(b) 589,850
Total 7,283,398
Health care services (3.5%)
Apria Healthcare Group 45,500(b) 762,125
Express Scripts Cl A 13,600(b) 1,064,201
Hanger Orthopedic Group 52,600(b) 762,700
Orthodontic Centers of America 19,800(b) 346,500
Patterson Dental 18,900(b) 936,731
Renal Care Group 35,900(b) 786,434
Total 4,658,691
Household products (0.1%)
Chattem 6,900 152,231
Industrial equipment & services (1.5%)
Astec Inds 18,900(b) 455,963
JLG Inds 27,700 420,694
Manitowoc 20,700 706,387
Nordson 9,600 470,400
Total 2,053,444
Insurance (2.4%)
Blanch (EW) Holdings 9,100 592,638
Fidelity Natl Financial 14,000 212,625
First American Financial 21,600 288,900
Gallagher (Arthur J) 18,900 1,006,424
Hooper Holmes 21,700 556,063
LandAmerica Financial Group 11,400 225,150
Reinsurance Group of America 13,700 351,919
Total 3,233,719
Leisure time & entertainment (0.7%)
Aztar 95,600(b) 979,900
Media (3.4%)
Catalina Marketing 7,600(b) 644,575
Consolidated Graphics 16,100(b) 678,213
McClatchy Newspapers 13,700 489,775
Price Communications 28,105(b) 704,382
Scholastic 9,400(b) 470,000
True North Communications 16,300 592,913
Valassis Communications 22,400(b) 984,199
Total 4,564,057
Metals (1.8%)
Mueller Inds 27,300(b) 810,468
Ryerson Tull 28,700 663,688
Steel Technologies 55,400 644,025
Stillwater Mining 13,100(b) 352,063
Total 2,470,244
Miscellaneous (0.9%)
PFF Bancorp 24,400 503,250
Philadelphia Suburban 18,900 445,331
TiVo 9,200(b) 275,425
Total 1,224,006
Multi-industry conglomerates (3.7%)
Bell & Howell 17,300(b) 634,694
Brady (WH) Cl A 21,700 694,400
DeVry 18,700(b) 374,000
Electronics for Imaging 300(b) 15,422
Interim Services 24,100(b) 394,638
Labor Ready 2,400(b) 24,150
Lason 19,900(b) 886,171
Mettler-Toledo Intl 21,200(b) 628,050
NCO Group 13,300(b) 625,100
Pre-Paid Legal Services 11,200(b) 441,000
Sylvan Learning Systems 16,200(b) 313,875
Total 5,031,500
Paper & packaging (0.8%)
AptarGroup 27,200 727,600
Ball 9,200 405,375
Total 1,132,975
Restaurants & lodging (2.8%)
CEC Entertainment 26,000(b) 932,750
Foodmaker 30,300(b) 755,606
Ruby Tuesday 36,500 711,750
Ryan's Family Steak Houses 64,300(b) 578,700
Taco Cabana Cl A 78,500(b) 760,469
Total 3,739,275
Retail (8.0%)
Ames Dept Stores 17,400(b) 554,625
AnnTaylor Stores 28,000(b) 1,144,500
Bindley Western Inds 73,466 1,051,482
Cost Plus 11,300(b) 548,050
Fossil 39,350(b) 1,064,909
Haverty Furniture Companies 36,500 529,250
Linens `N Things 21,600(b) 729,000
Men's Wearhouse 46,200(b) 993,300
Pacific Sunwear of California 25,750(b) 721,805
Regis 32,400 623,700
ShopKo Stores 38,700 1,122,300
United Stationers 19,000 404,938
Zale 32,700(b) 1,252,818
Total 10,740,677
Textiles & apparel (2.3%)
Authentic Fitness 32,800 576,050
Brown Shoe 44,800 820,400
Dixie Group 64,000(b) 496,000
K-Swiss Cl A 20,800 656,500
Oshkosh B'Gosh Cl A 33,300 531,759
Total 3,080,709
Transportation (2.5%)
Atlas Air 17,900(b) 391,563
Expeditors Intl of Washington 9,500 304,891
Landstar System 18,800(b) 653,300
Offshore Logistics 44,700 460,969
USFreightways 21,800 1,032,774
Werner Enterprises 31,200 549,900
Total 3,393,397
Utilities -- electric (2.2%)
Cleco 15,000 486,563
El Paso Electric 62,500 562,500
Public Service Co of New Mexico 29,700 542,025
TNP Enterprises 18,800 732,024
United Illuminating 13,900 672,413
Total 2,995,525
Utilities -- gas (2.0%)
Equitable Resources 15,700 593,655
New Jersey Resources 9,900 396,000
ONEOK 15,400 466,813
Piedmont Natural Gas 12,200 369,813
Southwestern Energy 53,600 485,750
UGI 17,600 409,200
Total 2,721,231
Total common stocks
(Cost: $132,438,747) 130,691,018
Short-term security (3.5%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Commercial paper
Paccar Financial
10-01-99 5.55% $4,700,000 $4,699,275
Total short-term security
(Cost: $4,700,000) $4,699,275
Total investments in securities
(Cost: $137,138,747)(d) $135,390,293
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 Sept. 30, 1999,
the value of foreign securities represented 0.28% of net assets.
(d) At Sept. 30, 1999, the cost of securities for federal income tax purposes
was approximately $137,139,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $ 6,833,000
Unrealized depreciation (8,582,000)
----------
Net unrealized depreciation $(1,749,000)
See accompanying notes to investments in securities.
<PAGE>
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