AXP(SM) Small Cap
Advantage
Fund
2000 SEMIANNUAL REPORT
American
Express(R)
Funds
(icon of) ruler
AXP Small Cap Advantage Fund seeks to provide shareholders with long-term
capital growth.
<PAGE>
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 that provides 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 19
<PAGE>
(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, 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 semiannual 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) Jake Hurwitz
Jake Hurwitz
Portfolio Manger
From the Portfolio Managers
In a highly volatile period for the stock market, AXP Small Cap Advantage Fund
managed to carve out a modest gain, as its Class A shares returned 1.65%
(excluding the sales charge) for the first half of the fiscal year -- April
through September 2000.
The stock market as a whole and technology-related stocks in particular had just
come off a spectacular rally when the period began. But before stocks had time
to catch their breath, concerns about higher interest rates and the potential
for slower economic growth and, ultimately, less-robust corporate profits
appeared on the scene. The result was a steady erosion in the market that lasted
until late May.
(picture of) Kent A. Kelley
Kent A. Kelley
Portfolio Manager
A ROLLER-COASTER RIDE
From that point, stocks were tossed and turned almost daily, as investors went
through a variety of mood swings through the summer and early fall. To
illustrate the degree of the volatility, the Fund lost more than 4% in July,
then surged by nearly 10% in August. In fact, the Fund lost ground in four of
the six months, but the two positive months were strong enough to put it in the
black for the period as a whole.
Consistent with our management style, the Fund's investments were split between
small-capitalization growth stocks (about 55% of the holdings) and value stocks
(about 45%). Technology stocks comprised the largest area of investment, but we
kept the portfolio broadly diversified across a number of economic sectors.
Looking more closely at the Fund's holdings, technology was both a curse and a
blessing, depending on the day, week and month. Overall, though, we did realize
positive performance from that sector. Our tech investments were concentrated in
three areas: contract equipment manufacturing, semiconductor and Internet
infrastructure areas. The energy sector, which got a boost from higher oil
prices, provided more consistent and better overall performance for the Fund.
That was particularly true of stocks of natural gas producers and oil-drilling
companies. In the health care area, strong earnings growth and an improving
regulatory environment produced good returns for our hospital management and HMO
stocks.
Looking ahead to the second half of the fiscal year, we think the outlook for
small-cap stocks is unusually favorable, thanks to accelerating profits and
relatively low stock prices. Assuming the Federal Reserve achieves its goal of
slowing down the economy to a more moderate pace and thereby removes the threat
of higher inflation, a more-normal and less-volatile investment environment
should unfold. If so, we think the Fund is well positioned to benefit from what
could be an ongoing advance in the small-cap sector.
Jake Hurwitz
Kent A. Kelley
<PAGE>
Fund Facts
Class A -- 6-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 2000 $6.17
March 31, 2000 $6.07
Increase $0.10
Distributions -- April 1, 2000 - Sept. 30, 2000
From income $ --
From capital gains $ --
Total distributions $ --
Total return** +1.65%
Class B -- 6-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 2000 $6.10
March 31, 2000 $6.03
Increase $0.07
Distributions -- April 1, 2000 - Sept. 30, 2000
From income $ --
From capital gains $ --
Total distributions $ --
Total return** +1.16%
Class C -- June 26, 2000* - Sept. 30, 2000
(All figures per share)
Net asset value (NAV)
Sept. 30, 2000 $6.11
June 26, 2000* $5.92
Increase $0.19
Distributions -- June 26, 2000* - Sept. 30, 2000
From income $ --
From capital gains $ --
Total distributions $ --
Total return** +3.21%***
Class Y -- 6-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 2000 $6.18
March 31, 2000 $6.08
Increase $0.10
Distributions -- April 1, 2000 - Sept. 30, 2000
From income $ --
From capital gains $ --
Total distributions $ --
Total return** +1.64%
* Inception date.
** The total return is a hypothetical investment in the Fund with all
distributions reinvested. Returns do not include sales load. The prospectus
discusses the effect of sales charges, if any, on the various classes.
*** The total return for Class C is not annualized.
<PAGE>
The 10 Largest Holdings
Percent Value
(of net assets) (as of Sept. 30, 2000)
AmeriCredit .81% $4,707,962
Gallagher (Arthur J) .75 4,338,119
Radian Group .74 4,266,000
Laboratory Corp America Holdings .70 4,022,402
IntraNet Solutions .68 3,902,399
Silicon Valley Bancshares .67 3,887,085
Metris Companies .66 3,829,525
C&D Technologies .66 3,807,924
SERENA Software .65 3,777,125
Exar .64 3,714,699
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 6.96% of net assets
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
AXP Small Cap Advantage Fund
Sept. 30, 2000 (Unaudited)
Assets
Investments in securities, at value (Note 1)
<S> <C> <C>
(identified cost $550,372,363) $595,195,189
Cash in bank on demand deposit 1,446,363
Dividends and accrued interest receivable 475,270
Receivable for investment securities sold 12,512,590
U.S. government securities held as collateral (Note 5) 1,760,838
---------
Total assets 611,390,250
-----------
Liabilities
Payable for investment securities purchased 23,567,063
Payable upon return of securities loaned (Note 5) 9,537,638
Accrued investment management services fee 11,163
Accrued distribution fee 7,785
Accrued transfer agency fee 3,253
Accrued administrative services fee 874
Other accrued expenses 193,095
-------
Total liabilities 33,320,871
----------
Net assets applicable to outstanding capital stock $578,069,379
============
Represented by
Capital stock -- $.01 par value (Note 1) $ 940,572
Additional paid-in capital 521,507,534
Net operating loss (920,816)
Accumulated net realized gain (loss) 11,719,263
Unrealized appreciation (depreciation) on investments 44,822,826
----------
Total-- representing net assets applicable to outstanding capital stock $578,069,379
============
Net assets applicable to outstanding shares: Class A $381,848,733
Class B $195,343,851
Class C $ 874,310
Class Y $ 2,485
Net asset value per share of outstanding capital stock: Class A shares 61,911,951 $ 6.17
Class B shares 32,001,694 $ 6.10
Class C shares 143,182 $ 6.11
Class Y shares 402 $ 6.18
--- -----
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
AXP Small Cap Advantage Fund
Six months ended Sept. 30, 2000 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $1,618,894
Interest 1,163,730
---------
Total income 2,782,624
---------
Expenses (Note 2):
Investment management services fee 1,672,605
Distribution fee
Class A 407,902
Class B 825,611
Class C 864
Transfer agency fee 468,248
Incremental transfer agency fee
Class A 35,511
Class B 29,316
Class C 40
Service fee - Class Y 2
Administrative services fees and expenses 142,429
Compensation of board members 3,977
Custodian fees 25,479
Printing and postage 70,761
Registration fees 32,498
Audit fees 7,750
Other 2,894
-----
Total expenses 3,725,887
Expenses reimbursed by AEFC (Note 2) (10,299)
-------
3,715,588
Earnings credits on cash balances (Note 2) (12,148)
-------
Total net expenses 3,703,440
---------
Investment income (loss) -- net (920,816)
--------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (15,525,722)
Futures contacts (418,520)
--------
Net realized gain (loss) on investments (15,944,242)
Net change in unrealized appreciation (depreciation) on investments 28,947,973
----------
Net gain (loss) on investments 13,003,731
----------
Net increase (decrease) in net assets resulting from operations $12,082,915
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
AXP Small Cap Advantage Fund
Sept. 30, 2000 March 31, 2000
Six months ended Period ended*
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ (920,816) $(1,233,437)
Net realized gain (loss) on investments (15,944,242) 30,074,545
Net change in unrealized appreciation (depreciation) on investments 28,947,973 15,874,853
---------- ----------
Net increase (decrease) in net assets resulting from operations 12,082,915 44,715,961
---------- ----------
Distributions to shareholders from:
Net realized gain
Class A -- (849,641)
Class B -- (410,527)
Class Y -- (11)
---
Total distributions -- (1,260,179)
----------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 111,849,810 270,164,984
Class B shares 61,752,968 130,609,381
Class C shares 870,282 --
Reinvestment of distributions at net asset value
Class A shares -- 794,802
Class B shares -- 408,330
Class Y shares -- 11
Payments for redemptions
Class A shares (19,154,847) (19,656,397)
Class B shares (Note 2) (9,789,963) (5,324,679)
---------- ----------
Increase (decrease) in net assets from capital share transactions 145,528,250 376,996,432
----------- -----------
Total increase (decrease) in net assets 157,611,165 420,452,214
Net assets at beginning of period 420,458,214 6,000
----------- -----
Net assets at end of period $578,069,379 $420,458,214
============ ============
* For the period from May 4, 1999 (commencement of operations) to March 31,
2000.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
AXP Small Cap Advantage Fund
(Unaudited as to Sept. 30, 2000)
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.
Class C shares of the Fund were offered to the public on June 26, 2000. Prior to
this date, AEFC purchased 332 shares of capital stock, which represented the
initial capital in Class C at $6.03 per share.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year of
ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets 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 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 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 substantially 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
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.
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 may be adjusted upward or downward by a
performance incentive adjustment based on a comparison of the performance of
Class A shares of AXP Small Cap Advantage Fund to the Lipper Small Cap-Core
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. The adjustment decreased
the fee by $113,520 for the six months ended Sept. 30, 2000.
Under an Administrative Service 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 0.035% 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.
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 $19.00
o Class B $20.00
o Class C $19.50
o Class Y $17.00
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 and Class C 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.
Sales charges received by the Distributor for distributing Fund shares were
$1,077,886 for Class A and $51,830 for Class B for the six months ended Sept.
30, 2000.
AEFC and American Express Financial Advisors Inc. agreed to waive certain fees
and to absorb certain expenses until March 31, 2001. Under this agreement, total
expenses will not exceed 1.35% for Class A, 2.12% for Class B, 2.12% for Class C
and 1.16% for Class Y of the Fund's average daily net assets.
During the six months ended Sept. 30, 2000, the Fund's custodian and transfer
agency fees were reduced by $12,148 as a result of earnings credits from
overnight cash balances. The Fund also 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 $547,744,158 and $429,412,704, respectively, for the six
months ended Sept. 30, 2000. Realized gains and losses are determined on an
identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $13,929 for the
six months ended Sept. 30, 2000.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Sept. 30, 2000
Class A Class B Class C* Class Y
Sold 18,888,853 10,516,360 143,182 --
Issued for
reinvested distributions -- -- -- --
Redeemed (3,210,708) (1,656,575) -- --
---------- ----------
Net increase (decrease) 15,678,145 8,859,785 143,182 --
---------- --------- -------
* Inception date was June 26, 2000.
Period ended March 31, 2000**
Class A Class B Class C Class Y
Sold 49,629,291 24,006,381 N/A --
Issued for
reinvested distributions 146,058 75,304 N/A 2
Redeemed (3,541,943) (940,176) N/A --
---------- --------
Net increase (decrease) 46,233,406 23,141,509 N/A 2
---------- ---------- -
** Inception date was May 4, 1999.
5. LENDING OF PORTFOLIO SECURITIES
As of Sept. 30, 2000, securities valued at $8,357,670 were on loan to brokers.
For collateral, the Fund received $7,776,800 in cash and U.S. government
securities valued at $1,760,838. Income from securities lending amounted to
$136,161 for the six months ended Sept. 30, 2000. The risks to the Fund of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
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 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
Sept. 30, 2000.
<PAGE>
<TABLE>
<CAPTION>
7. FINANCIAL HIGHLIGHTS
The table below shows certain important financial information for evaluating the
Fund's results.
Fiscal period ended March 31,
Per share income and capital changes(a)
Class A
2000(b) 2000(c)
<S> <C> <C>
Net asset value, beginning of period $6.07 $5.00
Income from investment operations:
Net investment income (loss) -- (.01)
Net gains (losses) (both realized and unrealized) .10 1.11
Total from investment operations .10 1.10
Less distributions:
Dividends from net investment income -- --
Distributions from realized gains -- (.03)
Total distributions -- (.03)
Net asset value, end of period $6.17 $6.07
Ratios/supplemental data
Net assets, end of period (in millions) $382 $281
Ratio of expenses to average daily net assets(d) 1.25%(e,f) 1.32%(e,f)
Ratio of net investment income (loss) to average daily net assets (.12%)(e) (.54%)(e)
Portfolio turnover rate (excluding short-term securities) 92% 108%
Total return(g) 1.65% 22.04%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Six months ended Sept. 30, 2000 (Unaudited).
(c) For the period from May 4, 1999 (commencement of operations) to March 31,
2000.
(d) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(e) Adjusted to an annual basis.
(f) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.26%, and 1.77% for the six
months ended Sept. 30, 2000 and for the period ended March 31, 2000,
respectively.
(g) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended March 31,
Per share income and capital changes(a)
Class B
2000(b) 2000(c)
<S> <C> <C>
Net asset value, beginning of period $6.03 $5.00
Income from investment operations:
Net investment income (loss) (.02) (.03)
Net gains (losses) (both realized and unrealized) .09 1.09
Total from investment operations .07 1.06
Less distributions:
Distributions from realized gains -- (.03)
Total distributions -- (.03)
Net asset value, end of period $6.10 $6.03
Ratios/supplemental data
Net assets, end of period (in millions) $195 $140
Ratio of expenses to average daily net assets(d) 2.01%(e,f) 2.09%(e,f)
Ratio of net investment income (loss) to average daily net assets (.88%)(e) (1.32%)(e)
Portfolio turnover rate (excluding short-term securities) 92% 108%
Total return(g) 1.16% 21.24%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Six months ended Sept. 30, 2000 (Unaudited).
(c) For the period from May 4, 1999 (commencement of operations) to March 31,
2000.
(d) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(e) Adjusted to an annual basis.
(f) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 2.02% and 2.53% for the six months
ended Sept. 30, 2000 and for the period ended March 31, 2000, respectively.
(g) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
Fiscal period ended March 31,
Per share income and capital changes(a)
Class C
2000(b)
Net asset value, beginning of period $5.92
Income from investment operations:
Net investment income (loss) --
Net gains (losses) (both realized and unrealized) .19
Total from investment operations .19
Less distributions:
Net asset value, end of period $6.11
Ratios/supplemental data
Net assets, end of period (in millions) $1
Ratio of expenses to average daily net assets(c) 2.01%(d,e)
Ratio of net investment income (loss) to average daily net assets (.52%)(d)
Portfolio turnover rate (excluding short-term securities) 92%
Total return(f) 3.21%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 26, 2000 (Unaudited).
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 2.02% for the period ended Sept.
30, 2000.
(f) Total return does not reflect payment of a sales charge.
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended March 31,
Per share income and capital changes(a)
Class Y
2000(b) 2000(c)
<S> <C> <C>
Net asset value, beginning of period $6.08 $5.00
Income from investment operations:
Net investment income (loss) -- (.01)
Net gains (losses) (both realized and unrealized) .10 1.12
Total from investment operations .10 1.11
Less distributions:
Dividends from net investment income -- --
Distributions from realized gains -- (.03)
Total distributions -- (.03)
Net asset value, end of period $6.18 $6.08
Ratios/supplemental data
Net assets, end of period (in millions) $-- $--
Ratio of expenses to average daily net assets(d) 1.04%(e,f) 1.16%(e,f)
Ratio of net investment income (loss) to average daily net assets .05%(e) (.13%)(e)
Portfolio turnover rate (excluding short-term securities) 92% 108%
Total return(g) 1.64% 22.24%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Six months ended Sept. 30, 2000 (Unaudited).
(c) For the period from May 4, 1999 (commencement of operations) to March 31,
2000.
(d) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(e) Adjusted to an annual basis.
(f) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.06% and 1.61% for the six months
ended Sept. 30, 2000 and for the period ended March 31, 2000, respectively.
(g) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
Investments in Securities
AXP Small Cap Advantage Fund
Sept. 30, 2000 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (94.1%)
Issuer Shares Value(a)
Aerospace & defense (0.8%)
Aeroflex 43,000(b) $2,090,875
Precision Castparts 62,100 2,383,088
Total 4,473,963
Airlines (0.3%)
SkyWest 33,024 1,692,480
Automotive & related (0.8%)
DollarThrifty Automotive Group 127,800(b) 2,524,050
Gentex 86,900(b) 2,172,500
Total 4,696,550
Banks and savings & loans (7.3%)
American Capital Strategies 59,900 1,418,881
Astoria Financial 39,500 1,525,688
Bank United Cl A 45,700 2,316,419
City Natl 57,600 2,224,800
Commerce Bancshares 53,000 1,951,063
Cullen/Frost Bankers 108,767 3,534,927
Downey Financial 62,000 2,449,000
East West Bancorp 135,800 2,656,588
First Midwest Bancorp 48,704 1,296,744
FirstFed Financial 64,000(b) 1,472,000
Fulton Financial 89,900 1,781,144
Greater Bay Bancorp 39,000 2,708,062
Hudson United Bancorp 70,339 1,943,115
Imperial Bancorp 86,600(b) 1,656,225
Investors Financial Services 53,900 3,402,437
MAF Bancorp 47,750 1,187,781
Queens County Bancorp 73,300 2,116,538
Silicon Valley Bancshares 66,749(b) 3,887,085
Southwest Bancorp of Texas 49,500(b) 1,618,031
Webster Financial 53,200 1,433,075
Total 42,579,603
Beverages & tobacco (0.9%)
Constellation Brands 63,135(b) 3,429,020
Coors (Adolph) Cl B 27,500 1,737,656
Total 5,166,676
Building materials & construction (2.8%)
Carlisle Companies 63,800 2,647,700
Dycom Inds 68,595(b) 2,855,267
Florida Rock Inds 51,811 2,043,296
Horton (DR) 145,062 2,493,246
Lennar 60,700 1,802,031
NCI Building Systems 65,200(b) 953,550
Pulte 60,900 2,009,700
Toll Brothers 46,000(b) 1,582,308
Total 16,387,098
Chemicals (1.4%)
Albemarle 87,200 1,760,350
Cytec Inds 72,000(b) 2,407,500
Lubrizol 96,400 1,897,875
OM Group 46,200 2,015,475
Total 8,081,200
Communications equipment & services (4.5%)
ADTRAN 20,600(b) 876,466
Celeritek 50,200(b) 1,891,913
Commonwealth Telephone Enterprises 28,000(b) 1,032,500
DMC Stratex Networks 83,383(b) 1,339,339
Excel Techology 45,400(b) 1,455,638
Glenayre Technologies 223,100(b) 2,426,212
Leap Wireless Intl 24,700(b) 1,545,294
Natural Microsystems 24,000(b) 1,291,125
Netro 43,800(b) 2,595,149
Plantronics 56,200(b) 2,135,600
Proxim 50,814(b) 2,261,223
REMEC 113,325(b) 3,336,004
Tollgrade Communications 17,000(b) 2,359,813
WJ Communications 48,000(b) 1,776,000
Total 26,322,276
Computers & office equipment (9.0%)
ADAC Laboratories 103,550(b) 2,155,134
Advent Software 17,800(b) 1,243,775
Aspen Technology 54,300(b) 2,450,288
Avocent 33,195(b) 1,829,874
Clarent 45,400(b) 1,787,625
FactSet Research Systems 46,400 1,744,640
go2net 19,800(b) 1,074,459
Henry (Jack) & Associates 41,072 1,781,498
HNC Software 34,696(b) 2,838,567
InFocus 58,900(b) 3,121,700
Insight Enterprises 50,550(b) 1,377,488
Intermagnetics General 80,000(b) 2,130,000
Interwoven 19,700(b) 2,227,331
IntraNet Solutions 78,048(b) 3,902,399
Keynote Systems 51,000(b) 1,364,250
M-Systems Flash Disk Prioneer 35,200(b,c) 1,344,200
Manhattan Associates 42,700(b) 2,615,375
Natl Instruments 32,800(b) 1,447,300
Netegrity 33,000(b) 2,310,000
OTG Software 45,300(b) 1,851,638
RSA Security 42,179(b) 1,818,969
SERENA Software 82,000(b) 3,777,125
SonicWALL 59,800(b) 1,704,300
Varian 58,500(b) 2,519,156
Verity 44,700(b) 1,595,231
Total 52,012,322
Electronics (11.3%)
ACT Mfg 19,000(b,d) 1,002,250
Actel 56,000(b) 2,012,500
Alpha Inds 69,050(b) 2,352,016
Amphenol Cl A 22,600(b) 1,286,788
Anaren Microwave 21,000(b) 2,848,125
Anixter Intl 56,000(b) 1,631,000
Belden 74,000 1,748,250
C&D Technologies 67,100 3,807,924
C-Cube Microsystems 70,700(b) 1,449,350
CTS 45,800 2,318,625
Cymer 23,300(b) 715,019
DSP Group 31,400(b) 1,173,575
Elantec Semiconductor 30,850(b) 3,073,430
Electro Scientific Inds 38,600(b) 1,372,191
Exar 30,700(b) 3,714,699
Harman Intl Inds 62,806 2,455,715
Intl Rectifier 33,180(b) 1,677,664
KEMET 92,396(b) 2,552,440
Littelfuse 34,500(b) 1,024,219
Methode Electronics Cl A 28,000 1,240,750
MRV Communications 34,200(b) 1,549,688
Nanometrics 27,400(b) 1,464,188
Oak Technology 72,700(b) 1,990,163
Pericom Semiconductor 24,800(b) 917,600
Photon Dynamics 76,800(b) 2,899,200
Plexus 21,800(b) 1,536,900
PLX Technology 67,400(b) 1,811,375
Sensormatic Electronics 111,300(b) 1,669,500
Technitrol 20,392 2,059,592
Therma-Wave 55,100(b) 1,584,125
Three-Five Systems 60,709(b) 1,775,738
Trimble Navigation 71,701(b) 1,604,310
Varian Medical Systems 68,010(b) 3,073,201
Varian Semiconductor Equipment Associates 30,800(b) 1,153,075
Viasystems Group 79,100(b) 1,344,700
Total 65,889,885
Energy (1.9%)
HS Resources 67,164(b) 2,258,390
Mitchell Energy & Development Cl A 55,000 2,564,374
Swift Energy 57,800(b) 2,402,313
Valero Energy 47,700 1,678,444
Vintage Petroleum 95,000 2,161,250
Total 11,064,771
Energy equipment & services (2.3%)
Lone Star Technologies 34,000(b) 1,569,100
Louis Dreyfus Natural Gas 56,700(b) 2,246,738
Patterson Energy 90,200(b) 3,100,625
Pride Intl 99,182(b) 2,628,323
UTI Energy 42,800(b) 1,909,950
Varco Intl 81,700(b) 1,700,381
Total 13,155,117
Financial services (4.1%)
Affiliated Managers Group 29,600(b) 1,685,350
AmeriCredit 163,400(b) 4,707,962
Catellus Development 101,500(b) 1,776,250
Delphi Financial Group Cl A 32,924(b) 1,333,422
Eaton Vance 27,700 1,412,700
Jefferies Group 61,100 1,642,063
LaBranche 36,200(b) 1,208,175
Metris Companies 96,950 3,829,525
Radian Group 63,200 4,266,000
Raymond James Financial 57,600 1,897,200
Total 23,758,647
Food (2.2%)
Dean Foods 53,000 1,762,250
Delta & Pine Land 62,100 1,595,194
Earthgrains 101,500 1,871,406
Performance Food Group 57,752(b) 2,172,919
Smithfield Foods 86,591(b) 2,273,014
Suiza Foods 59,300(b) 3,005,769
Total 12,680,552
Furniture & appliances (0.7%)
Ethan Allen Interiors 85,300 2,415,056
Salton 56,400(b,d) 1,822,425
Total 4,237,481
Health care (7.9%)
Alkermes 27,500(b) 1,062,188
Alpharma Cl A 42,700 2,610,038
Cephalon 26,900(b,d) 1,304,650
Coherent 42,092(b) 2,862,256
COR Therapeutics 47,312(b) 2,948,129
Cubist Pharmaceuticals 26,000(b) 1,353,625
Emisphere Technologies 51,000(b) 1,526,813
Enzo Biochem 36,022(b) 1,747,067
Enzon 30,600(b) 2,019,600
Inhale Therapeutic Systems 34,400(b) 1,939,300
Laboratory Corp America Holdings 33,590(b) 4,022,402
Maxim Pharmaceuticals 39,000(b) 2,369,250
Medicis Pharmaceutical Cl A 42,800(b) 2,632,200
Myriad Genetics 35,000(b) 3,009,999
Nanogen 21,850(b) 423,344
NOVOSTE 40,000(b) 1,700,000
Priority Healthcare Cl B 27,900(b) 2,127,375
Protein Design Labs 24,980(b) 3,010,089
Regeneron Pharmaceuticals 57,300(b) 1,869,413
Techne 30,644(b) 3,432,127
Zoll Medical 40,450(b) 1,971,938
Total 45,941,803
Health care services (4.2%)
Apria Healthcare Group 138,200(b) 1,926,163
Aurora Biosciences 29,000(b) 1,972,000
Cerner 40,450(b) 1,878,397
Cytyc 48,554(b) 2,093,891
Foundation Health Systems Cl A 131,300(b) 2,182,863
Genzyme Transgenics 52,000(b) 1,833,000
LifePoint Hospitals 103,150(b) 3,661,824
Mid Atlantic Medical Services 104,000(b) 1,573,000
PRAECIS Pharmaceuticals 36,100(b) 1,534,250
Triad Hospitals 86,000(b) 2,526,250
Universal Health Services Cl B 37,755(b) 3,232,771
Total 24,414,409
Household products (0.3%)
Valence Technology 100,500(b) 1,733,625
Industrial equipment & services (1.7%)
AGCO 128,500 1,525,938
Asyst Technologies 45,200(b) 915,300
Graco 40,800 1,315,800
Kennametal 91,400 2,353,550
Minerals Technologies 54,700 2,516,200
Nordson 38,300 1,089,156
Total 9,715,944
Insurance (3.4%)
Fidelity Natl Financial 85,350 2,112,413
First American 69,900 1,459,163
Gallagher (Arthur J) 73,372 4,338,119
MONY Group 37,800 1,507,275
Old Republic Intl 108,800 2,618,000
Reinsurance Group of America 45,200 1,548,100
RenaissanceRe Holdings 45,800(c) 2,928,338
StanCorp Financial Group 72,500 3,099,374
Total 19,610,782
Leisure time & entertainment (1.3%)
Anchor Gaming 26,700(b) 2,124,319
Aztar 173,405(b) 2,666,102
Concord Camera 99,800(b) 2,557,375
Total 7,347,796
Media (2.2%)
ADVO 49,800(b) 1,643,400
McClatchy Cl A 49,900 1,755,856
Penton Media 78,300 2,153,250
Price Communications 80,405(b) 1,572,923
Radio One Cl A 50,500(b) 419,781
Scholastic 37,906(b) 3,015,896
True North Communications 30,900 1,104,675
Zomax 152,800(b) 1,069,600
Total 12,735,381
Metals (0.8%)
Mueller Inds 44,731(b) 1,003,652
Shaw Group 32,100(b) 2,263,050
Stillwater Mining 60,600(b) 1,640,442
Total 4,907,144
Miscellaneous (2.5%)
AremisSoft 42,000(b) 1,575,000
Beasley Broadcast Group Cl A 51,850(b) 502,297
Cell Genesys 79,300(b) 2,379,000
DigitalThink 36,000(b,d) 1,516,500
Learning Tree Intl 41,800(b) 1,990,725
PolyMedica 48,000(b) 2,058,000
Proton Energy Systems 2,250(b) 64,406
Rural Celluar Cl A 28,300(b) 1,927,938
Stratos Lightwave 36,000(b) 1,161,000
UCBH Holdings 34,000 1,217,625
Total 14,392,491
Multi-industry conglomerates (2.1%)
Agribrands Intl 36,150(b) 1,577,044
Argosy Gaming 110,100(b) 1,995,562
Brady Cl A 63,315 1,915,279
Hall, Kinion & Associates 36,200(b) 1,029,438
Meade Instruments 65,000(b) 1,312,188
Mettler-Toledo Intl 59,900(b) 2,635,599
Stewart & Stevenson Services 83,650 1,458,647
Total 11,923,757
Paper & packaging (1.2%)
AptarGroup 80,000 1,915,000
Ball 50,100 1,587,544
Buckeye Technologies 81,200(b) 1,684,900
Pope & Talbot 103,782 1,485,380
Total 6,672,824
Real estate investment trust (2.9%)
Arden Realty 73,400 1,968,037
BRE Properties Cl A 52,800 1,689,600
Camden Property Trust 55,500 1,720,499
Developers Diversified Realty 66,300 853,613
Essex Property Trust 23,900 1,323,463
Gables Residential Trust 58,600 1,593,188
Liberty Property Trust 35,700 981,750
Pan Pacific Retail Properties 52,100 1,042,000
Reckson Associates Realty 46,800 1,193,400
SL Green Realty 57,800 1,622,013
Smith (Charles E) Residential Realty 41,700 1,892,137
United Dominion Realty Trust 105,700 1,149,488
Total 17,029,188
Restaurants & lodging (1.0%)
CEC Entertainment 51,400(b) 1,644,800
Cheesecake Factory (The) 43,925(b) 1,899,756
Extended Stay America 34,500(b) 450,570
RARE Hospitality Intl 80,100(b) 1,632,038
Total 5,627,164
Retail (3.9%)
AnnTaylor Stores 65,500(b) 2,517,656
Barnes & Noble 69,900(b) 1,376,156
Borders Group 69,000(b) 961,688
Footstar 64,100(b) 2,071,231
NBTY 193,600(b) 1,264,450
Pier 1 Imports 142,000 1,925,875
PurchasePro.com 29,900(b,d) 2,627,463
United Stationers 76,933(b) 2,067,574
Venator Group 165,000(b) 2,041,875
Whole Foods Market 64,300(b) 3,452,106
Zale 70,312(b) 2,280,746
Total 22,586,820
Textiles & apparel (1.7%)
Abercrombie & Fitch 77,000(b) 1,467,813
Chico's FAS 44,000(b) 1,491,670
Hot Topic 70,100(b) 2,103,000
Kenneth Cole Productions Cl A 49,700(b) 1,755,031
Skechers U.S.A. Cl A 88,100(b) 1,332,513
Timberland Cl A 39,600(b) 1,623,600
Total 9,773,627
Transportation (1.4%)
Atlas Air 34,200(b) 1,444,950
EGL 60,500(b) 1,830,125
Expeditors Intl of Washington 43,000 1,937,688
Forward Air 40,000(b) 1,407,500
Landstar System 31,576(b) 1,409,079
Total 8,029,342
Utilities -- electric (3.1%)
ALLETE 92,800 2,053,200
Cleco 48,100 2,248,675
El Paso Electric 198,486(b) 2,733,152
Kansas City Power & Light 82,700 2,207,056
OGE Energy 96,200 2,050,263
Public Service Co of New Mexico 96,200 2,489,175
UIL Holdings 45,422 2,336,394
Western Resources 95,300 2,060,863
Total 18,178,778
Utilities -- gas (1.9%)
Equitable Resources 35,806 2,269,205
New Jersey Resources 34,400 1,397,500
ONEOK 52,800 2,098,800
Piedmont Natural Gas 68,700 2,103,938
UGI 73,400 1,779,950
Western Gas Resources 51,900 1,300,744
Total 10,950,137
Total common stocks
(Cost: $498,994,447) $543,769,633
Other (--%)
Issuer Shares Value(a)
Elan
Rights 64,800 $62,775
Total other
(Cost: $--) $62,775
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (8.9%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (7.2%)
Federal Home Loan Bank Disc Nts
<S> <C> <C> <C> <C>
10-20-00 6.44% $7,100,000 $7,073,430
11-15-00 6.43 5,000,000 4,958,385
11-24-00 6.44 4,000,000 3,959,033
Federal Home Loan Mtge Corp Disc Nt
10-31-00 6.47 6,500,000 6,462,849
Federal Natl Mtge Assn Disc Nts
10-19-00 6.44 5,000,000 4,982,166
10-26-00 6.48 3,200,000 3,183,924
11-16-00 6.46 6,400,000 6,342,930
11-22-00 6.46 4,600,000 4,554,667
Total 41,517,384
Commercial paper (1.7%)
AEGON Funding
10-02-00 6.70% 4,600,000(e) 4,597,432
BellSouth Capital Funding
12-13-00 6.56 1,500,000(e) 1,479,469
Heinz (H.J.)
11-20-00 6.53 2,200,000 2,179,440
Pfizer
11-06-00 6.52 1,600,000(e) 1,589,056
Total 9,845,397
Total short-term securities
(Cost: $51,377,916) $51,362,781
Total investments in securities
(Cost: $550,372,363)(f) $595,195,189
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, 2000,
the value of foreign securities represented 0.74% of net assets.
(d) Security is partially or fully on loan. See Note 5 to the financial
statements.
(e) 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.
(f) At Sept. 30, 2000, the cost of securities for federal income tax purposes
was approximately $550,372,000 and the approximate aggregate gross
unrealized appreciation based on that cost was:
Unrealized appreciation $78,201,000
Unrealized depreciation (33,378,000)
Net unrealized appreciation $44,823,000
<PAGE>
American
Express(R)
Funds
AXP Small Cap Advantage Fund
70100 AXP Financial Center
Minneapolis, MN 55474
PRSRT STD AUTO
U.S. POSTAGE
PAID
AMERICAN
EXPRESS
S-6431 C (11/00)
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.
