AXP Innovations Fund
1999 annual report
From the portfolio manager
The past 12 months was an exciting period for the U.S. stock market, especially
technology-related issues. Reflecting the extremely positive environment, AXP
Innovations Fund Class A shares generated a gain (excluding the sales charge) of
108.32% during its fiscal year - November 1998 through October 1999. (This
compares with a gain of 25.68% for the Standard & Poor's 500, an unmanaged index
of stocks commonly used to measure the performance of the U.S. stock market as a
whole.)
The period began with the stock market trying to shake off the negative
spill-over effects of financial crises in several foreign economies. But,
supported by declining interest rates, ongoing economic strength, low inflation
and generally good corporate earnings, the market quickly started moving
forward. The advance soon turned into a roaring rally that, with only a
relatively brief interruption in late winter, continued until mid-summer.
By that time, long-term interest rates had crept higher, causing concern among
investors about the outlook for inflation. The market responded with a moderate
retreat that lasted until mid-October, at which point it regained positive
momentum and finished the period with a sharp upturn.
Internet stocks soar
The driving force behind the market's strong overall performance was
technology-related stocks, especially those tied to the growth of the Internet.
It was not uncommon to find a number of such stocks that doubled or tripled in
value. The Fund took good advantage of that opportunity by concentrating the
bulk of its investments in technology and telecommunications stocks and
maintaining the greatest emphasis on Internet-related issues. Among the best
performers for the Fund during the 12 months were JDS Uniphase, Network
Appliance, America Online, Verisign, Univision, Amazon.com and Cisco Systems.
All told, the Fund held about 70 stocks in its portfolio, the great majority of
them based in the U.S.
While it would be very unusual to see a repeat of the past 12 months'
performance in the new fiscal year, I think the outlook for technology-related
stocks remains positive. They continue to generate the highest overall earnings
growth in the American economy and, despite considerable volatility, I believe
they still offer substantial potential for long-term appreciation. Therefore, I
expect to continue to make them the main focus of the Fund in the year ahead.
Louis Giglio
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The Fund's Long-term Performance
How $10,000 has grown in AXP Innovations Fund
$30,000
Lipper Science &
Technology Fund Index
$21,167
AXP Innovations
Fund Class A
$20,000
Standard & Poor's
500 Stock Index
$10,000
$9,500
12/1/96 10/97 10/98 10/99
Average Annual Total Return (as of Oct. 31, 1999)
1 year Since inception*
Class A +97.89% +29.29%
Class B +102.72% +29.95%
Class Y +108.32% +31.54%
*Inception date was Nov. 13, 1996.
Assumes: Holding period from 12/1/96 to 10/31/99. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund has a value of $0. Also see "Past Performance" in the
Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited unmanaged performance indexes, the Standard & Poor's 500 Stock
Index (S&P 500) Index and the Lipper Science & Technology Funds Index. This was
a period of widely fluctuating security prices. Past performance is no guarantee
of future results.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common stocks,
is frequently used as a general measure of market performance. However, the S&P
500 companies are generally larger than those in which the Fund invests. The
index reflects reinvestment of all distributions and changes in market prices,
but excludes brokerage commissions or other fees.
Lipper Science & Technology Funds Index, published by Lipper Analytical
Services, Inc., includes 10 funds that are generally similar to the Fund,
although some funds in the index may have somewhat different investment policies
or objectives. The index reflects reinvestment of all distributions and changes
in market prices, but excludes brokerage commissions or other fees.
<PAGE>
The financial statements contained in Post-Effective Amendment #32 to
Registration Statement No. 33-25824 filed on or about December 28, 1999, are
incorporated herein by reference.
<PAGE>
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.
