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AXP(SM) Small
Company
Index Fund
2000 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
American
Express(R)
Funds
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AXP Small Company Index Fund seeks to provide shareholders with long-term
capital appreciation.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
AMERICAN EXPRESS(R) (logo)
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Good Things, Small Packages
When people talk stocks, the conversation often centers on big, household names.
But the fact is that all companies were small once, and, as they grew, some
proved to be excellent investments. Instead of trying to sort out the most
likely winners from the huge number of possibilities, AXP Small Company Index
Fund simply buys a representative sample of stocks from a popular small-company
index. Therefore, as the index performs, so, too, should the Fund.
AXP SMALL COMPANY INDEX FUND (This annual report is not part of the prospectus.)
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Table of Contents
2000 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio 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 22
Federal Income Tax Information 41
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 6p
Fees and Expenses 8p
Management 9p
Buying and Selling Shares 9p
Valuing Fund Shares 9p
Investment Options 10p
Purchasing Shares 11p
Transactions through Third Parties 14p
Sales Charges 14p
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 - 2000
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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) James M. Johnson, Jr.
James M. Johnson, Jr.
Portfolio manager
From the Portfolio Manager
In a very volatile year for the market, small-capitalization stocks finished the
past 12 months with a rush, helping AXP Small Company Index Fund post a positive
return for its fiscal year. For the period -- February 1999 through January 2000
- -- the total return for the Fund's Class A shares was 9.41% (excluding the sales
charge).
The period began with investors worrying about whether the surprisingly strong
economy would soon lead to a spike in the rate of inflation. That set off a
chain reaction of events: a sell-off in the bond market, a rise in long-term
interest rates and, ultimately, a slump in the stock market. Bearing the brunt
of the blow were stocks of smaller companies, which resulted in the Fund losing
about 9% in February. But there were better times ahead.
SMALL-CAP COMEBACK
With prices of many large-company stocks at dizzyingly high levels, investors
began to look more favorably upon small stocks, whose prices generally offered
far better investment value. This shift in market sentiment allowed the Fund to
record gains for four straight months.
But by mid-summer, concerns about inflation and interest rates were back on
investors' minds, and the stock market was forced into a rapid retreat that
lasted into the fall. As a result, the Fund was forced to give back nearly all
of its prior-months' gains. At the end of October, it was barely ahead of where
it began the fiscal year.
The environment changed quickly the next month, as investors put aside their
worries and rushed back into stocks. Led by the high-flying technology sector,
the market surged during November and December, before slacking off in January.
Especially encouraging for the Fund was that small-cap stocks clearly
outperformed large-caps during those three months, a rare occurrence during the
past several years. (This comparison is based on the returns of the Standard &
Poor's 500, an unmanaged index of stocks commonly used to measure the
performance of large-capitalization stocks, and the Standard & Poor's 600, an
unmanaged index of stocks commonly used to measure the performance of
small-capitalization stocks.)
Looking at which types of stocks performed well over the 12 months, technology
(the Fund's largest area of investment), energy and basic materials/capital
goods were particularly strong, while financial services and health care were
among the weaker sectors.
As for what the current fiscal year might hold, with the Federal Reserve Board
on high alert regarding inflation, the stock market may face difficult going
over the near term. However, as the period progresses, and assuming that
corporate profits remain reasonably good, I think stocks' chances to advance
will improve. What may prove more interesting and more important to the Fund,
though, is whether small stocks can maintain the performance edge they
established over large caps in the final months of the past fiscal year.
James M. Johnson, Jr.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 2000 $6.30
Jan. 31, 1999 $6.11
Increase $0.19
Distributions -- Feb. 1, 1999 - Jan. 31, 2000
From income $0.13
From capital gains $0.25
Total distributions $0.38
Total return* +9.41%**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 2000 $6.13
Jan. 31, 1999 $6.00
Increase $0.13
Distributions -- Feb. 1, 1999 - Jan. 31, 2000
From income $0.13
From capital gains $0.25
Total distributions $0.38
Total return* +8.55%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 2000 $6.32
Jan. 31, 1999 $6.12
Increase $0.20
Distributions -- Feb. 1, 1999 - Jan. 31, 2000
From income $0.13
From capital gains $0.25
Total distributions $0.38
Total return* +9.54%**
*Returns do not include sales load, the prospectus discusses the effect of
sales charges, if any, on the various classes.
**The total return is a hypothetical investment in the Fund with all
distributions reinvested.
AXP SMALL COMPANY INDEX 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 Jan. 31, 2000)
IDEC Pharmaceuticals 1.46% $14,619,199
Mercury Interactive 1.15 11,491,812
Macromedia .93 9,314,343
Incyte Pharmaceuticals .85 8,552,707
Clarify .79 7,896,091
C-Cube Microsystems .77 7,759,521
Micrel .71 7,144,594
Jones Pharma .69 6,894,166
Lattice Semiconductor .67 6,735,689
Aspect Communications .65 6,510,443
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 8.67% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
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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 SMALL COMPANY INDEX 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 Small Company Index Fund
$20,000
S&P SmallCap 600 Index
$13,478
AXP Small Company
Index Fund Class A
Lipper Small-Cap Core Index
$9,500
9/1/96 '97 '98 '99 '00
Average annual total returns (as of Jan. 31, 2000)
1 year Since inception*
Class A +3.93% +9.03%
Class B +4.55% +9.36%
Class Y +9.54% +10.77%
*Inception date was Aug. 19, 1996
Assumes: Holding period from 9/1/96 to 1/31/00. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund has a value of $1,588. Also see "Past Performance" in
the Fund's current prospectus.
On the graph above you can see the Fund's total return compared to two unmanaged
performance indexes, the Standard and Poor's SmallCap 600 Index (S&P SmallCap
600 Index) and the Lipper Small-Cap Core Index. In comparing AXP Small Company
Index Fund (Class A) to the indexes, you should take into account the fact that
the Fund's performance reflects the maximum sales charge of 5% (effective March
20, 2000 the sales charge increased to 5.75%), 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%
(effective March 20, 2000 the sales charge increased to 5.75%). This was a
period of widely fluctuating security prices. Past performance is no guarantee
of future results.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
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S&P SmallCap 600 Index, an unmanaged market-weighted index, that consists of 600
domestic stocks chosen for market size, liquidity, (bid-asked spread, ownership,
share turnover and number of no trade days) and industry group representation.
The index reflects reinvestment of all distributions and changes in market
prices, but excludes brokerage commissions or other fees. The Fund may invest in
stocks that may not be listed in the Index.
Lipper Small-Cap Core Index, an unmanaged index published by Lipper Inc.,
includes 30 funds that are generally similar to the Fund, although some funds in
the index may have somewhat different investment policies or objectives.
AXP SMALL COMPANY INDEX FUND (This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment #24 to
Registration Statement No. 33-30770 filed on or about March 31st, 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 Small Company Index Fund
Year ended Jan. 31, 2000
Class A
Income distribution taxable as dividend income, 32.12% qualifying for deduction
by corporations.
Payable date Per share
Dec. 23, 1999 $0.13543
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1999 $0.24665
Total distributions $0.38208
The distribution of $0.38208 per share, payable Dec. 23, 1999, consisted of
$0.13543 from net short-term capital gains and $0.24665 from net long-term
capital gains.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
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Class B
Income distribution taxable as dividend income, 32.12% qualifying for deductions
by corporations.
Payable date Per share
Dec. 23, 1999 $0.13543
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1999 $0.24665
Total distributions $0.38208
The distribution of $0.38208 per share, payable Dec. 23, 1999, consisted of
$0.13543 from net short-term capital gains and $0.24665 from net long-term
capital gains.
Class Y
Income distribution taxable as dividend income, 32.12% qualifying for deduction
by corporations.
Payable date Per share
Dec. 23, 1999 $0.13543
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1999 $0.24665
Total distributions $0.38208
The distribution of $0.38208 per share, payable Dec. 23, 1999, consisted of
$0.13543 from net short-term capital gains and $0.24665 from net long-term
capital gains.
AXP SMALL COMPANY INDEX FUND (This annual report is not part of the prospectus.)
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American
Express(R)
Funds
AXP Small Company Index Fund
200 AXP Financial Center
Minneapolis, MN 55474
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and is
not a broker-dealer.
AMERICAN EXPRESS (R) (logo)
S-6357 G (3/00)
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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.
