AXP(R)
Large Cap
Equity
Fund
Annual Report
for the Period Ended
July 31, 2005
AXP Large Cap Equity Fund
seeks to provide shareholders
with long-term growth of capital.
(This annual report is intended only for the information of shareholders or
those who have received the offering prospectus of the Fund, which contains
information about 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.)
Table of Contents
Fund Snapshot 3
Performance Summary 4
Questions & Answers
with Portfolio Management 5
The Fund's Long-term Performance 8
Investments in Securities 10
Financial Statements 16
Notes to Financial Statements 19
Report of Independent Registered
Public Accounting Firm 32
Federal Income Tax Information 33
Fund Expenses Example 35
Board Members and Officers 37
Approval of Investment Management
Services Agreement 40
Proxy Voting 41
[DALBAR LOGO]
American Express(R) Funds' reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
CORPORATE REORGANIZATION
On Feb. 1, 2005, American Express Company (American Express) announced plans
to pursue a spin off of Ameriprise Financial, Inc. (Ameriprise Financial)
(formerly American Express Financial Corporation) to American Express
shareholders. The separation from American Express is expected to be completed
on Sept. 30, 2005. After the separation from American Express, Ameriprise
Financial will no longer be affiliated with American Express.
Ameriprise Financial provides administrative services to the Fund and, through
Sept. 30, 2005, investment management services to the Fund. Effective Oct. 1,
2005, RiverSource Investments, LLC, a wholly owned subsidiary of Ameriprise
Financial, will provide investment management services to the Fund. In
addition, Ameriprise Financial is the parent company of the Fund's
distributor, Ameriprise Financial Services, Inc. (formerly American Express
Financial Advisors Inc.); the Fund's transfer agent, RiverSource Service
Corporation (formerly American Express Client Service Corporation); and the
Fund's custodian, Ameriprise Trust Company (formerly American Express Trust
Company).
Effective Oct. 1, 2005, the Fund will change its name such that it no longer
bears the American Express brand and instead will bear the RiverSource(SM)
brand. Information regarding the new name of the Fund and other changes will be
separately communicated to shareholders.
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2 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Fund Snapshot
AT JULY 31, 2005
PORTFOLIO MANAGERS
Portfolio managers Since Years in industry
Robert Ewing 1/05 16
Nick Thakore 1/05 11
FUND OBJECTIVE
The Fund seeks to provide shareholders with long-term growth of capital.
Inception dates by class
A: 3/28/02 B: 3/28/02 C: 3/28/02 I: 3/4/04 Y: 3/28/02
Ticker symbols by class
A: ALEAX B: ALEBX C: ARQCX I: -- Y: ALEYX
Total net assets $1.553 billion
Number of holdings 293
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
[PIE CHART]
Financials 20.9%
Information Technology 13.7%
Health Care 11.9%
Consumer Discretionary 10.4%
Telecommunication Services 10.2%
Consumer Staples 8.6%
Industrials 7.3%
Energy 7.1%
Short-Term Securities* 5.6%
Materials 2.6%
Utilities 1.7%
* Of the 5.6%, 2.1% is due to security lending activity and 3.5% is the Fund's
cash equivalent position.
TOP TEN HOLDINGS
Percentage of portfolio assets
Sprint
(Diversified Telecommunication Services) 4.5%
NTL (Media) 3.0
Exxon Mobil (Oil & Gas) 2.2
Pfizer (Pharmaceuticals) 1.9
Bank of America (Commercial Banks) 1.7
American Intl Group (Insurance) 1.7
Nextel Communications Cl A
(Wireless Telecommunication Services) 1.7
Citigroup (Diversified Financial Services) 1.6
Dell (Computers & Peripherals) 1.4
Altria Group (Tobacco) 1.3
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The Global Industry Classification Standard (GICS) was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's, a division of The McGraw-Hill Companies, Inc.
Fund holdings are subject to change.
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3 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Performance Summary
[BAR CHART]
PERFORMANCE COMPARISON
For the year ended July 31, 2005
+13.99% +16.20% +12.56%
+13.99% = AXP Large Cap Equity Fund Class A (excluding sales charge)
+16.20% = Russell 1000(R) Index (unmanaged)
+12.56% = Lipper Large-Cap Core Funds Index
(see "The Fund`s Long-term Performance" for Index descriptions) The performance
information shown represents past performance and is not a guarantee of future
results. The investment return and principal value of your investment will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or higher than the
performance information shown. You may obtain performance information current to
the most recent month-end by calling (800) 862-7919 or visiting
www.riversource.com/investments.
The 5.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
AVERAGE ANNUAL TOTAL RETURNS
Class A Class B Class C Class I Class Y
(Inception dates) (3/28/02) (3/28/02) (3/28/02) (3/4/04) (3/28/02)
After After
NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6)
at July 31, 2005
1 year +13.99% +7.44% +13.09% +8.09% +13.06% +12.06% +14.64% +14.06%
3 years +10.37% +8.22% +9.58% +8.46% +9.56% +9.56% N/A +10.57%
Since inception +3.12% +1.30% +2.30% +1.44% +2.35% +2.35% +5.73% +3.28%
at June 30, 2005
1 year +5.72% -0.36% +4.94% -0.06% +4.93% +3.93% +6.38% +6.02%
3 years +7.18% +5.09% +6.44% +5.25% +6.43% +6.43% N/A +7.44%
Since inception +2.35% +0.50% +1.56% +0.66% +1.62% +1.62% +3.99% +2.57%
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as
follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
(5) Sales charge is not applicable to these shares. Shares available to
eligible investors only, currently limited to AXP Portfolio Builder Funds,
six affiliated funds-of-funds.
(6) Sales charge is not applicable to these shares. Shares available to
institutional investors only.
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4 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
AXP Large Cap Equity Fund's Class A shares advanced 13.99%, excluding sales
charge, for the 12 months ended July 31, 2005. The Fund underperformed its
benchmark, the Russell 1000 Index (Russell Index), which increased 16.20% during
the period. The Fund's peer group, the Lipper Large-Cap Core Funds Index, gained
12.56% during the same time frame.
On Oct. 1, 2004, Robert Ewing and Nick Thakore began managing the Fund on a
temporary basis for Doug Chase, the Fund's portfolio manager, who took a leave
of absence. Mr. Chase subsequently decided to leave on Jan. 3, 2005. Mr.
Ewing and Mr. Thakore were named portfolio managers of the Fund. Together they
manage the Fund in conjunction with a team of equity analysts. Below, Mr.
Ewing and Mr. Thakore discuss the Fund's results and positioning for the annual
period ended July 31, 2005.
Q: What factors most significantly affected performance for the period?
A: During the 12-month period, stock selection and sector allocation detracted
from performance relative to the Russell Index. Stock selection within the
information technology and telecommunications sectors helped Fund
performance. However, selection within the financials and consumer
discretionary sectors detracted from performance.
In terms of sector allocation, the industrial sector did not perform well
and as a result, our smaller position helped performance. The Fund's cash
position detracted from performance, as holding cash during the period when
the market was up meant losing out on opportunities in the market for
positive returns. In addition, the Fund's large exposure to the health care
sector hurt performance.
Three of the largest contributors to Fund performance during the period were
Sprint, cell phone maker Nokia and Medco Health Solutions, a health services
company. The Fund's smaller position in Home Depot detracted from
performance during the period as did our smaller position in computer
company Apple, which had strong performance throughout the year. Finally,
our larger position in financial company Fannie Mae hurt performance as the
stock struggled throughout the period.
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5 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Questions & Answers
[BEGIN CALLOUT QUOTE] > In terms of sector allocation, the industrial sector did
not perform well and as a result, our smaller position helped performance.
[END CALLOUT QUOTE]
Q: What changes did you make to the portfolio and how is it currently
positioned?
A: The annual period encompassed our interim management period and the
subsequent naming as portfolio managers. In January 2005, we began
implementing our current three-sided investment process in which we each
manage approximately one-third of the Fund's assets while our equity analyst
team selects stocks for the remaining one-third of the Fund.
Regarding sector allocation, we lowered our exposure to the health care
sector the most throughout the 12-month period. We sold some holdings in the
consumer staples area and in industrials, where we believe we are late in
the economic expansion and do not think it is prudent to have large
positions in the sector. Finally, we added positions to the
telecommunications services, utilities and consumer discretionary sectors.
Q: How do you plan to manage the Fund in the coming months?
A: We are somewhat cautious given that this is the fourth year of economic
expansion. Though we believe the economy will continue to grow, we think its
growth rate will noticeably decelerate. In the context of this economic
outlook and what we consider to be high equity valuations, we think it is
appropriate to be careful.
Although this Fund essentially uses a fundamentally driven, bottom-up
strategy, we realize how important it is to be cognizant of market trends
and potential risks. We continue to have a more cautious stance, emphasizing
higher quality stocks over lower quality stocks that have high amounts of
leverage or exhibit volatile earnings.
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6 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Questions & Answers
[BEGIN CALLOUT QUOTE] > We are focusing on larger stocks because they tend to
be more stable companies and have been more attractively valued than mid-cap
and small-cap stocks. [END CALLOUT QUOTE]
One of the portfolio's current themes is increasing the average market cap
for the Fund's holdings. We are focusing on larger stocks because they tend
to be more stable companies and have been more attractively valued than
mid-cap and small-cap stocks. The Fund is designed and set up currently for
more stability and is positioned to benefit from any upcoming periods of
notable growth.
We continue to see benefits from our three-sided approach to managing this
Fund. We oversee all three segments to monitor overall sector weightings and
individual stock positions. We believe that our strategy, which taps
opportunities across multiple sectors and investment styles, will be
instrumental to the Fund's results in the current market environment.
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7 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
The Fund's Long-term Performance
The chart on the facing page illustrates the total value of an assumed $10,000
investment in AXP Large Cap Equity Fund Class A shares (from 4/1/02 to 7/31/05)
as compared to the performance of two widely cited performance indices, the
Russell 1000(R) Index and the Lipper Large-Cap Core Funds Index. In comparing
the Fund's Class A shares to these indices, you should take into account the
fact that the Fund's performance reflects the maximum sales charge of 5.75%,
while such charges are not reflected in the performance of the indices. Returns
for the Fund include the reinvestment of any distribution paid during each
period.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by calling (800) 862-7919 or visiting
www.riversource.com/investments. Also see "Past Performance" in the Fund's
current prospectus.
DISTRIBUTION SUMMARY
The table below details the Fund's income and capital gain distributions for the
fiscal years shown. More information on the other classes can be found in the
Financial Highlights section of this report's Notes to Financial Statements.
Class A
Short-term Long-term
Fiscal year ended Income capital gains capital gains Total
July 31, 2005 $0.02 $ -- $0.01 $0.03
July 31, 2004 -- 0.20 0.02 0.22
July 31, 2003 -- -- -- --
July 31, 2002(1) -- -- -- --
(1) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
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8 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
[LINE CHART]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP LARGE CAP EQUITY FUND
AXP Large Cap Equity Fund Class A (includes sales charge) $ 9,425 $7,766 $8,546 $ 9,160 $10,441
Russell 1000(R) Index(1) $10,000 $8,014 $8,911 $10,072 $11,704
Lipper Large-Cap Core Funds Index(2) $10,000 $8,108 $8,808 $ 9,690 $10,907
4/1/02 7/02 7/03 7/04 7/05
COMPARATIVE RESULTS
Results at July 31, 2005 Since
1 year 3 years inception(3)
AXP Large Cap Equity Fund (includes sales charge)
Class A Cumulative value of $10,000 $10,744 $12,674 $10,441
Average annual total return +7.44% +8.22% +1.30%
Russell 1000(R) Index(1)
Cumulative value of $10,000 $11,620 $14,606 $11,704
Average annual total return +16.20% +13.46% +4.83%
Lipper Large-Cap Core Funds Index(2)
Cumulative value of $10,000 $11,256 $13,452 $10,907
Average annual total return +12.56% +10.39% +2.63%
Results for other share classes can be found on page 4.
(1) The Russell 1000(R) Index, an unmanaged index, measures the performance of
the 1,000 largest companies in the Russell 3000 Index, and represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
(2) The Lipper Large-Cap Core Funds Index includes the 30 largest large-cap
core funds tracked by Lipper Inc. The index's returns include net
reinvested dividends.
(3) Fund data is from March 28, 2002. Russell 1000 Index and Lipper peer group
data is from April 1, 2002.
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9 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Investments in Securities
AXP Large Cap Equity Fund
July 31, 2005
(Percentages represent value of investments compared to net assets)
Common Stocks (96.8%)
Issuer Shares Value(a)
Aerospace & Defense (3.1%)
Boeing 132,630 $8,754,907
Empresa Brasileira de
Aeronautica ADR 119,302(c) 3,858,227
General Dynamics 12,727 1,466,023
Goodrich 116,774 5,166,082
Honeywell Intl 210,201 8,256,695
Lockheed Martin 137,816 8,599,718
Northrop Grumman 80,844 4,482,800
United Technologies 158,889 8,055,672
Total 48,640,124
Auto Components (0.1%)
Johnson Controls 8,639 496,224
Lear 11,436 489,118
Total 985,342
Automobiles (0.2%)
Ford Motor 85,134 914,339
General Motors 64,760(d) 2,384,463
Harley-Davidson 13,137 698,757
Total 3,997,559
Beverages (1.0%)
Coca-Cola 18,776 821,638
Coca-Cola Enterprises 42,291 993,839
PepsiCo 245,882 13,407,945
Total 15,223,422
Biotechnology (1.5%)
Amgen 162,488(b) 12,958,418
Biogen Idec 68,514(b) 2,691,915
Genentech 65,830(b) 5,880,594
Gilead Sciences 53,201(b) 2,383,937
Total 23,914,864
Building Products (0.2%)
American Standard Companies 27,504 1,217,877
Masco 44,839 1,520,491
Total 2,738,368
Common Stocks (continued)
Issuer Shares Value(a)
Capital Markets (2.8%)
Bank of New York 107,433 $3,306,788
E*TRADE Financial 107,034(b) 1,660,097
Franklin Resources 74,301 6,005,007
Investors Financial Services 207,410 7,139,052
Legg Mason 11,332 1,157,564
Lehman Brothers Holdings 50,518 5,310,957
Merrill Lynch & Co 52,867 3,107,522
Morgan Stanley 191,367 10,152,019
National Financial Partners 10,574 478,474
Nomura Holdings 97,200(c) 1,150,616
State Street 88,509 4,402,438
Total 43,870,534
Chemicals (1.1%)
Dow Chemical 195,329 9,366,026
Eastman Chemical 18,408 1,019,619
EI du Pont de Nemours & Co 41,999 1,792,517
Lyondell Chemical 46,581 1,301,473
Monsanto 54,927 3,700,432
RPM Intl 27,333 512,494
Total 17,692,561
Commercial Banks (4.3%)
Bank of America 632,640 27,583,104
Commerce Bancorp 108,171(d) 3,670,242
Fifth Third Bancorp 26,291 1,133,142
ICICI Bank ADR 38,269(c) 1,010,684
PNC Financial Services Group 82,245 4,508,671
Regions Financial 23,288 783,408
US Bancorp 160,442 4,822,887
Wachovia 199,329 10,042,195
Wells Fargo & Co 230,404 14,132,981
Western Alliance Bancorp 304(b) 9,394
Total 67,696,708
Commercial Services & Supplies (1.1%)
Avery Dennison 20,285 1,149,551
Career Education 15,200(b) 589,608
Cendant 693,946 14,822,687
Total 16,561,846
See accompanying notes to investments in securities.
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10 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Communications Equipment (2.6%)
CIENA 658,925(b) $1,475,992
Cisco Systems 606,218(b) 11,609,075
Corning 94,665(b) 1,803,368
Motorola 291,050 6,164,439
Nokia ADR 1,064,288(c) 16,975,394
QUALCOMM 55,709 2,199,948
Total 40,228,216
Computers & Peripherals (3.7%)
Brocade Communications Systems 330,190(b) 1,479,251
Dell 543,394(b) 21,991,156
EMC 626,589(b) 8,578,003
Hewlett-Packard 519,650 12,793,783
Intl Business Machines 151,477 12,642,270
Total 57,484,463
Consumer Finance (0.9%)
Capital One Financial 98,291 8,109,007
First Marblehead 41,434(b) 1,439,832
MBNA 185,929 4,677,974
Total 14,226,813
Containers & Packaging (0.1%)
Temple-Inland 57,494 2,287,686
Distributors (--%)
Genuine Parts 8,142 372,822
Diversified Financial Services (6.8%)
Citigroup 595,194 25,890,939
Consumer Discretionary Select
Sector SPDR Fund 148,564 5,149,228
Energy Select Sector SPDR Fund 285,008(d) 13,566,381
Health Care Select Sector
SPDR Fund 276,173 8,762,969
Industrial Select Sector
SPDR Fund 291,477(d) 8,898,793
iShares Dow Jones US
Healthcare Sector Index Fund 141,848 8,916,565
JPMorgan Chase & Co 414,710 14,572,909
Materials Select Sector
SPDR Fund 332,618(d) 9,526,180
Utilities Select Sector
SPDR Fund 348,316(d) 11,240,157
Total 106,524,121
Common Stocks (continued)
Issuer Shares Value(a)
Diversified Telecommunication Services (7.7%)
ALLTEL 93,518 $6,218,947
BellSouth 188,312 5,197,411
Citizens Communications 39,163 514,602
KT ADR 63,547(c) 1,406,931
MCI 138,857 3,543,631
SBC Communications 581,756 14,223,934
Sprint 2,659,750 71,547,274
Telewest Global 601,498(b,c) 13,437,465
Verizon Communications 107,110 3,666,375
Total 119,756,570
Electric Utilities (1.2%)
Entergy 42,775 3,333,884
Exelon 113,730 6,086,830
FPL Group 37,773 1,628,772
PPL 27,194 1,674,607
Southern 120,771 4,225,777
TXU 9,907 858,342
Xcel Energy 49,501 960,814
Total 18,769,026
Electrical Equipment (0.1%)
Emerson Electric 19,489 1,282,376
Electronic Equipment & Instruments (0.2%)
Flextronics Intl 177,295(b,c) 2,400,575
Solectron 418,329(b) 1,606,383
Total 4,006,958
Energy Equipment & Services (1.0%)
Cooper Cameron 18,622(b) 1,321,790
Halliburton 86,399 4,842,663
Schlumberger 48,563 4,066,666
Transocean 49,698(b) 2,804,458
Weatherford Intl 31,022(b) 1,963,072
Total 14,998,649
Food & Staples Retailing (1.2%)
CVS 121,638 3,774,427
Wal-Mart Stores 291,079 14,364,749
Total 18,139,176
Food Products (0.8%)
General Mills 50,591 2,398,013
Kellogg 235,450 10,668,240
Total 13,066,253
See accompanying notes to investments in securities.
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11 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Gas Utilities (0.1%)
ONEOK 48,928 $1,710,034
Health Care Equipment & Supplies (1.6%)
Alcon 9,300(c) 1,065,315
Baxter Intl 189,390 7,437,346
Boston Scientific 84,706(b) 2,452,239
Guidant 99,243 6,827,918
Hospira 40,635(b) 1,554,289
Medtronic 102,643 5,536,563
Total 24,873,670
Health Care Providers & Services (2.8%)
Aetna 21,998 1,702,645
AmerisourceBergen 16,474 1,182,668
Cardinal Health 170,032 10,130,507
CIGNA 16,885 1,802,474
HCA 242,155 11,926,134
HealthSouth 196,272(b) 1,052,018
Magellan Health Services 69,925(b) 2,504,714
McKesson 21,072 948,240
Medco Health Solutions 76,317(b) 3,696,795
UnitedHealth Group 157,393 8,231,654
WellPoint 6,526(b) 461,649
Total 43,639,498
Hotels, Restaurants & Leisure (0.2%)
Applebee's Intl 64,208 1,702,154
GTECH Holdings 32,726 980,471
Total 2,682,625
Household Durables (0.4%)
Centex 5,650 417,987
Fortune Brands 6,614 625,354
Harman Intl Inds 1,881 161,672
Leggett & Platt 21,366 540,346
Pulte Homes 5,796 542,622
Sony 53,100(c) 1,752,522
Tempur-Pedic Intl 164,977(b) 2,839,254
Total 6,879,757
Household Products (2.8%)
Colgate-Palmolive 98,478 5,213,425
Procter & Gamble 360,305 20,043,767
Spectrum Brands 610,210(b) 18,916,510
Total 44,173,702
Common Stocks (continued)
Issuer Shares Value(a)
Industrial Conglomerates (2.5%)
3M 20,624 $1,546,800
General Electric 578,112 19,944,864
Tyco Intl 554,264(c) 16,888,424
Total 38,380,088
Insurance (3.7%)
ACE 243,468(c) 11,250,656
AFLAC 47,433 2,139,228
Allstate 20,165 1,235,308
American Intl Group 455,744 27,435,789
Assurant 21,150 781,493
Chubb 64,770 5,752,871
Endurance Specialty Holdings 36,019(c) 1,404,741
First American 27,136 1,192,627
Hartford Financial Services Group 33,324 2,684,915
Montpelier Re Holdings 12,101(c) 434,668
State Auto Financial 77,788 2,446,433
United America Indemnity Cl A 9,883(b,c) 181,155
Total 56,939,884
Internet & Catalog Retail (0.3%)
eBay 115,102(b) 4,808,962
Internet Software & Services (0.8%)
Google Cl A 34,413(b) 9,902,685
Yahoo! 64,892(b) 2,163,499
Total 12,066,184
IT Services (0.6%)
Accenture Cl A 65,124(b,c) 1,630,705
Affiliated Computer Services Cl A 65,566(b) 3,276,333
Automatic Data Processing 21,183 940,737
First Data 7,613 313,199
Infosys Technologies ADR 8,257(c) 587,733
Ness Technologies 42,993(b,c) 429,930
Paychex 36,092 1,259,972
Satyam Computer Services ADR 20,765(c) 593,464
Total 9,032,073
Leisure Equipment & Products (0.1%)
Mattel 51,659 963,440
Machinery (0.5%)
Caterpillar 62,655 3,377,731
Illinois Tool Works 23,710 2,030,762
Ingersoll-Rand Cl A 11,944(c) 933,662
ITT Inds 8,804 936,746
Total 7,278,901
See accompanying notes to investments in securities.
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12 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Media (6.9%)
Clear Channel Communications 25,453 $830,786
Comcast Cl A 339,366(b) 10,428,717
Comcast Special Cl A 105,129(b) 3,153,870
EchoStar Communications Cl A 32,363 929,465
Gannett 12,256 894,198
Liberty Global Cl A 46,713(b) 2,216,065
Liberty Media Cl A 482,881(b) 4,244,524
McGraw-Hill Companies 17,243 793,350
News Corp Cl A 120,527 1,974,232
NTL 712,427(b) 47,469,011
Omnicom Group 8,406 713,417
Reader's Digest Assn 33,909 550,682
Time Warner 361,370(b) 6,150,517
Tribune 72,919 2,661,544
Univision Communications Cl A 14,712(b) 416,055
Viacom Cl B 231,973 7,768,776
Vivendi Universal ADR 346,059(c) 10,997,755
Walt Disney 208,297 5,340,735
Total 107,533,699
Metals & Mining (1.0%)
Alcan 31,738(c) 1,072,110
Alcoa 79,085 2,218,334
Barrick Gold 3,921(c) 96,065
Coeur d'Alene Mines 804,721(b) 2,856,760
Glamis Gold 48,447(b,c) 846,369
Harmony Gold Mining ADR 72,268(c) 592,598
Kinross Gold 111,924(b,c) 622,297
Newmont Mining 168,531 6,328,338
PAN American Silver 6,200(b,c) 98,270
Stillwater Mining 48,183(b) 393,173
Total 15,124,314
Multi-Utilities & Unregulated Power (0.5%)
Dominion Resources 77,642 5,734,638
Duke Energy 43,153 1,274,740
Total 7,009,378
Multiline Retail (1.2%)
Dollar General 30,530 620,370
Federated Dept Stores 39,067 2,964,013
JC Penney 83,224 4,672,195
Kohl's 96,668(b) 5,447,242
Target 98,138 5,765,608
Total 19,469,428
Office Electronics (0.1%)
Xerox 103,982(b) 1,373,602
Common Stocks (continued)
Issuer Shares Value(a)
Oil & Gas (6.3%)
Anadarko Petroleum 108,326 $9,570,602
BP ADR 70,751(c) 4,661,076
Burlington Resources 10,437 669,116
Chevron 293,190 17,007,952
ConocoPhillips 320,951 20,088,323
Devon Energy 38,197 2,142,470
Exxon Mobil 588,282 34,561,568
Marathon Oil 32,585 1,901,661
Newfield Exploration 52,031(b) 2,210,797
Occidental Petroleum 16,023 1,318,372
Royal Dutch Shell Cl A ADR 21,960(b,c) 1,345,709
Valero Energy 24,935 2,064,119
Total 97,541,765
Paper & Forest Products (0.4%)
Bowater 50,701 1,714,201
Intl Paper 75,200 2,376,320
Weyerhaeuser 24,409 1,683,733
Total 5,774,254
Personal Products (1.6%)
Avon Products 189,783 6,207,802
Gillette 346,990 18,622,953
Total 24,830,755
Pharmaceuticals (6.3%)
Abbott Laboratories 156,775 7,310,418
AstraZeneca 19,021(c) 859,585
Bristol-Myers Squibb 268,789 6,714,349
Eli Lilly & Co 51,687 2,911,012
GlaxoSmithKline ADR 59,322(c) 2,814,236
IVAX 200(b) 5,096
Johnson & Johnson 281,978 18,035,313
Merck & Co 179,853 5,586,234
Novartis ADR 146,528(c) 7,137,379
Pfizer 1,128,684 29,910,125
Roche Holding 32,920(c) 4,464,695
Schering-Plough 259,205 5,396,648
Wyeth 141,770 6,485,978
Total 97,631,068
Real Estate Investment Trust (0.6%)
Apartment Investment
& Management Cl A 31,892 1,403,248
Equity Office Properties Trust 100,035 3,546,240
HomeBanc 360,044 3,261,999
Jer Investors Trust 30,271(b) 559,408
Total 8,770,895
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
13 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Road & Rail (0.1%)
Norfolk Southern 24,962 $928,836
Semiconductors & Semiconductor Equipment (3.5%)
Analog Devices 72,157 2,828,554
Applied Materials 68,848 1,270,934
ASML Holding 31,984(b,c) 562,918
ATI Technologies 42,191(b,c) 531,185
Broadcom Cl A 108,532(b) 4,641,914
Credence Systems 69,912(b) 761,342
Cypress Semiconductor 157,828(b) 2,266,410
Freescale Semiconductor Cl A 292,496(b) 7,464,498
Freescale Semiconductor Cl B 143,448(b) 3,693,786
Intel 719,479 19,526,660
Linear Technology 47,007 1,826,692
Maxim Integrated Products 15,453 647,017
MEMC Electronic Materials 104,056(b) 1,767,911
Texas Instruments 228,088 7,244,075
Total 55,033,896
Software (2.5%)
Adobe Systems 3,883 115,092
Cadence Design Systems 118,643(b) 1,908,966
Citrix Systems 4,510(b) 107,473
Compuware 19,746(b) 166,459
Electronic Arts 39,090(b) 2,251,584
Macromedia 12,986(b) 521,388
Mercury Interactive 64,752(b) 2,549,286
Microsoft 755,127 19,338,802
Novell 43,447(b) 264,158
Oracle 471,834(b) 6,407,506
Siebel Systems 309,488 2,599,699
Symantec 147,649(b) 3,243,849
Total 39,474,262
Specialty Retail (1.1%)
AutoZone 3,207(b) 312,490
Bed Bath & Beyond 14,246(b) 653,891
Best Buy 29,035 2,224,081
Circuit City Stores 12,197 222,595
Gap 51,591 1,089,086
Home Depot 162,683 7,078,338
Lowe's Companies 34,159 2,262,009
PETCO Animal Supplies 61,558(b) 1,715,621
Staples 36,218 824,684
Total 16,382,795
Textiles, Apparel & Luxury Goods (0.1%)
Coach 14,525(b) 509,973
Nike Cl B 12,580 1,054,204
Total 1,564,177
Common Stocks (continued)
Issuer Shares Value(a)
Thrifts & Mortgage Finance (2.3%)
BankAtlantic Bancorp Cl A 23,957 $429,789
Countrywide Financial 352,161 12,677,796
Fannie Mae 195,176 10,902,531
Freddie Mac 149,968 9,489,975
Washington Mutual 36,843 1,565,091
Total 35,065,182
Tobacco (1.4%)
Altria Group 320,988 21,493,356
Wireless Telecommunication Services (2.8%)
Hutchison Telecommunications
Intl ADR 105,422(b,c) 1,796,391
Millicom Intl Cellular 63,718(b,c) 1,353,370
NeuStar Cl A 19,532(b) 546,896
Nextel Communications Cl A 778,974(b) 27,108,296
Orascom Telecom GDR 93,426(c) 4,542,372
Turkcell Iletisim Hizmetleri ADR 83,247(c) 1,145,479
Vodafone Group ADR 267,704(c) 6,914,794
Total 43,407,598
Total Common Stocks
(Cost: $1,406,369,997) $1,504,302,535
Short-Term Securities (5.8%)(e)
Issuer Effective Amount Value(a)
yield payable at
maturity
U.S. Government Agency (1.0%)
Federal Home Loan Bank Disc Nt
08-19-05 3.21% $15,000,000(f) $14,972,001
Commercial Paper (4.8%)
Chariot Funding LLC
08-26-05 3.45 15,000,000 14,959,867
Citigroup Funding
08-01-05 3.31 19,800,000 19,794,538
FCAR Owner Trust I
08-04-05 3.27 10,000,000 9,994,550
Natl Australia Funding
08-08-05 3.27 10,000,000(f) 9,990,917
Sheffield Receivables
08-22-05 3.41 20,000,000(f) 19,954,666
Total 74,694,538
Total Short-Term Securities
(Cost: $89,674,831) $89,666,539
Total Investments in Securities
(Cost: $1,496,044,828)(g) $1,593,969,074
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
14 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
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. At July 31, 2005, the
value of foreign securities represented 8.4% of net assets.
(d) At July 31, 2005, security was partially or fully on loan. See Note 5 to
the financial statements.
(e) Cash collateral received from security lending activity is invested in
short-term securities and represents 2.2% of net assets. See Note 5 to the
financial statements. 3.6% of net assets is the Fund's cash equivalent
position.
(f) 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. These securities may
be resold in transactions exempt from registration, normally to qualified
institutional buyers. At July 31, 2005, the value of these securities
amounted to $44,917,584 or 2.9% of net assets.
(g) At July 31, 2005, the cost of securities for federal income tax purposes
was $1,524,155,705 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 98,862,905
Unrealized depreciation (29,049,536)
-----------
Net unrealized appreciation $ 69,813,369
------------
The Global Industry Classification Standard (GICS) was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's, a division of The McGraw-Hill Companies, Inc.
How to find information about the Fund's portfolio holdings
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/investments.
- --------------------------------------------------------------------------------
15 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Large Cap Equity Fund
July 31, 2005
Assets
Investments in securities, at value (Note 1)*
(identified cost $1,496,044,828) $1,593,969,074
Capital shares receivable 183,393
Expense reimbursement receivable from
Ameriprise Financial (formerly AEFC) 854,035
Dividends and accrued interest receivable 1,474,567
Receivable for investment securities sold 25,448,033
----------
Total assets 1,621,929,102
-------------
Liabilities
Disbursements in excess of cash on demand deposit 574,129
Capital shares payable 233,627
Payable for investment securities purchased 32,555,009
Payable upon return of securities loaned (Note 5) 34,147,000
Accrued investment management services fee 25,327
Accrued distribution fee 20,384
Accrued service fee 1
Accrued transfer agency fee 5,066
Accrued administrative services fee 2,066
Other accrued expenses 290,046
-------
Total liabilities 67,852,655
----------
Net assets applicable to outstanding capital stock $1,554,076,447
==============
Represented by
Capital stock -- $.01 par value (Note 1) $ 2,973,060
Additional paid-in capital 2,430,766,764
Undistributed net investment income 4,353,601
Accumulated net realized gain (loss) (Note 8) (981,941,224)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 97,924,246
----------
Total -- representing net assets applicable to outstanding capital stock $1,554,076,447
==============
Net assets applicable to outstanding shares: Class A $1,030,109,387
Class B $ 471,864,336
Class C $ 9,284,115
Class I $ 42,610,172
Class Y $ 208,437
Net asset value per share of outstanding capital stock: Class A shares 195,824,050 $ 5.26
Class B shares 91,616,485 $ 5.15
Class C shares 1,799,299 $ 5.16
Class I shares 8,026,676 $ 5.31
Class Y shares 39,442 $ 5.28
------ --------------
* Including securities on loan, at value (Note 5) $ 32,867,866
--------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Statement of operations
AXP Large Cap Equity Fund
Year ended July 31, 2005
Investment income
Income:
Dividends $ 31,753,996
Interest 871,611
Fee income from securities lending (Note 5) 227,206
Less foreign taxes withheld (304,627)
--------
Total income 32,548,186
----------
Expenses (Note 2):
Investment management services fee 9,680,873
Distribution fee
Class A 2,866,767
Class B 5,272,525
Class C 101,520
Transfer agency fee 3,572,606
Incremental transfer agency fee
Class A 253,892
Class B 214,592
Class C 4,181
Service fee -- Class Y 3,664
Administrative services fees and expenses 860,387
Compensation of board members 17,545
Custodian fees 296,060
Printing and postage 626,976
Registration fees 42,760
Audit fees 30,000
Other 67,503
------
Total expenses 23,911,851
Expenses waived/reimbursed by Ameriprise Financial (formerly AEFC) (Note 2) (859,581)
--------
23,052,270
Earnings credits on cash balances (Note 2) (59,729)
-------
Total net expenses 22,992,541
----------
Investment income (loss) -- net 9,555,645
---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 81,303,618
Foreign currency transactions (8,433)
------
Net realized gain (loss) on investments 81,295,185
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 128,747,672
-----------
Net gain (loss) on investments and foreign currencies 210,042,857
-----------
Net increase (decrease) in net assets resulting from operations $219,598,502
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
17 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Statements of changes in net assets
AXP Large Cap Equity Fund
Year ended July 31, 2005 2004
Operations and distributions
Investment income (loss) -- net $ 9,555,645 $ 401,719
Net realized gain (loss) on investments 81,295,185 12,441,166
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 128,747,672 (66,709,001)
----------- -----------
Net increase (decrease) in net assets resulting from operations 219,598,502 (53,866,116)
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (5,100,612) (190,447)
Class I (205,016) --
Class Y (42,646) (99)
Net realized gain
Class A (1,579,848) (10,249,150)
Class B (746,323) (4,251,044)
Class C (14,219) (267,748)
Class I (38,374) (411,555)
Class Y (10,290) (29,079)
------- -------
Total distributions (7,737,328) (15,399,122)
---------- -----------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 72,128,244 303,658,868
Class B shares 33,166,584 83,846,079
Class C shares 1,679,423 5,258,048
Class I shares 35,280,636 20,944,518
Class Y shares 569,613 8,142,956
Fund merger (Note 7)
Class A shares -- 942,709,419
Class B shares -- 589,683,135
Class C shares -- 4,576,296
Class Y shares -- 11,200
Reinvestment of distributions at net asset value
Class A shares 6,565,939 10,345,503
Class B shares 737,490 4,192,636
Class C shares 13,859 257,935
Class I shares 243,352 411,300
Class Y shares 52,860 28,728
Payments for redemptions
Class A shares (438,987,389) (50,748,072)
Class B shares (Note 2) (197,466,065) (115,514,441)
Class C shares (Note 2) (4,548,807) (911,625)
Class I shares (11,054,445) (5,803,591)
Class Y shares (8,498,540) (413,179)
---------- --------
Increase (decrease) in net assets from capital share transactions (510,117,246) 1,800,675,713
------------ -------------
Total increase (decrease) in net assets (298,256,072) 1,731,410,475
Net assets at beginning of year 1,852,332,519 120,922,044
------------- -----------
Net assets at end of year $1,554,076,447 $1,852,332,519
============== ==============
Undistributed net investment income $ 4,353,601 $ 209,548
-------------- --------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Notes to Financial Statements
AXP Large Cap Equity Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth 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
companies with a market capitalization greater than $5 billion at the time of
purchase.
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 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.
The Fund offers an additional class of shares, Class I, exclusively to certain
institutional investors. Class I shares have no sales charge and are made
available through a separate prospectus supplement provided to investors
eligible to purchase the shares. At July 31, 2005, Ameriprise Financial, Inc.
(Ameriprise Financial) (formerly American Express Financial Corporation) and the
AXP Portfolio Builder Funds owned 100% of Class I shares, which represents 2.74%
of the Fund's net assets.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, transfer agency fees 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 U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent 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.
Pursuant to procedures adopted by the Board of Directors of the funds,
Ameriprise Financial utilizes Fair Value Pricing (FVP). FVP determinations are
made in good faith in accordance with these procedures. If a development or
event is so significant that there is a reasonably high degree of certainty that
the effect of the development or event has
- --------------------------------------------------------------------------------
19 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
actually caused the closing price to no longer reflect the actual value, the
closing prices, as determined at the close of the applicable foreign market, may
be adjusted to reflect the fair value of the affected foreign securities as of
the close of the New York Stock Exchange. Significant events include material
movements in the U.S. securities markets prior to the opening of foreign markets
on the following trading day. FVP results in an estimated price that reasonably
reflects the current market conditions in order to value the portfolio holdings
such that shareholder transactions receive a fair net asset value. 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.
- --------------------------------------------------------------------------------
20 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
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. 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.
Guarantees and indemnifications
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
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.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $63,318
and accumulated net realized loss has been decreased by $110,548 resulting in a
net reclassification adjustment to decrease paid-in capital by $47,230.
- --------------------------------------------------------------------------------
21 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
The tax character of distributions paid for the years indicated is as follows:
Year ended July 31, 2005 2004
Class A
Distributions paid from:
Ordinary income $5,588,051 $9,388,916
Long-term capital gain 1,092,409 1,050,681
Class B
Distributions paid from:
Ordinary income 230,260 3,818,774
Long-term capital gain 516,063 432,270
Class C
Distributions paid from:
Ordinary income 4,387 240,898
Long-term capital gain 9,832 26,850
Class I*
Distributions paid from:
Ordinary income 216,856 350,249
Long-term capital gain 26,534 61,306
Class Y
Distributions paid from:
Ordinary income 45,820 25,037
Long-term capital gain 7,116 4,141
* Inception date is March 4, 2004.
At July 31, 2005, the components of distributable earnings on a tax basis are as
follows:
Undistributed ordinary income $ 4,346,177
Accumulated long-term gain (loss) $(953,822,923)
Unrealized appreciation (depreciation) $ 69,813,369
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 amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
22 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, RiverSource Investments, LLC
(the Investment Manager) determines which securities will be purchased, held or
sold. Prior to Oct. 1, 2005, investment management services were provided by
Ameriprise Financial. The management fee is a percentage of the Fund's average
daily net assets that declines from 0.60% to 0.48% annually as the Fund's assets
increase. 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 the
Fund to the Lipper Large-Cap Core Funds Index. In certain circumstances, the
board may approve a change in the index. The maximum adjustment is 0.12% per
year. If the performance difference is less than 0.50%, the adjustment will be
zero. The adjustment decreased the fee by $414,150 for the year ended July 31,
2005.
Under the current Administrative Services Agreement, the Fund pays Ameriprise
Financial a fee for administration and accounting services at a percentage of
the Fund's average daily net assets that declines from 0.05% to 0.02% annually
as the Fund's assets increase. It is expected that the fee schedule to the
agreement will be revised effective Oct. 1, 2005. Under the new agreement, the
fee percentage of the Fund's average daily net assets will decline from 0.06% to
0.03% annually as the Fund's assets increase. 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.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, RiverSource Service Corporation
(formerly American Express Client Service Corporation) (the Transfer Agent)
maintains shareholder accounts and records. The Fund pays the Transfer Agent an
annual fee per shareholder account for this service as follows:
o Class A $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the fee for Class Y.
Class I pays a transfer agency fee at an annual rate per shareholder account of
$1. This amount is included in the transfer agency fee on the statement of
operations.
Beginning May 20, 2005, the Transfer Agent implemented an annual closed account
fee of $5 per inactive account, charged on a pro rata basis for 12 months from
the date the account becomes inactive. These fees were insignificant for the
year ended July 31, 2005 and are included in the transfer agency fees on the
statement of operations.
- --------------------------------------------------------------------------------
23 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
The Fund has agreements with Ameriprise Financial Services, Inc. (formerly
American Express Financial Advisors Inc.) (the Distributor) for distribution and
shareholder services. Under a Plan and Agreement of Distribution pursuant to
Rule 12b-1, the Fund pays a 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 pays the Distributor 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 the Distributor for distributing Fund shares were
$1,317,619 for Class A, $379,665 for Class B and $1,904 for Class C for the year
ended July 31, 2005.
For the year ended July 31, 2005, Ameriprise Financial and its affiliates waived
certain fees and expenses to 1.11% for Class A, 1.88% for Class B, 1.88% for
Class C, 0.65% for Class I and 0.90% for Class Y. Previously, Ameriprise
Financial had contractually agreed to reduce its management fee by 0.05% through
July 31, 2005. The agreement expired on July 31, 2005 and will not be extended.
During the year ended July 31, 2005, the Fund's custodian and transfer agency
fees were reduced by $59,729 as a result of earnings credits from overnight cash
balances. The Fund also pays custodian fees to Ameriprise Trust Company
(formerly American Express Trust Company), an affiliate of Ameriprise Financial.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $2,148,464,097 and $2,681,141,359, respectively, for the
year ended July 31, 2005. Realized gains and losses are determined on an
identified cost basis.
Brokerage clearing fees paid to brokers affiliated with Ameriprise Financial
were $10,214 for the year ended July 31, 2005.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2005
Class A Class B Class C Class I Class Y
Sold 14,871,934 6,952,759 351,747 7,088,316 117,456
Issued for reinvested distributions 1,331,830 152,060 2,852 49,063 10,679
Redeemed (89,223,978) (40,853,895) (942,228) (2,204,982) (1,698,241)
----------- ----------- -------- ---------- ----------
Net increase (decrease) (73,020,214) (33,749,076) (587,629) 4,932,397 (1,570,106)
----------- ----------- -------- --------- ----------
Year ended July 31, 2004
Class A Class B Class C Class I* Class Y
Sold 63,776,788 17,608,704 1,105,201 4,261,085 1,674,757
Fund merger 195,139,277 124,164,313 961,940 -- 2,310
Issued for reinvested distributions 2,127,178 875,289 53,736 83,939 5,876
Redeemed (10,573,028) (25,212,059) (190,776) (1,250,745) (86,872)
----------- ----------- -------- ---------- -------
Net increase (decrease) 250,470,215 117,436,247 1,930,101 3,094,279 1,596,071
----------- ----------- --------- --------- ---------
* Inception date is March 4, 2004.
- --------------------------------------------------------------------------------
24 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
5. LENDING OF PORTFOLIO SECURITIES
At July 31, 2005, securities valued at $32,867,866 were on loan to brokers. For
collateral, the Fund received $34,147,000 in cash. Cash collateral received is
invested in short-term securities, which are included in the short-term section
of the "Investments in securities." Income from securities lending amounted to
$227,206 for the year ended July 31, 2005. 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 a syndicate of banks headed by
The Bank of New York, whereby the Fund may borrow for the temporary funding of
shareholder redemptions or for other temporary or emergency purposes. The
agreement went into effect Sept. 21, 2004. The Fund must maintain asset coverage
for borrowings of at least 300%. The agreement, which enables the Fund to
participate with other American Express mutual funds, permits borrowings up to
$500 million, collectively. Interest is charged to each Fund based on its
borrowings at a rate equal to either the higher of the Federal Funds Effective
Rate plus 0.50% or the Prime Lending Rate. Borrowings are payable within 60 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 0.09% per
annum. Prior to this agreement, the Fund had a revolving credit agreement that
permitted borrowings up to $500 million with Deutsche Bank. The Fund had no
borrowings outstanding during the year ended July 31, 2005.
7. FUND MERGER
At the close of business on June 25, 2004, AXP Large Cap Equity Fund acquired
the assets and assumed the identified liabilities of AXP Blue Chip Advantage
Fund and AXP Research Opportunities Fund. This reorganization was completed
after shareholders approved the plan on June 9, 2004.
The aggregate net assets of AXP Large Cap Equity Fund immediately before the
acquisition were $404,994,552 and the combined net assets immediately after the
acquisition were $1,941,974,602.
The merger was accomplished by a tax-free exchange of the following:
Shares Value
AXP Blue Chip Advantage Fund 171,778,024 $1,331,930,990
AXP Research Opportunities Fund 45,469,648 205,049,060
In exchange for the AXP Blue Chip Advantage Fund and AXP Research Opportunities
Fund shares and net assets, AXP Large Cap Equity Fund issued the following
number of shares:
Shares
Class A 195,139,277
Class B 124,164,313
Class C 961,940
Class Y 2,310
- --------------------------------------------------------------------------------
25 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
AXP Blue Chip Advantage Fund's and AXP Research Opportunities Fund's net assets
after adjustments for any permanent book-to-tax differences at the merger date
were as follows, which include the following amounts of capital stock,
unrealized appreciation and accumulated net realized loss.
Total Capital Unrealized Accumulated
net assets stock appreciation net realized loss
AXP Blue Chip Advantage Fund $1,331,930,990 $2,300,150,539 $20,542,743 $(988,762,292)
AXP Research Opportunities Fund 205,049,060 265,819,324 9,544,965 (70,315,229)
8. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$953,822,923 as of July 31, 2005, that if not offset by capital gains will
expire as follows:
2008 2009 2010 2011
$506,643,917 $416,711,846 $20,988,174 $9,478,986
It is unlikely the board will authorize a distribution of any net realized
capital gains until the available capital loss carry-over has been offset or
expires.
- --------------------------------------------------------------------------------
26 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
9. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
Class A
Per share income and capital changes(a)
Fiscal period ended July 31, 2005 2004 2003 2002(b)
Net asset value, beginning of period $4.64 $4.53 $4.11 $5.00
----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .04 .01 .01 --
Net gains (losses) (both realized and unrealized) .61 .32 .41 (.89)
----- ----- ----- -----
Total from investment operations .65 .33 .42 (.89)
----- ----- ----- -----
Less distributions:
Dividends from net investment income (.02) -- -- --
Distributions from realized gains (.01) (.22) -- --
----- ----- ----- -----
Total distributions (.03) (.22) -- --
----- ----- ----- -----
Net asset value, end of period $5.26 $4.64 $4.53 $4.11
----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $1,030 $1,248 $83 $11
Ratio of expenses to average daily net assets(c),(d) 1.11% 1.20% 1.25% 1.25%(e)
Ratio of net investment income (loss) to average daily net assets .79% .36% .24% (.11%)(e)
Portfolio turnover rate (excluding short-term securities) 128% 99% 135% 88%
Total return(f) 13.99% 7.19% 10.22% (17.80%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had
Ameriprise Financial not done so, the annual ratios of expenses for Class A
would have been 1.16%, 1.23%, 1.84% and 5.12% for the periods ended July
31, 2005, 2004, 2003 and 2002, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
27 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2005 2004 2003 2002(b)
Net asset value, beginning of period $4.56 $4.48 $4.10 $5.00
----- ----- ----- -----
Income from investment operations:
Net investment income (loss) -- (.01) (.01) (.01)
Net gains (losses) (both realized and unrealized) .60 .31 .39 (.89)
----- ----- ----- -----
Total from investment operations .60 .30 .38 (.90)
----- ----- ----- -----
Less distributions:
Distributions from realized gains (.01) (.22) -- --
----- ----- ----- -----
Net asset value, end of period $5.15 $4.56 $4.48 $4.10
----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $472 $572 $36 $5
Ratio of expenses to average daily net assets(c),(d) 1.88% 1.95% 2.01% 2.01%(e)
Ratio of net investment income (loss) to average daily net assets .02% (.46%) (.52%) (.86%)(e)
Portfolio turnover rate (excluding short-term securities) 128% 99% 135% 88%
Total return(f) 13.09% 6.48% 9.27% (18.00%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had
Ameriprise Financial not done so, the annual ratios of expenses for Class B
would have been 1.93%, 1.98%, 2.60% and 5.88% for the periods ended July
31, 2005, 2004, 2003 and 2002, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
28 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2005 2004 2003 2002(b)
Net asset value, beginning of period $4.57 $4.49 $4.10 $5.00
----- ----- ----- -----
Income from investment operations:
Net investment income (loss) -- (.01) (.01) (.01)
Net gains (losses) (both realized and unrealized) .60 .31 .40 (.89)
----- ----- ----- -----
Total from investment operations .60 .30 .39 (.90)
----- ----- ----- -----
Less distributions:
Distributions from realized gains (.01) (.22) -- --
----- ----- ----- -----
Net asset value, end of period $5.16 $4.57 $4.49 $4.10
----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $9 $11 $2 $--
Ratio of expenses to average daily net assets(c),(d) 1.88% 1.98% 2.01% 2.01%(e)
Ratio of net investment income (loss) to average daily net assets .02% (.43%) (.53%) (.92%)(e)
Portfolio turnover rate (excluding short-term securities) 128% 99% 135% 88%
Total return(f) 13.06% 6.46% 9.51% (18.00%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had
Ameriprise Financial not done so, the annual ratios of expenses for Class C
would have been 1.93%, 2.01%, 2.60% and 5.88% for the periods ended July
31, 2005, 2004, 2003 and 2002, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
29 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Class I
Per share income and capital changes(a)
Fiscal period ended July 31, 2005 2004(b)
Net asset value, beginning of period $4.67 $5.08
----- -----
Income from investment operations:
Net investment income (loss) .05 --
Net gains (losses) (both realized and unrealized) .63 (.28)
----- -----
Total from investment operations .68 (.28)
----- -----
Less distributions:
Dividends from net investment income (.03) --
Distributions from realized gains (.01) (.13)
----- -----
Total distributions (.04) (.13)
----- -----
Net asset value, end of period $5.31 $4.67
----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $43 $14
Ratio of expenses to average daily net assets(c),(d) .65% .71%(e)
Ratio of net investment income (loss) to average daily net assets 1.24% .74%(e)
Portfolio turnover rate (excluding short-term securities) 128% 99%
Total return(f) 14.64% (5.65%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was March 4, 2004.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had
Ameriprise Financial not done so, the annual ratios of expenses for Class I
would have been 0.70% and 0.72% for the periods ended July 31, 2005 and
2004, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
30 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2005 2004 2003 2002(b)
Net asset value, beginning of period $4.66 $4.54 $4.11 $5.00
----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .04 .01 .01 --
Net gains (losses) (both realized and unrealized) .61 .34 .42 (.89)
----- ----- ----- -----
Total from investment operations .65 .35 .43 (.89)
----- ----- ----- -----
Less distributions:
Dividends from net investment income (.02) (.01) -- --
Distributions from realized gains (.01) (.22) -- --
----- ----- ----- -----
Total distributions (.03) (.23) -- --
----- ----- ----- -----
Net asset value, end of period $5.28 $4.66 $4.54 $4.11
----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $-- $8 $-- $--
Ratio of expenses to average daily net assets(c),(d) .90% 1.00% 1.07% 1.07%(e)
Ratio of net investment income (loss) to average daily net assets 1.08% .50% .45% .09%(e)
Portfolio turnover rate (excluding short-term securities) 128% 99% 135% 88%
Total return(f) 14.06% 7.44% 10.46% (17.80%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had
Ameriprise Financial not done so, the annual ratios of expenses for Class Y
would have been 0.95%, 1.03%, 1.66% and 4.94% for the periods ended July
31, 2005, 2004, 2003 and 2002, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
31 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Report of Independent
Registered Public Accounting Firm
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Large Cap Equity Fund (a
series of AXP Growth Series, Inc.) as of July 31, 2005, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period ended July 31, 2005, and the financial
highlights for each of the years in the three-year period ended July 31, 2005
and for the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002. These financial statements and the financial highlights are
the responsibility of fund management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2005, by correspondence with the custodian and
brokers or by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AXP
Large Cap Equity Fund as of July 31, 2005, and the results of its operations,
changes in its net assets and the financial highlights for each of the periods
stated in the first paragraph above, in conformity with U.S. generally accepted
accounting principles.
KPMG LLP
Minneapolis, Minnesota
September 20, 2005
- --------------------------------------------------------------------------------
32 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
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 Large Cap Equity Fund
Fiscal year ended July 31, 2005
Class A
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 91.96%
Dividends Received Deduction for corporations 91.46%
Payable date Per share
Dec. 20, 2004 $0.02282
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.00446
Total distributions $0.02728
Class B
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 91.96%
Dividends Received Deduction for corporations 91.46%
Payable date Per share
Dec. 20, 2004 $0.00199
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.00446
Total distributions $0.00645
Class C
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 91.96%
Dividends Received Deduction for corporations 91.46%
Payable date Per share
Dec. 20, 2004 $0.00199
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.00446
Total distributions $0.00645
- --------------------------------------------------------------------------------
33 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Class I
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 91.96%
Dividends Received Deduction for corporations 91.46%
Payable date Per share
Dec. 20, 2004 $0.03645
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.00446
Total distributions $0.04091
Class Y
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 91.96%
Dividends Received Deduction for corporations 91.46%
Payable date Per share
Dec. 20, 2004 $0.02872
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.00446
Total distributions $0.03318
- --------------------------------------------------------------------------------
34 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Fund Expenses Example
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including management fees; distribution and service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended July 31, 2005.
Actual Expenses
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
35 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Beginning Ending Expenses
account value account value paid during Annualized
Feb. 1, 2005 July 31, 2005 the period(a) expense ratio
Class A
Actual(b) $1,000 $1,058.30 $5.75(c) 1.14%(d)
Hypothetical (5% return before expenses) $1,000 $1,018.93 $5.64(c) 1.14%(d)
Class B
Actual(b) $1,000 $1,055.30 $9.63(c) 1.91%(d)
Hypothetical (5% return before expenses) $1,000 $1,015.15 $9.44(c) 1.91%(d)
Class C
Actual(b) $1,000 $1,055.20 $9.63(c) 1.91%(d)
Hypothetical (5% return before expenses) $1,000 $1,015.15 $9.44(c) 1.91%(d)
Class I
Actual(b) $1,000 $1,062.00 $3.44(c) .68%(d)
Hypothetical (5% return before expenses) $1,000 $1,021.19 $3.37(c) .68%(d)
Class Y
Actual(b) $1,000 $1,060.20 $4.70(c) .93%(d)
Hypothetical (5% return before expenses) $1,000 $1,019.96 $4.61(c) .93%(d)
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 179/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended July 31, 2005: +5.83%
for Class A, +5.53% for Class B, +5.52% for Class C, +6.20% for Class I and
+6.02% for Class Y.
(c) Pending final approval from the Fund's Board of Directors, it is expected
that, effective Oct. 1, 2005, the fee schedule under the Administrative
Services Agreement between Ameriprise Financial and the Fund will be
revised. If the revised fee schedule under the Administrative Services
Agreement had been in place for the entire six-month period ended July 31,
2005, the actual expenses paid would have been $5.80 for Class A, $9.68 for
Class B, $9.68 for Class C, $3.49 for Class I and $4.75 for Class Y; the
hypothetical expenses paid would have been $5.69 for Class A, $9.49 for
Class B, $9.49 for Class C, $3.42 for Class I and $4.66 for Class Y.
(d) Previously, Ameriprise Financial had contractually agreed to reduce its
management fee by 0.05% through July 31, 2005. The agreement expired on
July 31, 2005 and will not be extended. The waiver of management fees is
reflected in the expenses shown above.
- --------------------------------------------------------------------------------
36 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees 14
Master Trust portfolios and 90 American Express mutual funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the board.
Independent Board Members
Name, address, age Position held Principal occupation Other directorships
with Fund and during past five
length of years
service
- --------------------------------------- ----------------- ---------------------- --------------------------------
Arne H. Carlson Board member Chair, Board
901 S. Marquette Ave. since 1999 Services Corporation
Minneapolis, MN 55402 (provides
Age 70 administrative
services to boards).
Former Governor
of Minnesota
- --------------------------------------- ----------------- ---------------------- --------------------------------
Philip J. Carroll, Jr. Board member Retired Chairman and Scottish Power PLC, Vulcan
901 S. Marquette Ave. since 2002 CEO, Fluor Corporation Materials Company, Inc.
Minneapolis, MN 55402 (engineering and (construction
Age 67 construction) since materials/chemicals)
1998
- --------------------------------------- ----------------- ---------------------- --------------------------------
Livio D. DeSimone* Board member Retired Chair of the Cargill, Incorporated
30 Seventh Street East since 2001 Board and (commodity merchants and
Suite 3050 St. Paul, MN Chief Executive processors), General Mills,
55101-4901 Officer, Minnesota Inc. (consumer foods), Vulcan
Age 71 Mining and Materials Company (construction
Manufacturing (3M) materials/chemicals), Milliken &
Company (textiles and chemicals),
and Nexia Biotechnologies, Inc.
- --------------------------------------- ----------------- ---------------------- --------------------------------
Patricia M. Flynn Board member Trustee Professor of BostonFed Bancorp, Inc.
901 S. Marquette Ave. since 2004 Economics and (holding company) and its
Minneapolis, MN 55402 Management, Bentley subsidiary Boston Federal
Age 54 College since 2002; Savings Bank
former Dean,
McCallum Graduate
School of Business,
Bentley College from
1999 to 2002
- --------------------------------------- ----------------- ---------------------- --------------------------------
Anne P. Jones Board member Attorney and
901 S. Marquette Ave. since 1985 Consultant
Minneapolis, MN 55402
Age 70
- --------------------------------------- ----------------- ---------------------- --------------------------------
Stephen R. Lewis, Jr. Board member Retired President Valmont Industries, Inc.
901 S. Marquette Ave. since 2002 and Professor of (manufactures irrigation
Minneapolis, MN 55402 Economics, Carleton systems)
Age 66 College
- --------------------------------------- ----------------- ---------------------- --------------------------------
* Livio D. DeSimone retired as a member of the Board, effective Sept. 8,
2005.
- --------------------------------------------------------------------------------
37 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held Principal occupation Other directorships
with Fund and during past five
length of service years
- -------------------------------------- ------------------ ---------------------- --------------------------------
Catherine James Paglia Board member Director, Enterprise Strategic Distribution, Inc.
901 S. Marquette Ave. since 2004 Asset Management, (transportation, distribution
Minneapolis, MN 55402 Inc. (private real and logistics consultants)
Age 52 estate and asset
management company)
since 1999
- -------------------------------------- ------------------ ---------------------- --------------------------------
Alan K. Simpson Board member Former three-term
1201 Sunshine Ave. since 1997 United States
Cody, WY 82414 Senator for Wyoming
Age 73
- -------------------------------------- ------------------ ---------------------- --------------------------------
Alison Taunton-Rigby Board member Founder and Chief Hybridon, Inc. (biotechnology)
901 S. Marquette Ave. since 2002 Executive Officer,
Minneapolis, MN 55402 RiboNovix, Inc.
Age 61 since 2004;
President, Forester
Biotech since 2000;
prior to that,
President and CEO,
Aquila
Biopharmaceuticals,
Inc.
- -------------------------------------- ------------------ ---------------------- --------------------------------
Board Member Affiliated with Ameriprise Financial, Inc. (formerly AEFC)**
Name, address, age Position held Principal occupation Other directorships
with Fund and during past five
length of service years
- -------------------------------------- ------------------ ---------------------- --------------------------------
William F. Truscott Board member Senior Vice
53600 Ameriprise Financial Center since 2001, President - Chief
Minneapolis, MN 55474 Vice President Investment Officer
Age 44 since 2002 of Ameriprise
Financial, Inc. and
RiverSource
Investments, LLC
since 2001. Former
Chief Investment
Officer and Managing
Director, Zurich
Scudder Investments
- -------------------------------------- ------------------ ---------------------- --------------------------------
** Interested person by reason of being an officer, director and/or employee of
Ameriprise Financial, Inc. (formerly American Express Financial Corporation)
or of RiverSource Investments, LLC, its wholly owned subsidiary.
- --------------------------------------------------------------------------------
38 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the board. In addition to Mr. Truscott, who is vice president, the
Fund's other officers are:
Other Officers
Name, address, age Position held Principal occupation Other directorships
with Fund and during past five
length of service years
- -------------------------------------- ------------------ ---------------------- --------------------------------
Jeffrey P. Fox Treasurer Vice President -
105 Ameriprise Financial Center since 2002 Investment
Minneapolis, MN 55474 Accounting,
Age 50 Ameriprise
Financial, Inc.,
since 2002; Vice
President - Finance,
American Express
Company, 2000-2002;
Vice President -
Corporate
Controller,
Ameriprise
Financial, Inc.,
1996-2000
- -------------------------------------- ------------------ ---------------------- --------------------------------
Paula R. Meyer President Senior Vice President
596 Ameriprise Financial Center since 2002 and General Manager -
Minneapolis, MN 55474 Mutual Funds,
Age 51 Ameriprise
Financial, Inc.,
since 2002 and
Senior Vice
President,
RiverSource
Investments, LLC
since 2004; Vice
President and
Managing Director -
American Express
Funds, Ameriprise
Financial, Inc.,
2000-2002;
Vice President,
Ameriprise
Financial, Inc.,
1998-2000
- -------------------------------------- ------------------ ---------------------- --------------------------------
Leslie L. Ogg Vice President, President of Board
901 S. Marquette Ave. General Counsel, Services Corporation
Minneapolis, MN 55402 and Secretary
Age 66 since 1978
- -------------------------------------- ------------------ ---------------------- --------------------------------
Beth E. Weimer Chief Compliance Vice President and
172 Ameriprise Financial Center Officer since Chief Compliance
Minneapolis, MN 55474 2004 Officer, Ameriprise
Age 52 Financial, Inc.,
since 2001 and Chief
Compliance Officer,
RiverSource
Investments, LLC
since 2005; Vice
President and
Chief Compliance
Officer, Ameriprise
Financial Services,
Inc. (formerly
American Express
Financial Advisors),
2001-2005; Partner,
Arthur Andersen
Regulatory Risk
Services, 1998-2001
- -------------------------------------- ------------------ ---------------------- --------------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
- --------------------------------------------------------------------------------
39 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Approval of Investment Management Services Agreement
Ameriprise Financial, Inc. (formerly American Express Financial Corporation or
AEFC) (the investment manager) is a wholly-owned subsidiary of American Express
Company. Under an Investment Management Services Agreement (the Agreement), the
investment manager provides investment advice and other services to the Fund.
Throughout the year, the Funds' Board of Directors and the Board's Investment
Review Committee monitor these services.
Each year the Board determines whether to continue the Agreement by evaluating
the quality and level of service received and the costs associated with those
services. The investment manager prepares detailed reports for the Board and its
Contracts Committee in March and April and provides data prepared by independent
organizations to assist the Board in making this determination. The Board gives
considerable weight to the work, deliberations and conclusions of the Contracts
and Investment Review Committees in determining whether to continue the
Agreement.
On February 1, 2005, American Express Company announced its intention to pursue
a spin-off of AEFC by distributing shares of the common stock of AEFC to
shareholders of American Express Company. At a meeting held in person on April
14, 2005, the Board, including a majority of the independent members, approved
the continuation of the Agreement for an interim period, not to exceed one year,
ending on the later of (i) the effective date of the spin-off or (ii) the
approval by the Fund's shareholders of a new investment management services
agreement with the investment manager (the Interim Period). The spin-off will
not result in an "assignment" of the Agreement under the Investment Company Act
of 1940 and, therefore, will not cause the termination of the Agreement
according to its terms. In connection with the spin-off the investment manager
has proposed that going forward, services under the Agreement be provided by an
affiliate, RiverSource Investments, LLC (RiverSource). Independent counsel
advised the Board that it would be prudent, in connection with the spin-off, to
consider a new agreement with RiverSource and to seek shareholder approval of
that agreement as soon as practical thereafter.
Investment performance is a major factor in the evaluation process, and the
Board reviewed the Fund's performance over a range of different periods by
comparing its performance to relevant Lipper and broader market indices. The
Board considered that over time the Fund's investment performance should be
above median for a peer group of funds with similar investment goals and noted
that although the Fund's investment performance in 2004 was below median, it was
consistent with the management style of the Fund in light of market conditions
in 2004.
The Board noted that, in addition to portfolio management and investment
research, the investment manager provides portfolio trading, daily net asset
value calculation, management of cash flow, product development, administration
of its compliance and legal departments, access to distribution, accounting and
recordkeeping, and reporting to the Board and shareholders. To evaluate these
services, the Board referred to surveys and benchmarks established by commercial
providers, trade associations and the investment manager's internal processes.
The Board concluded that the services provided were consistent with services
provided by investment managers to comparable mutual funds.
- --------------------------------------------------------------------------------
40 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
The Board also evaluated the price paid for the services provided by the
investment manager, noting the existence of a pricing philosophy, established by
the Board and the investment manager, that seeks to maintain total Fund expenses
within a range of the median expenses charged to comparable funds sold through
financial advisors. The Board considered detailed information set forth in an
annual report on fees and expenses, including, among other things, data showing
a comparison of the Fund's expenses with median expenses paid by funds in its
comparison group and data showing the Fund's contribution to the investment
manager's profitability. The Board determined that the total expense ratio of
the Fund is below median of its comparison group.
The Board considered the economies of scale that might be realized by the
investment manager as the Fund grew and took note of the extent to which Fund
shareholders also might benefit from such growth. The Board considered that the
Agreement provided for lower fees as assets increase at pre-established
breakpoints and concluded that the Agreement satisfactorily provided for sharing
these economies of scale.
The Board took into account the Contracts Committee's discussion comparing the
fees the investment manager charges to the Fund with those it charges to
institutional clients, noting that the relatively higher fees paid by the Fund
were principally attributable to the additional services required to manage a
regulated mutual fund, like the Fund, and the operation of a large mutual fund
family. The Board also considered the profitability realized by the investment
manager and its affiliates from its relationship with the Fund. The Board took
into account the services acquired by the investment manager through the use of
commission dollars paid by the Fund on portfolio transactions. The Board
concluded that the investment manager's overall costs and profitability were
appropriate, although profitability may be too low on an ongoing basis.
The Board noted that the fees paid by the Fund should permit the investment
manager to offer competitive compensation to its personnel, make necessary
investments in its business and earn an appropriate profit. Based on the
foregoing, the Board concluded that the fees paid to the investment manager
under the Agreement were fair and reasonable and determined to approve renewal
of the Agreement for the Interim Period.
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the website www.riversource.com/investments; or by
searching the website of the Securities and Exchange Commission (SEC) at
www.sec.gov. Information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge by calling the Fund's administrator, Board Services
Corporation, collect at (612) 330-9283; through the investment manager's
website, www.riversource.com/investments; or by searching the website of the SEC
at www.sec.gov.
- --------------------------------------------------------------------------------
41 -- AXP LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
American Express Funds
70100 Ameriprise Financial Center
Minneapolis, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
Distributed by Ameriprise Financial Services, Inc. (formerly known as American
Express Financial Advisors Inc.). Member NASD.