AXP(R)
Quantitative
Large Cap Equity
Fund
Annual Report
for the Period Ended
July 31, 2005
AXP Quantitative Large Cap Equity Fund seeks to provide shareholders with
long-term capital growth.
(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 15
Notes to Financial Statements 18
Report of Independent Registered
Public Accounting Firm 29
Federal Income Tax Information 30
Fund Expenses Example 32
Board Members and Officers 34
Approval of Investment Management
Services Agreement 37
Proxy Voting 39
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 RiverSourceSM brand.
Information regarding the new name of the Fund and other changes will be
separately communicated to shareholders.
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2 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Fund Snapshot AT JULY 31, 2005
PORTFOLIO MANAGERS
Portfolio managers Since Years in industry
Dimitris J. Bertsimas 4/03 12
Gina K. Mourtzinou 4/03 8
FUND OBJECTIVE
This Fund seeks to provide shareholders with long-term capital growth.
Inception dates by class
A: 4/24/03 B: 4/24/03 C: 4/24/03 I: 7/15/04 Y: 4/24/03
Ticker symbols by class
A: AQEAX B: -- C: -- I: ALEIX Y: --
Total net assets $119.4 million
Number of holdings 185
STYLE MATRIX
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
Shading within the style matrix indicates areas in which the Fund generally
invests.
SECTOR COMPOSITION
Percentage of portfolio assets
[PIE CHART]
Financials 16.2%
Health Care 14.3%
Energy 12.6%
Consumer Staples 11.5%
Consumer
Discretionary 10.8%
Information Technology 8.3%
Telecommunication
Services 8.2%
Industrials 6.1%
Short-Term Securities 5.5%
Utilities 5.0%
Materials 1.5%
TOP TEN HOLDINGS
Percentage of portfolio assets
Altria Group (Tobacco) 5.5%
Exxon Mobil (Oil & Gas) 4.3
Johnson & Johnson (Pharmaceuticals) 3.2
Chevron (Oil & Gas) 2.8
iShares MSCI EAFE Index Fund
(Diversified Financial Services) 2.4
SBC Communications
(Diversified Telecommunication Services) 2.3
Wal-Mart Stores (Food & Staples Retailing) 2.3
UnitedHealth Group (Health Care Providers & Services) 2.3
Citigroup (Diversified Financial Services) 2.3
Merck & Co (Pharmaceuticals) 2.0
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.
The investment process used to manage the AXP Quantitative Large Cap Equity Fund
employs new technologies and statistical methods that have not previously been
used to managed open-end mutual funds. Shareholders should be prepared for the
possibility that the Fund may underperform its benchmark. While RiverSource
Investments seeks to control trading activity, the Fund may trade more often
than other funds in its peer group. Trading activity may result in increased
fees, expenses and taxes.
Fund holdings are subject to change.
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3 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Performance Summary
[BAR CHART]
PERFORMANCE COMPARISON
For the year ended July 31, 2005
+15.95% +14.05% +12.56%
+15.95% = AXP Quantitative Large Cap Equity Fund Class A (excluding sales
charge)
+14.05% = S&P 500 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) (4/24/03) (4/24/03) (4/24/03) (7/15/04) (4/24/03)
After After
NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6)
at July 31, 2005
1 year +15.95% +9.28% +15.03% +10.03% +15.03% +14.03% +16.29% +16.25%
Since inception +16.45% +13.45% +15.47% +13.99% +15.48% +15.48% +15.00% +16.63%
at June 30, 2005
1 year +6.27% +0.15% +5.66% +0.66% +5.49% +4.49% N/A +6.72%
Since inception +15.04% +11.96% +14.17% +12.60% +14.18% +14.18% +11.41%* +15.30%
(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.
* Not annualized.
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4 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
AXP Quantitative Large Cap Equity Fund's Class A shares gained 15.95%, excluding
sales charge, for the 12 months ended July 31, 2005. The Fund outperformed the
Lipper Large-Cap Core Funds Index, representing the Fund's peer group, which
returned 12.56%, as well as the Standard & Poor's 500 Index (S&P 500 Index),
which gained 14.05% for the same period.
Below, Portfolio Managers Dimitris Bertsimas and Gina Mourtzinou discuss the
Fund's positioning and results for the fiscal year ended July 31, 2005.
At July 31, 2005, approximately 68% of the Fund's shares were owned in aggregate
by AXP Portfolio Builder Funds, a group of six asset allocation funds managed by
RiverSource Investments, LLC* (RiverSource Investments). As a result, it is
possible AXP Quantitative Large Cap Equity Fund may experience relatively large
purchases or redemptions from AXP Portfolio Builder Funds (see page 23, Class I
capital share transactions for related activity during the most recent fiscal
period). RiverSource Investments seeks to minimize the impact of these
transactions by structuring them over a reasonable period of time. AXP
Quantitative Large Cap Equity Fund may experience increased expenses as it buys
and sells securities to satisfy subscriptions and redemptions in AXP Portfolio
Builder Funds. For more information on the Fund's expenses, see the discussions
beginning on pages 22 and 32.
Q: What factors most significantly affected performance?
A: Stocks selected using the Fund's three quantitative models (value, momentum,
and quality) drove strong performance relative to both the S&P 500 Index and
its peers during the 12-month period. Indeed, for the annual period, each of
the three quantitative models outperformed the S&P 500 Index, with the
momentum model leading the way, followed by the value and then quality
models. We believe the style diversification provided by the Fund's three
quantitative models continues to be a significant investment advantage.
Throughout the period, our use of risk modeling -- limits on individual
holding size and on sector and industry allocations relative to the S&P 500
Index -- supported the Fund's strong relative performance as well.
Another positive contributor to the Fund's relative results was its
international exposure. The Fund's international position was established
during the fourth calendar quarter of 2004 through MSCI EAFE iShares, an
exchange-traded fund based on the MSCI EAFE Index. When we established the
position, the U.S. dollar was weakening, thereby contributing to iShares'
strong performance. The Fund's international exposure accounted for a small
portion of its total net assets throughout the period,
* Prior to Oct. 1, 2005, Ameriprise Financial, Inc. (formerly American Express
Financial Corporation) served as investment manager to the AXP mutual funds.
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5 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Questions & Answers
[BEGIN CALLOUT QUOTE] > Stocks selected using the Fund's three quantitative
models (value, momentum and quality) drove strong performance relative to both
the S&P 500 Index and its peers during the 12-month period. [END CALLOUT QUOTE]
reaching as much as 4% of portfolio assets at one time and standing at an
allocation of approximately 2% as of July 31, 2005.
Q: Which equity sectors and securities affected the Fund's performance most
during the fiscal year?
A: The Fund's stock holdings are determined by our quantitative models. The
Fund's sector allocations stem from these individual stock selections,
rather than any prediction that certain sectors might perform better or
worse than the market.
That said, from a sector perspective, significant exposure to and effective
stock selection within utilities and consumer staples made positive
contributions to the Fund's annual performance. Strong stock selection in
materials further boosted the Fund's relative results. The positive effect
of a sizable allocation to energy more than offset the negative effect of
the Fund's weak stock selection in this strongly performing sector. From an
individual stock perspective, positions in Altria Group (a consumer staples
beverages and tobacco stock selected by the momentum and value models),
ConocoPhillips (an integrated oil company originally both a momentum and
value model pick though currently just a value model selection), Johnson &
Johnson (a health care giant selected by the quality model) and Qualcomm (a
telecommunications equipment and services leader selected by the momentum
model) particularly helped the Fund's relative performance.
On the other hand, the Fund's ineffective stock selection in financials
detracted most from relative performance. A position in Fannie Mae (a
mortgage financer selected by the value model) particularly detracted. So,
too, did a holding in Intel (a semiconductor industry bellwether selected by
the momentum model). We maintained the Fund's holding in Fannie Mae, but
sold its position in Intel by the end of the annual period.
Q: What changes did you make to the portfolio and how is it currently
positioned?
A: During the period, the Fund maintained the following allocation among the
three quantitative models:
o 40% investment in the momentum model
o 30% in the value model and
o 30% in the quality model.
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6 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Questions & Answers
[BEGIN CALLOUT QUOTE] > We will continue our strategy of monitoring weightings
as a risk management tool, so that no individual security, industry or sector
becomes too large within the Fund's portfolio. [END CALLOUT QUOTE]
As indicated, we also established a position in MSCI EAFE iShares during the
period, as our separate asset allocation model pointed to opportunities in
international stocks.
The Fund experienced significant inflows of cash during the annual period,
including share purchases by the AXP Portfolio Builder Series asset
allocation funds. We managed this influx by purchasing S&P 500 futures.
While the influx triggered a need to rebalance the portfolio more than once
a month, it had a rather neutral effect on Fund performance for the 12-month
period. Indeed, we continued to improve trading and cash flow management
through the fiscal year.
As mentioned, the Fund's sector weightings are a by-product of the
individual stocks selected by our three models. Over the course of the 12
months, our models became more positive on stocks in the energy and
telecommunications services sectors. On the other hand, our models became
more negative on stocks in the information technology and industrials
sectors.
At the end of the fiscal year, the Fund had significant exposures to the
telecommunications services, energy and consumer staples sectors and more
modest allocations to the information technology, financials and industrials
sectors.
Q: How do you intend to manage the Fund in the coming months?
A: We believe the Fund's consistent, disciplined approach will benefit
performance over the long term. Our focus going forward is to keep using our
three well-tested models to find the best-performing stocks regardless of
market conditions. We will continue our strategy of monitoring weightings as
a risk management tool, so that no individual security, industry or sector
becomes too large within the Fund's portfolio. We also intend to continue to
employ the macroscopic aspects of our risk controls, including constraints
on market capitalization, price, quality, turnover, transactions costs and
more.
Overall, we intend to maintain the high quality of the Fund's portfolio,
while at the same time maintaining our style diversification.
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7 -- AXP QUANTITATIVE 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 Quantitative Large Cap Equity Fund Class A shares (from 5/1/03
to 7/31/05) as compared to the performance of two widely cited performance
indices, the Standard & Poor's 500 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. Returns do not reflect taxes payable on
distributions and redemptions. 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 $0.03 $0.07 $0.09 $0.19
July 31, 2004 0.02 0.11 0.01 0.14
July 31, 2003(1) -- -- -- --
(1) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
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8 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
[LINE CHART]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP QUANTITATIVE LARGE CAP EQUITY FUND
AXP Quantitative Large Cap Equity Fund Class A
(includes sales charge) ($13,315) $ 9,425 $10,254 $11,483 $13,315
S&P 500 Index(1) ($14,003) $10,000 $10,849 $12,278 $14,003
Lipper Large-Cap Core Funds Index(2) ($13,318) $10,000 $10,755 $11,832 $13,318
5/1/03 7/03 7/04 7/05
COMPARATIVE RESULTS
Results at July 31, 2005 Since
1 year inception(3)
AXP Quantitative Large Cap Equity Fund (includes sales charge)
Class A Cumulative value of $10,000 $10,928 $13,315
Average annual total return +9.28% +13.45%
S&P 500 Index(1)
Cumulative value of $10,000 $11,405 $14,003
Average annual total return +14.05% +16.14%
Lipper Large-Cap Core Funds Index(2)
Cumulative value of $10,000 $11,256 $13,318
Average annual total return +12.56% +13.58%
Results for other share classes can be found on page 4.
(1) The Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index of
common stocks, is frequently used as a general measure of market
performance. The index reflects reinvestment of all distributions and
changes in market prices, but excludes brokerage commissions or other fees.
(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 April 24, 2003. S&P 500 Index and Lipper peer data is
from May 1, 2003.
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9 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Investments in Securities
AXP Quantitative Large Cap Equity Fund
July 31, 2005
(Percentages represent value of investments compared to net assets)
Common Stocks (99.8%)
Issuer Shares Value(a)
Aerospace & Defense (1.2%)
Lockheed Martin 3,104 $193,690
Rockwell Collins 6,474 315,931
United Technologies 17,742 899,519
Total 1,409,140
Air Freight & Logistics (1.1%)
FedEx 8,070 678,607
United Parcel Service Cl B 8,119 592,443
Total 1,271,050
Auto Components (0.1%)
Johnson Controls 2,710 155,662
Automobiles (1.5%)
Ford Motor 59,497 638,998
General Motors 19,047 701,310
Harley-Davidson 7,703 409,723
Total 1,750,031
Beverages (2.0%)
Coca-Cola 54,536 2,386,495
Biotechnology (0.3%)
Gilead Sciences 8,252(b) 369,772
Building Products (0.2%)
Masco 5,949 201,731
Capital Markets (1.9%)
Bear Stearns Companies 2,977 303,981
Franklin Resources 11,019 890,557
Lehman Brothers Holdings 6,573 691,019
Merrill Lynch & Co 3,855 226,597
Morgan Stanley 2,267 120,264
Total 2,232,418
Chemicals (0.9%)
Dow Chemical 11,766 564,180
Monsanto 7,987 538,084
Total 1,102,264
Common Stocks (continued)
Issuer Shares Value(a)
Commercial Banks (2.1%)
Bank of America 15,071 $657,096
Comerica 3,962 242,078
KeyCorp 5,983 204,858
Natl City 18,078 667,258
PNC Financial Services Group 10,111 554,285
Regions Financial 1,911 64,286
Wachovia 2,649 133,457
Total 2,523,318
Communications Equipment (0.3%)
Comverse Technology 9,884(b) 249,966
Tellabs 11,862(b) 115,299
Total 365,265
Computers & Peripherals (2.8%)
Apple Computer 29,129(b) 1,242,353
Gateway 29,177(b) 116,124
Hewlett-Packard 21,708 534,451
Lexmark Intl Cl A 1,816(b) 113,863
NCR 10,017(b) 347,690
Network Appliance 12,591(b) 321,196
QLogic 19,572(b) 607,711
Total 3,283,388
Consumer Finance (0.6%)
MBNA 14,538 365,776
Providian Financial 7,465(b) 141,089
SLM 2,933 151,020
Total 657,885
Distributors (0.2%)
Genuine Parts 4,854 222,265
Diversified Financial Services (5.5%)
CIT Group 4,009 176,957
Citigroup 65,559 2,851,817
iShares MSCI EAFE Index Fund 56,400 3,042,216
Technology Select Sector
Index Fund 23,600 497,016
Total 6,568,006
See accompanying notes to investments in securities.
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10 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Diversified Telecommunication Services (8.0%)
AT&T 40,392 $799,762
BellSouth 84,339 2,327,756
SBC Communications 118,859 2,906,102
Sprint 45,198 1,215,826
Verizon Communications 69,594 2,382,202
Total 9,631,648
Electric Utilities (3.6%)
Allegheny Energy 7,515(b) 214,178
American Electric Power 8,425 326,048
CenterPoint Energy 9,851 135,353
Edison Intl 4,888 199,821
Exelon 29,458 1,576,591
FPL Group 5,382 232,072
PG&E 10,993 413,667
TECO Energy 9,536 180,803
TXU 11,741 1,017,240
Total 4,295,773
Electrical Equipment (0.5%)
American Power Conversion 6,587 185,161
Rockwell Automation 7,068 364,072
Total 549,233
Electronic Equipment & Instruments (0.1%)
Jabil Circuit 3,704(b) 115,528
Energy Equipment & Services (1.6%)
Halliburton 13,539 758,861
Noble 5,789 388,905
Transocean 13,356(b) 753,679
Total 1,901,445
Food & Staples Retailing (3.3%)
Albertson's 9,051 192,877
Kroger 18,677(b) 370,738
Safeway 14,936 362,945
SYSCO 4,436 159,962
Wal-Mart Stores 58,504 2,887,173
Total 3,973,695
Food Products (0.6%)
Archer-Daniels-Midland 28,840 661,590
Health Care Equipment & Supplies (0.9%)
Becton, Dickinson & Co 3,982 220,483
Biomet 2,427 92,542
Medtronic 10,087 544,093
Zimmer Holdings 2,417(b) 199,064
Total 1,056,182
Common Stocks (continued)
Issuer Shares Value(a)
Health Care Providers & Services (6.4%)
Aetna 10,729 $830,425
Cardinal Health 9,078 540,867
Caremark Rx 6,863(b) 305,953
CIGNA 9,990 1,066,433
HCA 9,971 491,072
Humana 8,427(b) 335,816
Medco Health Solutions 2,805(b) 135,874
Tenet Healthcare 11,188(b) 135,822
UnitedHealth Group 55,138 2,883,716
WellPoint 13,851(b) 979,820
Total 7,705,798
Hotels, Restaurants & Leisure (2.0%)
Darden Restaurants 4,418 153,305
Harrah's Entertainment 8,056 634,329
Marriott Intl Cl A 7,230 495,038
Starbucks 5,346(b) 280,932
Starwood Hotels & Resorts
Worldwide Unit 6,800 430,576
Yum! Brands 6,453 337,815
Total 2,331,995
Household Durables (2.1%)
Black & Decker 2,610 235,709
Centex 7,611 563,062
DR Horton 22,231 913,249
KB HOME 5,316 435,434
Pulte Homes 3,146 294,529
Whirlpool 1,247 99,735
Total 2,541,718
Household Products (0.2%)
Kimberly-Clark 3,802 242,416
Industrial Conglomerates (1.1%)
3M 14,197 1,064,775
Textron 3,415 253,291
Total 1,318,066
Insurance (3.5%)
Allstate 15,708 962,272
Ambac Financial Group 4,537 325,938
Aon 11,958 304,212
Jefferson-Pilot 2,029 101,795
Lincoln Natl 6,281 303,372
Loews 4,520 378,008
Marsh & McLennan Companies 9,979 289,092
MBIA 5,309 322,469
Prudential Financial 11,757 786,543
See accompanying notes to investments in securities.
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11 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Insurance (cont.)
Safeco 1,299 $71,367
Torchmark 3,597 188,015
UnumProvident 9,896 189,508
Total 4,222,591
Internet & Catalog Retail (0.4%)
eBay 12,445(b) 519,952
IT Services (1.2%)
Affiliated Computer Services Cl A 2,305(b) 115,181
Automatic Data Processing 5,141 228,311
Computer Sciences 2,552(b) 116,831
Convergys 11,645(b) 169,435
Electronic Data Systems 19,225 395,457
Sabre Holdings Cl A 6,183 118,714
SunGard Data Systems 3,167(b) 113,664
Unisys 17,838(b) 115,412
Total 1,373,005
Leisure Equipment & Products (0.5%)
Eastman Kodak 15,799 422,466
Mattel 8,419 157,014
Total 579,480
Machinery (0.9%)
Caterpillar 13,374 720,993
PACCAR 4,329 312,640
Total 1,033,633
Media (0.3%)
Walt Disney 13,238 339,422
Metals & Mining (0.7%)
Freeport-McMoRan Copper &
Gold Cl B 4,687 188,792
Nucor 4,197 232,724
Phelps Dodge 3,550 377,898
Total 799,414
Multi-Utilities & Unregulated Power (1.7%)
AES 31,821(b) 510,727
CMS Energy 10,719(b) 169,789
Duke Energy 24,072 711,087
Public Service Enterprise Group 7,731 497,103
Sempra Energy 2,652 112,710
Total 2,001,416
Common Stocks (continued)
Issuer Shares Value(a)
Multiline Retail (1.8%)
Dollar General 7,198 $146,263
Federated Dept Stores 5,958 452,033
May Dept Stores 12,818 526,179
Nordstrom 9,150 338,642
Sears Holdings 4,466(b) 688,791
Total 2,151,908
Oil & Gas (11.6%)
Amerada Hess 2,404 283,335
Anadarko Petroleum 5,403 477,355
Apache 2,021 138,236
Chevron 60,101 3,486,459
ConocoPhillips 7,228 452,401
Devon Energy 19,319 1,083,603
El Paso 37,470 449,640
EOG Resources 7,649 467,354
Exxon Mobil 92,215 5,417,630
Kinder Morgan 4,504 400,225
Marathon Oil 2,863 167,085
Unocal 8,370 542,795
Valero Energy 6,815 564,146
Total 13,930,264
Pharmaceuticals (7.4%)
Abbott Laboratories 6,212 289,666
Bristol-Myers Squibb 65,709 1,641,411
Johnson & Johnson 62,672 4,008,500
Merck & Co 81,218 2,522,631
Wyeth 10,467 478,865
Total 8,941,073
Real Estate Investment Trust (0.3%)
Archstone-Smith Trust 3,635 154,488
ProLogis 3,989 181,738
Total 336,226
Road & Rail (1.5%)
Burlington Northern Santa Fe 16,941 919,049
CSX 6,339 288,678
Norfolk Southern 15,036 559,490
Total 1,767,217
Semiconductors & Semiconductor Equipment (0.6%)
Advanced Micro Devices 13,354(b) 268,148
LSI Logic 11,706(b) 114,251
NVIDIA 11,473(b) 310,459
Total 692,858
See accompanying notes to investments in securities.
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12 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Software (3.9%)
Adobe Systems 17,128 $507,674
Autodesk 9,357 319,916
Compuware 28,997(b) 244,445
Microsoft 69,193 1,772,033
Oracle 113,833(b) 1,545,852
Symantec 11,891(b) 261,245
Total 4,651,165
Specialty Retail (2.2%)
Best Buy 4,212 322,639
Home Depot 46,869 2,039,271
Staples 12,394 282,211
Total 2,644,121
Textiles, Apparel & Luxury Goods (0.3%)
Nike Cl B 4,448 372,742
Thrifts & Mortgage Finance (3.2%)
Countrywide Financial 6,048 217,728
Fannie Mae 31,160 1,740,598
Freddie Mac 10,326 653,429
MGIC Investment 3,110 213,284
Washington Mutual 24,008 1,019,860
Total 3,844,899
Tobacco (6.1%)
Altria Group 104,032 6,965,982
UST 6,330 291,307
Total 7,257,289
Trading Companies & Distributors (0.1%)
WW Grainger 2,096 130,623
Wireless Telecommunication Services (0.6%)
Nextel Communications Cl A 21,414(b) 745,207
Total Common Stocks
(Cost: $113,013,983) $119,158,282
Short-Term Securities (5.8%)
Issuer Effective Principal Value(a)
yield amount
U.S. Government Agency (4.9%)
Federal Natl Mtge Assn Disc Nts
08-22-05 3.28% $2,600,000 $2,594,332
09-07-05 3.26 3,300,000 3,288,083
Total 5,882,415
Commercial Paper (0.9%)
HSBC Finance
08-01-05 3.31 1,000,000 999,724
Total Short-Term Securities
(Cost: $6,882,765) $6,882,139
Total Investments in Securities
(Cost: $119,896,748)(c) $126,040,421
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
13 -- AXP QUANTITATIVE 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) At July 31, 2005, the cost of securities for federal income tax purposes
was $119,994,041 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 7,865,150
Unrealized depreciation (1,818,770)
----------
Net unrealized appreciation $ 6,046,380
-----------
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.
- --------------------------------------------------------------------------------
14 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Quantitative Large Cap Equity Fund
July 31, 2005
Assets
Investments in securities, at value (Note 1)
(identified cost $119,896,748) $126,040,421
Cash in bank on demand deposit 63,008
Capital shares receivable 43,455
Dividends and accrued interest receivable 194,530
Receivable for investment securities sold 5,782,959
---------
Total assets 132,124,373
-----------
Liabilities
Capital shares payable 10,711
Payable for investment securities purchased 12,666,426
Accrued investment management services fee 1,976
Accrued distribution fee 455
Accrued transfer agency fee 141
Accrued administrative services fee 165
Other accrued expenses 69,384
------
Total liabilities 12,749,258
----------
Net assets applicable to outstanding capital stock $119,375,115
============
Represented by
Capital stock -- $.01 par value (Note 1) $ 177,771
Additional paid-in capital 109,222,972
Undistributed net investment income 503,820
Accumulated net realized gain (loss) 3,326,879
Unrealized appreciation (depreciation) on investments 6,143,673
---------
Total -- representing net assets applicable to outstanding capital stock $119,375,115
============
Net assets applicable to outstanding shares: Class A $ 28,058,336
Class B $ 9,287,787
Class C $ 188,938
Class I $ 81,805,703
Class Y $ 34,351
Net asset value per share of outstanding capital stock: Class A shares 4,189,337 $ 6.70
Class B shares 1,402,057 $ 6.62
Class C shares 28,519 $ 6.62
Class I shares 12,152,084 $ 6.73
Class Y shares 5,118 $ 6.71
----- ------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Statement of operations
AXP Quantitative Large Cap Equity Fund
Year ended July 31, 2005
Investment income
Income:
Dividends $1,295,906
Interest 73,221
------
Total income 1,369,127
---------
Expenses (Note 2):
Investment management services fee 408,720
Distribution fee
Class A 44,025
Class B 51,693
Class C 1,420
Transfer agency fee 40,155
Incremental transfer agency fee
Class A 3,114
Class B 2,060
Class C 71
Service fee -- Class Y 30
Administrative services fees and expenses 29,441
Compensation of board members 8,604
Custodian fees 27,540
Printing and postage 37,795
Registration fees 57,489
Audit fees 20,500
Other 5,942
-----
Total expenses 738,599
Expenses waived/reimbursed by Ameriprise Financial (formerly AEFC) (Note 2) (23,127)
-------
715,472
Earnings credits on cash balances (Note 2) (4,727)
------
Total net expenses 710,745
-------
Investment income (loss) -- net 658,382
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 3,680,690
Futures contracts 115,625
-------
Net realized gain (loss) on investments 3,796,315
Net change in unrealized appreciation (depreciation) on investments 5,439,579
---------
Net gain (loss) on investments 9,235,894
---------
Net increase (decrease) in net assets resulting from operations $9,894,276
==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Statements of changes in net assets
AXP Quantitative Large Cap Equity Fund
Year ended July 31, 2005 2004
Operations and distributions
Investment income (loss) -- net $ 658,382 $ 70,924
Net realized gain (loss) on investments 3,796,315 824,610
Net change in unrealized appreciation (depreciation) on investments 5,439,579 335,658
--------- -------
Net increase (decrease) in net assets resulting from operations 9,894,276 1,231,192
--------- ---------
Distributions to shareholders from:
Net investment income
Class A (62,837) (32,550)
Class B -- (921)
Class C -- (88)
Class I (142,494) --
Class Y (172) (94)
Net realized gain
Class A (327,285) (204,671)
Class B (102,880) (35,467)
Class C (3,213) (2,669)
Class I (723,932) --
Class Y (727) (461)
---- ----
Total distributions (1,363,540) (276,921)
---------- --------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 21,609,484 6,113,596
Class B shares 6,978,820 2,111,340
Class C shares 77,713 99,094
Class I shares 66,292,986 9,070,761
Class Y shares 7,000 --
Reinvestment of distributions at net asset value
Class A shares 346,177 96,546
Class B shares 100,334 34,783
Class C shares 2,894 2,508
Class I shares 866,109 --
Class Y shares 505 257
Payments for redemptions
Class A shares (9,642,178) (1,001,408)
Class B shares (Note 2) (1,046,545) (582,132)
Class C shares (Note 2) (48,696) (31,819)
Class I shares (150,008) (701)
-------- ----
Increase (decrease) in net assets from capital share transactions 85,394,595 15,912,825
---------- ----------
Total increase (decrease) in net assets 93,925,331 16,867,096
Net assets at beginning of year 25,449,784 8,582,688
---------- ---------
Net assets at end of year $119,375,115 $25,449,784
============ ===========
Undistributed net investment income $ 503,820 $ 52,439
------------ -----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
17 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Notes to Financial Statements
AXP Quantitative 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 listed on U.S. exchanges with market capitalizations 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
68.53% of the Fund's net assets.
At July 31, 2005, Ameriprise Financial and the AXP Portfolio Builder Funds owned
approximately 68% of the total outstanding Fund shares.
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.
- --------------------------------------------------------------------------------
18 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
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 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.
- --------------------------------------------------------------------------------
19 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete its contract obligations.
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.
- --------------------------------------------------------------------------------
20 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $1,498
and accumulated net realized gain been increased by $1,498.
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 $202,166 $228,642
Long-term capital gain 187,956 8,579
Class B
Distributions paid from:
Ordinary income 43,797 34,902
Long-term capital gain 59,083 1,486
Class C
Distributions paid from:
Ordinary income 1,368 2,645
Long-term capital gain 1,845 112
Class I*
Distributions paid from:
Ordinary income 450,678 --
Long-term capital gain 415,748 --
Class Y
Distributions paid from:
Ordinary income 481 536
Long-term capital gain 418 19
* Inception date is July 15, 2004.
At July 31, 2005, the components of distributable earnings on a tax basis are as
follows:
Undistributed ordinary income $2,869,627
Accumulated long-term gain (loss) $1,058,365
Unrealized appreciation (depreciation) $6,046,380
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.
- --------------------------------------------------------------------------------
21 -- AXP QUANTITATIVE 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 increased the fee by $15,749 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 net 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.
- --------------------------------------------------------------------------------
22 -- AXP QUANTITATIVE 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
$120,789 for Class A, $5,134 for Class B and $30 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 1.25% for Class A, 2.04% for Class B, 2.06% for
Class C and 1.06% for Class Y. Of these waived fees and expenses, the transfer
agency fees waived for Class A, Class B, Class C and Class Y were $18,458,
$4,530, $104 and $35 respectively. In addition, Ameriprise Financial and its
affiliates have agreed to extend the current agreement to waive certain fees and
expenses through Sept. 30, 2005. It is expected that a new agreement to waive
certain fees and expenses will be effective on Oct. 1, 2005 until July 31, 2006,
such that net expenses, before giving effect to any performance incentive
adjustment, will not exceed 1.25% for Class A, 2.04% for Class B, 2.06% for
Class C, 0.93% for Class I and 1.06% for Class Y of the Fund's average daily net
assets.
During the year ended July 31, 2005, the Fund's custodian and transfer agency
fees were reduced by $4,727 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 $126,724,187 and $41,805,397, respectively, for the year
ended July 31, 2005. Realized gains and losses are determined on an identified
cost basis.
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 3,401,658 1,109,408 12,216 10,493,500 1,160
Issued for reinvested distributions 54,345 15,850 457 135,541 79
Redeemed (1,531,238) (165,421) (7,726) (24,014) --
---------- -------- ------ ------- -----
Net increase (decrease) 1,924,765 959,837 4,947 10,605,027 1,239
--------- ------- ----- ---------- -----
Year ended July 31, 2004
Class A Class B Class C Class I* Class Y
Sold 1,028,744 358,722 17,252 1,547,177 --
Issued for reinvested distributions 16,447 5,946 429 -- 45
Redeemed (166,966) (99,601) (5,323) (120) --
-------- ------- ------ ---- --
Net increase (decrease) 878,225 265,067 12,358 1,547,057 45
------- ------- ------ --------- --
* Inception date is July 15, 2004.
- --------------------------------------------------------------------------------
23 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
5. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
The Bank of New York, whereby the Fund is permitted to have bank borrowings for
temporary or emergency purposes to fund shareholder redemptions. 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.
6. 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(b)
Net asset value, beginning of period $5.95 $5.44 $5.00
----- ----- -----
Income from investment operations:
Net investment income (loss) .04 .02 .01
Net gains (losses) (both realized and unrealized) .90 .63 .43
----- ----- -----
Total from investment operations .94 .65 .44
----- ----- -----
Less distributions:
Dividends from net investment income (.03) (.02) --
Distributions from realized gains (.16) (.12) --
----- ----- -----
Total distributions (.19) (.14) --
----- ----- -----
Net asset value, end of period $6.70 $5.95 $5.44
----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $28 $13 $8
Ratio of expenses to average daily net assets(c),(d) 1.25% 1.13% 1.22%(e)
Ratio of net investment income (loss) to average daily net assets .84% .65% .81%(e)
Portfolio turnover rate (excluding short-term securities) 64% 64% 17%
Total return(f) 15.95% 11.99% 8.80%(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(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 1.35%, 1.91% and 7.39% for the periods ended July 31, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
24 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2005 2004 2003(b)
Net asset value, beginning of period $5.90 $5.43 $5.00
----- ----- -----
Income from investment operations:
Net investment income (loss) .02 (.02) --
Net gains (losses) (both realized and unrealized) .86 .61 .43
----- ----- -----
Total from investment operations .88 .59 .43
----- ----- -----
Less distributions:
Distributions from realized gains (.16) (.12) --
----- ----- -----
Net asset value, end of period $6.62 $5.90 $5.43
----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $9 $3 $1
Ratio of expenses to average daily net assets(c),(d) 2.04% 1.95% 2.01%(e)
Ratio of net investment income (loss) to average daily net assets .06% (.16%) (.08%)(e)
Portfolio turnover rate (excluding short-term securities) 64% 64% 17%
Total return(f) 15.03% 10.95% 8.60%(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(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 2.13%, 2.73% and 8.18% for the periods ended July 31, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
25 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2005 2004 2003(b)
Net asset value, beginning of period $5.90 $5.43 $5.00
----- ----- -----
Income from investment operations:
Net investment income (loss) .01 (.02) --
Net gains (losses) (both realized and unrealized) .87 .61 .43
----- ----- -----
Total from investment operations .88 .59 .43
----- ----- -----
Less distributions:
Distributions from realized gains (.16) (.12) --
----- ----- -----
Net asset value, end of period $6.62 $5.90 $5.43
----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $--
Ratio of expenses to average daily net assets(c),(d) 2.06% 1.95% 2.01%(e)
Ratio of net investment income (loss) to average daily net assets .02% (.17%) (.05%)(e)
Portfolio turnover rate (excluding short-term securities) 64% 64% 17%
Total return(f) 15.03% 10.96% 8.60%(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(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 2.13%, 2.73% and 8.20% for the periods ended July 31, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
26 -- AXP QUANTITATIVE 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 $5.96 $5.99
----- -----
Income from investment operations:
Net investment income (loss) .04 .02
Net gains (losses) (both realized and unrealized) .92 (.05)
----- -----
Total from investment operations .96 (.03)
----- -----
Less distributions:
Dividends from net investment income (.03) --
Distributions from realized gains (.16) --
----- -----
Total distributions (.19) --
----- -----
Net asset value, end of period $6.73 $5.96
----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $82 $9
Ratio of expenses to average daily net assets(c) .91% .93%(d),(e)
Ratio of net investment income (loss) to average daily net assets 1.19% 5.35%(d)
Portfolio turnover rate (excluding short-term securities) 64% 64%
Total return(f) 16.29% (.50%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date is July 15, 2004.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had
Ameriprise Financial not done so, the annual ratio of expenses for Class I
would have been 1.27% for the period ended July 31, 2004.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
27 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2005 2004 2003(b)
Net asset value, beginning of period $5.95 $5.45 $5.00
----- ----- -----
Income from investment operations:
Net investment income (loss) .05 .03 .01
Net gains (losses) (both realized and unrealized) .91 .61 .44
----- ----- -----
Total from investment operations .96 .64 .45
----- ----- -----
Less distributions:
Dividends from net investment income (.04) (.02) --
Distributions from realized gains (.16) (.12) --
----- ----- -----
Total distributions (.20) (.14) --
----- ----- -----
Net asset value, end of period $6.71 $5.95 $5.45
----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $--
Ratio of expenses to average daily net assets(c),(d) 1.06% .98% 1.01%(e)
Ratio of net investment income (loss) to average daily net assets 1.03% .78% .90%(e)
Portfolio turnover rate (excluding short-term securities) 64% 64% 17%
Total return(f) 16.25% 11.87% 9.00%(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(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 1.18%, 1.76% and 7.20% for the periods ended July 31, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
28 -- AXP QUANTITATIVE 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 Quantitative 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 two-year period ended July
31, 2005 and for the period from April 24, 2003 (when shares became publicly
available) to July 31, 2003. 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
Quantitative 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
- --------------------------------------------------------------------------------
29 -- AXP QUANTITATIVE 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 Quantitative Large Cap Equity Fund
Fiscal year ended July 31, 2005
Class A
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 35.08%
Dividends Received Deduction for corporations 34.99%
Payable date Per share
Dec. 20, 2004 $0.09760
Capital gain distributions -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.09141
Total distributions $0.18901
Class B
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 35.08%
Dividends Received Deduction for corporations 34.99%
Payable date Per share
Dec. 20, 2004 $0.06776
Capital gain distributions -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.09141
Total distributions $0.15917
- --------------------------------------------------------------------------------
30 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
Class C
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 35.08%
Dividends Received Deduction for corporations 34.99%
Payable date Per share
Dec. 20, 2004 $0.06776
Capital gain distributions -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.09141
Total distributions $0.15917
Class I
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 35.08%
Dividends Received Deduction for corporations 34.99%
Payable date Per share
Dec. 20, 2004 $0.09909
Capital gain distributions -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.09141
Total distributions $0.19050
Class Y
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 35.08%
Dividends Received Deduction for corporations 34.99%
Payable date Per share
Dec. 20, 2004 $0.10555
Capital gain distributions -- taxable as long-term capital gain.
Payable date Per share
Dec. 20, 2004 $0.09141
Total distributions $0.19696
- --------------------------------------------------------------------------------
31 -- AXP QUANTITATIVE 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.
- --------------------------------------------------------------------------------
32 -- AXP QUANTITATIVE 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 $1,063.50 $6.32(c) 1.25%
Hypothetical (5% return before expenses) $1,000 $1,018.39 $6.19(c) 1.25%
Class B
Actual(b) $1,000 $1,057.50 $10.29(c) 2.04%
Hypothetical (5% return before expenses) $1,000 $1,014.52 $10.08(c) 2.04%
Class C
Actual(b) $1,000 $1,057.50 $10.39(c) 2.06%
Hypothetical (5% return before expenses) $1,000 $1,014.42 $10.18(c) 2.06%
Class I
Actual(b) $1,000 $1,064.90 $4.61(c) .91%
Hypothetical (5% return before expenses) $1,000 $1,020.06 $4.51(c) .91%
Class Y
Actual(b) $1,000 $1,063.40 $5.36(c) 1.06%
Hypothetical (5% return before expenses) $1,000 $1,019.32 $5.25(c) 1.06%
(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: +6.35%
for Class A, +5.75% for Class B, +5.75% for Class C, +6.49% for Class I and
+6.34% for Class Y.
(c) Pending final approval from the Fund's Board of Directors (Board), 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. It is also expected that Ameriprise Financial and its
affiliates will contractually agree to waive certain fees and to absorb
certain expenses until July 31, 2006, unless sooner terminated at the
discretion of the Board. Under this expense cap/fee waiver agreement, net
expenses, before giving effect to any performance incentive adjustment,
will not exceed 1.25% for Class A; 2.04% for Class B; 2.06% for Class C;
0.93% for Class I and 1.06% for Class Y. If the revised fee schedule under
the Administrative Services Agreement and the cap/waiver agreement had been
in place for the entire six-month period ended July 31, 2005, the actual
and hypothetical expenses paid would have been the same as those expenses
presented in the table above for all classes, except Class I. The actual
expenses paid for Class I would have been $4.66 and the hypothetical
expenses paid would have been $4.56.
- --------------------------------------------------------------------------------
33 -- AXP QUANTITATIVE 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.
- --------------------------------------------------------------------------------
34 -- AXP QUANTITATIVE 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.
- --------------------------------------------------------------------------------
35 -- AXP QUANTITATIVE 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.
- --------------------------------------------------------------------------------
36 -- AXP QUANTITATIVE 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 the Fund's investment performance in 2004 exceeded the median.
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.
- --------------------------------------------------------------------------------
37 -- AXP QUANTITATIVE 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 for 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.
- --------------------------------------------------------------------------------
38 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2005 ANNUAL REPORT
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.
- --------------------------------------------------------------------------------
39 -- AXP QUANTITATIVE 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.