-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DmQU5Np5mms6wJyJWIJaUGsJq6AOJM8WTBIPKV5hqFS4anDraRAeB094mtkFHTHp RB/hLkNIADAMA4hOIh+CHQ== 0000820027-05-000856.txt : 20051003 0000820027-05-000856.hdr.sgml : 20051003 20051003091816 ACCESSION NUMBER: 0000820027-05-000856 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050731 FILED AS OF DATE: 20051003 DATE AS OF CHANGE: 20051003 EFFECTIVENESS DATE: 20051003 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP GROWTH SERIES INC/MN CENTRAL INDEX KEY: 0000049702 IRS NUMBER: 410962638 STATE OF INCORPORATION: MN FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02111 FILM NUMBER: 051115773 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126712772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP GROWTH FUND INC DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS GROWTH FUND INC DATE OF NAME CHANGE: 19920703 N-CSR 1 growth-ncsr.txt AXP GROWTH SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-2111 ------------ AXP GROWTH SERIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 7/31 -------------- Date of reporting period: 7/31 -------------- AXP(R) Growth Fund Annual Report for the Period Ended July 31, 2005 AXP Growth 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 10 Investments in Securities 12 Financial Statements (Portfolio) 16 Notes to Financial Statements (Portfolio) 19 Report of Independent Registered Public Accounting Firm (Portfolio) 24 Financial Statements (Fund) 25 Notes to Financial Statements (Fund) 28 Report of Independent Registered Public Accounting Firm (Fund) 36 Fund Expenses Example 37 Board Members and Officers 39 Approval of Investment Management Services Agreement 42 Proxy Voting 44 [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. - -------------------------------------------------------------------------------- 2 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Fund Snapshot AT JULY 31, 2005 PORTFOLIO MANAGER Portfolio manager Since Years in industry Nick Thakore 4/02 12 FUND OBJECTIVE For investors seeking long-term capital growth. Inception dates by class A: 3/1/72 B: 3/20/95 C: 6/26/00 I: 3/4/04 Y: 3/20/95 Ticker symbols by class A: INIDX B: IGRBX C: AXGCX I: AGWIX Y: IGRYX Total net assets $3.145 billion Number of holdings 138 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] Health Care 20.0% Telecommunication Services 18.2% Information Technology 17.2% Consumer Discretionary 12.1% Consumer Staples 9.2% Short-term Securities* 9.0% Financials 5.3% Energy 3.4% Materials 2.8% Industrials 2.5% Other 0.3% * Of the 9.0%, 1.2% is due to security lending activity and 7.8% is the Portfolio's cash equivalent position. TOP TEN HOLDINGS Percentage of portfolio assets Sprint (Diversified Telecommunication Services) 8.0% NTL (Media) 7.7 Nextel Communications Cl A (Wireless Telecommunication Services) 4.9 Pfizer (Pharmaceuticals) 2.5 Gillette (Personal Products) 2.4 Telewest Global (Diversified Telecommunication Services) 2.3 Dell (Computers & Peripherals) 2.3 Nokia ADR (Communications Equipment) 1.9 Intel (Semiconductors & Semiconductor Equipment) 1.7 Google Cl A (Internet Software & Services) 1.7 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. Investment products, including shares of mutual funds, are not federally or FDIC insured, are not deposits or obligations of, or guaranteed by, any financial institution and involve investment risks including possible loss of principal and fluctuation in value. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 3 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Performance Summary [BAR CHART] PERFORMANCE COMPARISON For the year ended July 31, 2005 +19.43% +13.04% +15.89% +19.43% = AXP Growth Fund Class A (excluding sales charge) +13.04% = Russell 1000(R) Growth Index (unmanaged) +15.89% = Lipper Large-Cap Growth 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) (3/1/72) (3/20/95) (6/26/00) (3/4/04) (3/20/95) After After NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) at July 31, 2005 1 year +19.43% +12.56% +18.50% +13.50% +18.50% +17.50% +20.04% +19.69% 3 years +10.68% +8.52% +9.83% +8.72% +9.85% +9.85% N/A +10.89% 5 years -11.17% -12.22% -11.86% -12.20% -11.86% -11.86% N/A -11.02% 10 years +5.14% +4.52% +4.33% +4.33% N/A N/A N/A +5.30% Since inception +12.05% +12.05% +6.03% +6.03% -11.86% -11.86% +9.04% +7.00% at June 30, 2005 1 year +10.86% +4.48% +9.99% +4.99% +9.99% +8.99% +11.36% +11.02% 3 years +7.02% +4.93% +6.20% +5.00% +6.20% +6.20% N/A +7.22% 5 years -12.09% -13.13% -12.77% -13.10% -12.77% -12.77% N/A -11.94% 10 years +5.48% +4.86% +4.68% +4.68% N/A N/A N/A +5.64% Since inception +11.99% +11.99% +5.80% +5.80% -12.52% -12.52% +7.35% +6.77%
(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. - -------------------------------------------------------------------------------- 4 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Nick Thakore discusses the Fund's positioning and results for the 2005 fiscal year. Q: How did AXP Growth Fund perform for the 12-month period ended July 31, 2005? A: AXP Growth Fund's Class A shares rose 19.43%, excluding sales charge, for the 12-month period ended July 31, 2005. The Fund outperformed the 15.89% return of its peer group as represented by the Lipper Large-Cap Growth Funds Index. The Fund's benchmark, the Russell 1000(R) Growth Index, advanced 13.04% for the same period. Q: What factors influenced performance during the period? A: Both stock selection and sector allocation contributed to the Fund's outperformance over the fiscal period. We had a very strong stock picking year with many stocks that helped performance and very few that detracted meaningfully. We thoroughly researched and selected strong stocks and avoided companies that demonstrated lackluster or damaging performance in this annual reporting period. The Fund showed its strongest performance in telecommunications services, technology, energy and consumer staples and demonstrated its weakest performance in health care. Although health care was the weakest sector for the Fund, in reality, it was not harmful to us. The sector cost the Fund only 50 basis points (i.e., one-half percent) of performance over the 12-month span, and this loss was primarily in Biogen Idec, a biotechnology company. We added Biogen Idec to the Fund last year, and it had performed well on the optimism surrounding its new multiple sclerosis treatment. Unfortunately, the drug produced some very serious side effects and was discontinued in 2005, which negatively impacted the company and dragged down their stock price. We also owned Merck. In 2005, the pharmaceutical giant pulled their arthritis drug Vioxx from the market due to increasing evidence of potentially fatal side effects for long-term users. - -------------------------------------------------------------------------------- 5 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Questions & Answers [BEGIN CALLOUT QUOTE] > We had extreme conviction in the wireless services subsector of the market, and this conviction was rewarded. [END CALLOUT QUOTE] Drilling deeper within the telecommunication services sector, we had extreme conviction in the wireless services subsector of the market, and this conviction was rewarded. The subsector was fraught with mergers and acquisitions, several of which benefited the Fund. Sprint, a large position in the Fund, got closer to concluding its acquisition of Nextel Communications, another large position in the Fund. Both companies showed good fundamentals and the market seemed to recognize their value even more than before. Two more strong performers were Western Wireless Corporation and ALLTEL. Western Wireless, a regional wireless services company, was acquired by ALLTEL, both stocks helped boost Fund performance. Another standout, for performance reasons, was Vodafone Group, a mobile telecommunications network company based in the United Kingdom. Mergers and acquisitions also impacted the cable space in the Fund and benefited performance. NTL and Telewest Global, cable communications companies in the U.K., are both substantial positions in the Fund and plan to merge. Both companies performed well on the back of solid fundamentals and expectations of value creation from their pending merger. In fact, we discussed NTL in last year's annual shareholder report. Then, the company had rebounded from bankruptcy in 2004 and showed promise. This year, the company was the Fund's top performing contributor for the annual reporting period. Within the technology sector, search engine Google is a large position in the Fund and has been a big positive contributor to performance. Also in technology, both Motorola and Nokia were strong performers. Information management company Oracle was the only negative performer in technology, and it was down only 16 basis points (0.16%) over the period. - -------------------------------------------------------------------------------- 6 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Questions & Answers [BEGIN CALLOUT QUOTE] > Mergers and acquisitions also impacted the cable space in the Fund and benefited performance. [END CALLOUT QUOTE] Q: What changes did you make during the 12-month period? A: We made some significant additions to the Fund over the fiscal year. We increased our position in Sprint during the 2005 fiscal year. We believed that Sprint's decision to merge with Nextel Communications (discussed above) created one of the fastest growing large cap companies in the market and at a very attractive valuation. In our opinion, the stock price was not reflecting the combination of growth and valuation and we took advantage of this situation. Other significant adds to the Fund were, respectively, Telewest Global, Google, Vivendi Universal -- a media company demonstrating a good growth rate and attractive valuation, healthcare company HCA, and Amgen -- a leading human therapeutics company in the biotechnology industry. We also removed some holdings. We sold Disney, which had at one time been 3% of the Fund. The stock had performed well. However, we became concerned about the stock's valuation and the company's cyclicality. This was our largest reduction. The next largest cut was AT&T Wireless. The company was acquired and the stock price went down, so we sold our entire position. Biogen Idec was a large position that we reduced, partly it depreciated so much and also because the reason for owning it had completely changed. Vodafone started as a large position, but as I found other better wireless names, specifically Sprint, I sold off some Vodafone Group and replaced it with Sprint. - -------------------------------------------------------------------------------- 7 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Questions & Answers Then in terms of sectors, the largest reduction in the Fund was in the industrials sector. This sector does best in the early stages of economic recovery. Now that the recovery has progressed, stock prices are more expensive and not as compelling, so we reduced some exposure in this sector. We also reduced our technology weighting over the course of the year. After the market corrected early in the year, technology stocks were hit hard. We saw this as a buying opportunity because many large growth companies were showing reasonable valuations. The time -- and price -- was right to add some tech stocks. However, our overall weight in that sector continues to be less than that of the Russell Index. We have been bullish on energy for some time. Therefore, the Fund is overweight (relative to the Russell Index) in energy-related stocks. The record high prices of oil have supported our position, and to date there are no significant signs it will change. However, when opportunities arise, we have taken profits and will continue to do so. Finally, we increased our position in telecom services because we have such strong conviction in wireless communications, as we have discussed previously. Q: How do you plan to manage the Fund in the coming months given current market conditions? A: We have a very consistent investment approach. We identify companies with strong growth stories where valuation is attractive. With that, we continue to favor stocks with compelling growth stories that are more company-specific than tied to the economic outlook, particularly when those companies have some kind of identifiable catalyst that denotes future appreciation. - -------------------------------------------------------------------------------- 8 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Questions & Answers In the near term, we believe companies within healthcare, telecom services and consumer staples sectors that are not reliant on economic conditions will continue to demonstrate some healthy growth. We will continue to look for promising growth companies, and if that means paying a little more for those stocks, we will do so -- but within reason. We think that growth stocks are becoming more attractive versus value stocks, and the market preference is moving to growth. We also think that the preference pendulum is swinging to large company stocks rather than small company stocks. We welcome this shift and are always looking for opportunities to add to our large company names. We see earnings growth decelerating in the economy, so it makes sense to be invested in companies where the growth is not dependent on the economy. Going forward, we see wireless services as a continuing growth theme that still has significant potential and where companies still have attractive valuations. We will likely reduce our weighting in consumer discretionary because that sector is facing some headwinds in terms of oil prices and interest rates. Overall, we believe the Fund is comprised of strong companies with good growth and reasonable valuations and feel good about the way the Fund has performed. - -------------------------------------------------------------------------------- 9 -- AXP GROWTH 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 Growth Fund Class A shares (from 8/1/95 to 7/31/05) as compared to the performance of two widely cited performance indices, the Russell 1000(R) Growth Index and the Lipper Large-Cap Growth 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 $-- $-- $ -- $ -- July 31, 2004 -- -- -- -- July 31, 2003 -- -- -- -- July 31, 2002 -- -- 0.02 0.02 July 31, 2001 -- -- 2.20 2.20 - -------------------------------------------------------------------------------- 10 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP GROWTH FUND AXP Growth Fund Class A (includes sales charge) $ 9,425 $10,678 $16,764 $17,823 $21,475 $28,134 $16,278 $11,473 $12,510 $13,025 $15,556 Russell 1000(R) Growth Index(1) $10,000 $11,552 $17,542 $21,036 $26,093 $32,454 $21,076 $15,017 $16,765 $18,192 $20,564 Lipper Large-Cap Growth Funds Index(2) $10,000 $11,139 $16,494 $19,819 $24,363 $29,737 $19,507 $14,049 $15,309 $16,249 $18,831 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
COMPARATIVE RESULTS Results at July 31, 2005 Since 1 year 3 years 5 years 10 years inception(3) AXP Growth Fund (includes sales charge) Class A Cumulative value of $10,000 $11,256 $12,780 $5,212 $15,556 $447,887 Average annual total return +12.56% +8.52% -12.22% +4.52% +12.05% Russell 1000(R) Growth Index(1) Cumulative value of $10,000 $11,304 $13,695 $6,337 $20,564 N/A Average annual total return +13.04% +11.05% -8.72% +7.48% N/A Lipper Large-Cap Growth Funds Index(2) Cumulative value of $10,000 $11,589 $13,405 $6,333 $18,831 N/A Average annual total return +15.89% +10.26% -8.73% +6.53% N/A
Results for other share classes can be found on page 4. (1) The Russell 1000(R) Growth Index, an unmanaged index, measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. (2) The Lipper Large-Cap Growth Funds Index includes the 30 largest large-cap growth funds tracked by Lipper Inc. The index's returns include net reinvested dividends. (3) Fund data is from March 1, 1972. The Fund began operating before the inception of the Russell 1000 Growth Index and Lipper peer group. - -------------------------------------------------------------------------------- 11 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Investments in Securities Growth Portfolio July 31, 2005 (Percentages represent value of investments compared to net assets) Common Stocks (93.6%) Issuer Shares Value(a) Aerospace & Defense (1.2%) Boeing 174,832 $11,540,660 Goodrich 72,802 3,220,760 Honeywell Intl 120,389 4,728,880 Lockheed Martin 273,766 17,082,999 Total 36,573,299 Beverages (1.2%) PepsiCo 717,009 39,098,501 Biotechnology (3.4%) Amgen 617,634(b) 49,256,312 Biogen Idec 229,170(b) 9,004,089 Genentech 388,290(b) 34,685,946 Gilead Sciences 314,510(b) 14,093,193 Total 107,039,540 Capital Markets (1.3%) Franklin Resources 130,600 10,555,092 Investors Financial Services 572,753 19,714,158 Nomura Holdings 534,700(c) 6,329,573 State Street 91,370 4,544,744 Total 41,143,567 Chemicals (0.7%) Monsanto 324,300 21,848,091 Commercial Banks (0.1%) ICICI Bank ADR 177,620(c) 4,690,944 Commercial Services & Supplies (0.1%) Career Education 89,671(b) 3,478,338 Communications Equipment (4.6%) CIENA 3,880,340(b) 8,691,962 Cisco Systems 1,615,125(b) 30,929,644 Motorola 1,336,627 28,309,760 Nokia ADR 3,964,017(c) 63,226,070 QUALCOMM 331,038 13,072,691 Total 144,230,127 Common Stocks (continued) Issuer Shares Value(a) Computers & Peripherals (4.1%) Brocade Communications Systems 1,951,455(b) $8,742,518 Dell 1,837,839(b) 74,377,344 EMC 1,936,807(b,d) 26,514,888 Hewlett-Packard 769,738 18,950,950 Total 128,585,700 Consumer Finance (0.3%) Capital One Financial 49,677 4,098,353 First Marblehead 180,265(b,d) 6,264,208 Total 10,362,561 Diversified Financial Services (0.5%) streetTRACKS Gold Trust 370,000(b) 15,839,700 Diversified Telecommunication Services (11.4%) ALLTEL 320,314 21,300,881 Sprint 9,622,971(d) 258,857,920 Telewest Global 3,344,246(b,c) 74,710,456 Total 354,869,257 Electronic Equipment & Instruments (0.4%) Flextronics Intl 409,825(b,c) 5,549,031 Solectron 1,627,685(b) 6,250,310 Total 11,799,341 Energy Equipment & Services (0.9%) Halliburton 263,350 14,760,768 Schlumberger 75,432 6,316,676 Transocean 105,373(b) 5,946,198 Total 27,023,642 Food & Staples Retailing (1.3%) Wal-Mart Stores 811,454 40,045,255 Food Products (0.7%) Kellogg 501,190 22,708,919 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 12 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Common Stocks (continued) Issuer Shares Value(a) Health Care Equipment & Supplies (2.5%) Alcon 54,916(c) $6,290,628 Baxter Intl 682,770 26,812,377 Boston Scientific 165,343(b) 4,786,680 Guidant 389,666 26,809,021 Medtronic 269,900 14,558,406 Total 79,257,112 Health Care Providers & Services (6.1%) Aetna 129,761 10,043,501 AmerisourceBergen 97,019 6,964,994 Cardinal Health 753,672 44,903,778 HCA 1,075,341 52,960,544 HealthSouth 1,149,893(b) 6,163,426 Magellan Health Services 412,550(b) 14,777,541 McKesson 122,988 5,534,460 Medco Health Solutions 356,370(b) 17,262,563 UnitedHealth Group 576,327 30,141,902 WellPoint 38,494(b) 2,723,066 Total 191,475,775 Household Durables (0.4%) Harman Intl Inds 11,100 954,045 Sony 279,100(c) 9,211,467 Tempur-Pedic Intl 149,900(b,d) 2,579,779 Total 12,745,291 Household Products (2.9%) Colgate-Palmolive 164,701 8,719,271 Procter & Gamble 653,513 36,354,928 Spectrum Brands 1,497,097(b) 46,410,007 Total 91,484,206 Industrial Conglomerates (1.3%) Tyco Intl 1,362,273(c) 41,508,458 Insurance (2.2%) ACE 388,636(c) 17,958,870 American Intl Group 758,143 45,640,208 Chubb 35,323 3,137,389 Hartford Financial Services Group 40,009 3,223,525 Total 69,959,992 Internet & Catalog Retail (0.5%) eBay 340,009(b) 14,205,576 Internet Software & Services (1.8%) Google Cl A 195,549(b) 56,271,180 Common Stocks (continued) Issuer Shares Value(a) Media (11.2%) Comcast Cl A 1,237,137(b) $38,017,220 Liberty Global Cl A 65,420(b) 3,103,525 NTL 3,776,488(b) 251,627,395 Vivendi Universal ADR 1,749,273(c) 55,591,896 Total 348,340,036 Metals & Mining (2.2%) Barrick Gold 22,982(c) 563,059 Coeur d'Alene Mines 4,711,561(b,d) 16,726,042 Glamis Gold 286,200(b,c) 4,999,914 Harmony Gold Mining ADR 423,600(c) 3,473,520 Kinross Gold 655,900(b,c) 3,646,804 Newmont Mining 999,447 37,529,234 PAN American Silver 37,200(b,c) 589,620 Stillwater Mining 284,500(b) 2,321,520 Total 69,849,713 Multiline Retail (0.6%) JC Penney 89,528 5,026,102 Kohl's 217,921(b) 12,279,848 Total 17,305,950 Oil & Gas (2.6%) Anadarko Petroleum 208,300 18,403,305 Burlington Resources 61,535 3,945,009 Chevron 288,200 16,718,482 ConocoPhillips 332,600 20,817,434 Kinder Morgan Management LLC --(b) 15 Marathon Oil 192,200 11,216,792 Valero Energy 147,525 12,212,120 Total 83,313,157 Personal Products (2.5%) Avon Products 94,659 3,096,296 Gillette 1,432,333 76,873,312 Total 79,969,608 Pharmaceuticals (8.7%) Abbott Laboratories 513,030 23,922,589 AstraZeneca 111,443(c) 5,036,260 Bristol-Myers Squibb 726,156(d) 18,139,377 GlaxoSmithKline ADR 263,390(c) 12,495,222 Johnson & Johnson 722,707(d) 46,224,340 Novartis ADR 649,378(c) 31,631,202 Pfizer 3,039,799 80,554,673 Roche Holding 185,822(c) 25,201,658 Schering-Plough 726,500 15,125,730 Wyeth 296,331 13,557,143 Total 271,888,194 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 13 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Common Stocks (continued) Issuer Shares Value(a) Semiconductors & Semiconductor Equipment (3.4%) Applied Materials 171,674 $3,169,102 ASML Holding 5,000(b,c) 88,000 Freescale Semiconductor Cl A 921,162(b) 23,508,054 Freescale Semiconductor Cl B 302,062(b) 7,778,097 Intel 2,079,491 56,437,386 Texas Instruments 470,057 14,929,010 Total 105,909,649 Software (3.6%) Electronic Arts 164,183(b) 9,456,941 Mercury Interactive 355,019(b) 13,977,098 Microsoft 1,640,748 42,019,556 Novell 257,010(b) 1,562,621 Oracle 1,842,147(b) 25,016,356 Siebel Systems 1,204,024 10,113,802 Symantec 488,754(b) 10,737,925 Total 112,884,299 Specialty Retail (--%) Gap 62,488 1,319,122 Thrifts & Mortgage Finance (0.9%) Countrywide Financial 419,451 15,100,237 Fannie Mae 190,811 10,658,702 Freddie Mac 63,554 4,021,697 Total 29,780,636 Tobacco (0.7%) Altria Group 351,865 23,560,880 Wireless Telecommunication Services (7.4%) Hutchison Telecommunications Intl ADR 614,003(b,c) 10,462,611 Millicom Intl Cellular 375,142(b,c,d) 7,968,016 NeuStar Cl A 115,558(b) 3,235,624 Nextel Communications Cl A 4,599,721(b) 160,070,291 Orascom Telecom 519,728(c) 25,269,175 Turkcell Iletisim Hizmetleri 480,379(c) 6,610,015 Vodafone Group ADR 798,073(c) 20,614,226 Total 234,229,958 Total Common Stocks (Cost: $2,619,729,854) $2,944,595,574 Options Purchased (0.3%) Issuer Contracts Exercise Expiration Value(a) price date Call Nextel Communications 10,680 $27.50 Jan. 2006 $8,490,600 Put S&P 500 Index 1,365 1,135 Dec. 2005 1,405,950 Total Options Purchased (Cost: $8,694,885) $9,896,550 Short-Term Securities (9.3%)(e) Issuer Effective Amount Value(a) yield payable at maturity U.S. Government Agency (1.6%) Federal Home Loan Mtge Corp Disc Nt 09-13-05 3.32% $50,000,000 $49,788,527 Commercial Paper (7.7%) Alpine Securitization 08-01-05 3.31 20,100,000(f) 20,094,456 Bryant Park Funding LLC 08-15-05 3.36 20,000,000(f) 19,968,361 08-22-05 3.38 15,000,000(f) 14,966,300 Chariot Funding LLC 08-25-05 3.43 20,000,000(f) 19,948,700 08-26-05 3.45 20,000,000(f) 19,946,489 CHARTA LLC 09-02-05 3.45 35,000,000(f) 34,882,945 FCAR Owner Trust I 08-04-05 3.27 15,000,000 14,991,825 Grampian Funding LLC 08-01-05 3.31 29,000,000(f) 28,992,001 HSBC Finance 08-01-05 3.31 14,200,000 14,196,083 K2 (USA) LLC 08-19-05 3.36 25,000,000 24,951,146 Preferred Receivables Funding 08-24-05 3.39 30,000,000(f) 29,926,767 Total 242,865,073 Total Short-Term Securities (Cost: $292,680,943) $292,653,600 Total Investments in Securities (Cost: $2,921,105,682)(g) $3,247,145,724 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 14 -- AXP GROWTH 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 14.1% of net assets. (d) At July 31, 2005, security was partially or fully on loan. See Note 4 to the financial statements. (e) Cash collateral received from security lending activity is invested in short-term securities and represents 1.3% of net assets. See Note 4 to the financial statements. 8.0% of net assets is the Portfolio'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 Fund's Board of Directors. 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 $188,726,019 or 6.0% of net assets. (g) At July 31, 2005, the cost of securities for federal income tax purposes was $2,944,865,213 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $340,547,365 Unrealized depreciation (38,266,854) ----------- Net unrealized appreciation $302,280,511 ------------ 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 GROWTH FUND -- 2005 ANNUAL REPORT Financial Statements
Statement of assets and liabilities Growth Portfolio July 31, 2005 Assets Investments in securities, at value (Note 1)* (identified cost $2,921,105,682) $3,247,145,724 Dividends and accrued interest receivable 1,496,603 Receivable for investment securities sold 84,047,080 ---------- Total assets 3,332,689,407 ============= Liabilities Disbursements in excess of cash on demand deposit 321,748 Payable for investment securities purchased 147,549,031 Payable upon return of securities loaned (Note 4) 39,971,200 Accrued investment management services fee 49,547 Other accrued expenses 135,650 ------- Total liabilities 188,027,176 ----------- Net assets $3,144,662,231 ============== * Including securities on loan, at value (Note 4) $ 38,111,730 --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT
Statement of operations Growth Portfolio Year ended July 31, 2005 Investment income Income: Dividends $ 38,136,284 Interest 2,553,033 Fee income from securities lending (Note 4) 561,115 Less foreign taxes withheld (737,925) -------- Total income 40,512,507 ---------- Expenses (Note 2): Investment management services fee 18,968,320 Compensation of board members 19,204 Custodian fees 264,471 Audit fees 33,000 Other 115,398 ------- Total expenses 19,400,393 Earnings credits on cash balances (Note 2) (1,699) ------ Total net expenses 19,398,694 ---------- Investment income (loss) -- net 21,113,813 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 295,603,187 Foreign currency transactions (36,291) Options contracts written (Note 5) (6,253,539) ---------- Net realized gain (loss) on investments 289,313,357 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 243,575,091 ----------- Net gain (loss) on investments and foreign currencies 532,888,448 ----------- Net increase (decrease) in net assets resulting from operations $554,002,261 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 17 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT
Statements of changes in net assets Growth Portfolio Year ended July 31, 2005 2004 Operations Investment income (loss) -- net $ 21,113,813 $ 21,150,217 Net realized gain (loss) on investments 289,313,357 362,598,800 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 243,575,091 (210,306,341) ----------- ------------ Net increase (decrease) in net assets resulting from operations 554,002,261 173,442,676 ----------- ----------- Proceeds from contributions 56,639,055 20,257,382 Fair value of withdrawals (562,295,652) (544,632,609) ------------ ------------ Net contributions (withdrawals) from partners (505,656,597) (524,375,227) ------------ ------------ Total increase (decrease) in net assets 48,345,664 (350,932,551) Net assets at beginning of year 3,096,316,567 3,447,249,118 ------------- ------------- Net assets at end of year $3,144,662,231 $3,096,316,567 ============== ==============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 18 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Notes to Financial Statements Growth Portfolio 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Growth Portfolio (the Portfolio) is a series of Growth Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Growth Portfolio invests primarily in common stocks and securities convertible into common stocks of U.S. and foreign companies that appear to offer growth opportunities. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio'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 Trustees of the portfolios, Ameriprise Financial, Inc. (Ameriprise Financial) (formerly American Express Financial Corporation) 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. - -------------------------------------------------------------------------------- 19 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Option transactions To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Portfolio 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 Portfolio 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 Portfolio gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Portfolio 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 Portfolio pays a premium whether or not the option is exercised. The Portfolio 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 Portfolio 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 Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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. - -------------------------------------------------------------------------------- 20 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT The Portfolio 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 Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. Guarantees and indemnifications Under the Portfolio's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Portfolio. In addition, certain of the Portfolio's contracts with its service providers contain general indemnification clauses. The Portfolio's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Portfolio cannot be determined and the Portfolio has no historical basis for predicting the likelihood of any such claims. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. 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. 2. FEES AND EXPENSES The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with RiverSource Investments, LLC to manage its portfolio. Prior to Oct. 1, 2005, investment management services were provided by Ameriprise Financial. Under an Investment Management Service Agreement, RiverSource Investments, LLC (the Investment Manager) determines which securities will be purchased, held or sold. The management fee is a percentage of the Portfolio's average daily net assets that declines from 0.60% to 0.48% annually as the Portfolio'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 AXP Growth Fund to the Lipper Large-Cap Growth 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 $1,705,757 for the year ended July 31, 2005. Under the agreement, the Trust also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees, audit and certain legal fees, fidelity bond premiums, registration fees for units, office expenses, consultants' fees, compensation of trustees, corporate filing fees, expenses incurred in connection with lending securities of the Portfolio and any other expenses properly payable by the Trust or Portfolio and approved by the board. - -------------------------------------------------------------------------------- 21 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the underlying Fund or other American Express mutual funds. The Portfolio's liability for these amounts is adjusted for market value changes and remains in the Portfolio until distributed in accordance with the Plan. During the year ended July 31, 2005, the Portfolio's custodian fees were reduced by $1,699 as a result of earnings credits from overnight cash balances. The Portfolio also pays custodian fees to Ameriprise Trust Company (formerly American Express Trust Company), an affiliate of Ameriprise Financial. According to a Placement Agency Agreement, Ameriprise Financial Services, Inc. (formerly American Express Financial Advisors Inc.) acts as placement agent of the Trust's units. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $3,922,996,626 and $4,573,625,345, 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 $13,720 for the year ended July 31, 2005. 4. LENDING OF PORTFOLIO SECURITIES At July 31, 2005, securities valued at $38,111,730 were on loan to brokers. For collateral, the Portfolio received $39,971,200 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 $561,115 for year ended July 31, 2005. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 5. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows: Year ended July 31, 2005 Calls Puts Contracts Premiums Contracts Premiums Balance July 31, 2004 -- $ -- -- $ -- Opened 780 882,931 10,280 9,835,760 Closed (780) (882,931) (10,280) (9,835,760) ---- --------- ------- ----------- Balance July 31, 2005 -- $ -- -- $ -- ---- --------- ------- ----------- See "Summary of significant accounting policies." - -------------------------------------------------------------------------------- 22 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT 6. FINANCIAL HIGHLIGHTS The table below shows certain important financial information for evaluating the Portfolio's results.
Ratios/supplemental data: Fiscal period ended July 31, 2005 2004 2003 2002 2001 Ratio of expenses to average daily net assets(a) .64% .49% .62% .47% .55% Ratio of net investment income (loss) to average daily net assets .70% .61% .59% .37% .09% Portfolio turnover rate (excluding short-term securities) 136% 171% 205% 225% 41% Total return(b) 20.12% 4.65% 9.73% (29.17%) (41.87%)
(a) Expense ratio is based on total expenses of the Portfolio before reduction of earnings credits on cash balances. The ratio does not include feeder fund expenses. (b) Total return is based on a calculated Portfolio net asset value and does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 23 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD OF TRUSTEES AND UNITHOLDERS GROWTH TRUST We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of Growth Portfolio (a series of Growth Trust) 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 five-year period ended July 31, 2005. These financial statements and the financial highlights are the responsibility of portfolio 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 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 Growth Portfolio 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 - -------------------------------------------------------------------------------- 24 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Growth Fund July 31, 2005 Assets Investment in Portfolio (Note 1) $3,144,608,611 Capital shares receivable 1,022,690 --------- Total assets 3,145,631,301 ------------- Liabilities Capital shares payable 289,626 Accrued distribution fee 30,742 Accrued service fee 840 Accrued transfer agency fee 5,291 Accrued administrative services fee 3,849 Other accrued expenses 240,697 ------- Total liabilities 571,045 ------- Net assets applicable to outstanding capital stock $3,145,060,256 ============== Represented by Capital stock -- $.01 par value (Note 1) $ 1,125,608 Additional paid-in capital 3,754,721,405 Undistributed net investment income 1,171,059 Accumulated net realized gain (loss) (Note 5) (937,992,748) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 326,034,932 ----------- Total -- representing net assets applicable to outstanding capital stock $3,145,060,256 ============== Net assets applicable to outstanding shares: Class A $2,101,095,913 Class B $ 578,073,340 Class C $ 14,995,769 Class I $ 146,738,136 Class Y $ 304,157,098 Net asset value per share of outstanding capital stock: Class A shares 74,131,468 $ 28.34 Class B shares 22,222,644 $ 26.01 Class C shares 576,446 $ 26.01 Class I shares 5,072,507 $ 28.93 Class Y shares 10,557,701 $ 28.81 ---------- --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 25 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT
Statement of operations AXP Growth Fund Year ended July 31, 2005 Investment income Income: Dividends $ 38,135,671 Interest 2,552,993 Fee income from securities lending 561,105 Less foreign taxes withheld (737,912) -------- Total income 40,511,857 ---------- Expenses (Note 2): Expenses allocated from Portfolio 19,398,381 Distribution fee Class A 5,058,973 Class B 5,641,889 Class C 128,612 Transfer agency fee 5,869,135 Incremental transfer agency fee Class A 427,875 Class B 286,709 Class C 6,131 Service fee -- Class Y 329,679 Administrative services fees and expenses 1,370,094 Compensation of board members 13,737 Printing and postage 754,975 Registration fees 72,275 Audit fees 11,000 Other 49,263 ------ Total expenses 39,418,728 Earnings credits on cash balances (Note 2) (114,220) -------- Total net expenses 39,304,508 ---------- Investment income (loss) -- net 1,207,349 --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 295,598,845 Foreign currency transactions (36,290) Options contracts written (6,253,432) ---------- Net realized gain (loss) on investments 289,309,123 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 243,570,687 ----------- Net gain (loss) on investments and foreign currencies 532,879,810 ----------- Net increase (decrease) in net assets resulting from operations $534,087,159 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT
Statements of changes in net assets AXP Growth Fund Year ended July 31, 2005 2004 Operations Investment income (loss) -- net $ 1,207,349 $ (2,970,542) Net realized gain (loss) on investments 289,309,123 362,594,443 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 243,570,687 (210,303,690) ----------- ------------ Net increase (decrease) in net assets resulting from operations 534,087,159 149,320,211 ----------- ----------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 245,400,269 285,165,756 Class B shares 84,469,961 80,166,420 Class C shares 4,411,692 4,297,146 Class I shares 115,544,634 18,579,557 Class Y shares 47,375,409 110,428,653 Payments for redemptions Class A shares (623,373,452) (533,084,922) Class B shares (Note 2) (200,303,603) (286,628,598) Class C shares (Note 2) (4,584,216) (3,709,528) Class I shares (1,248,614) (7,079) Class Y shares (152,214,350) (176,524,688) ------------ ------------ Increase (decrease) in net assets from capital share transactions (484,522,270) (501,317,283) ------------ ------------ Total increase (decrease) in net assets 49,564,889 (351,997,072) Net assets at beginning of year 3,095,495,367 3,447,492,439 ------------- ------------- Net assets at end of year $3,145,060,256 $3,095,495,367 ============== ============== Undistributed net investment income $ 1,171,059 $ -- -------------- --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 27 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT Notes to Financial Statements AXP Growth 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 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 and the AXP Portfolio Builder Funds owned 100% of Class I shares, which represents 4.67% 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. Investment in Growth Portfolio The Fund invests all of its assets in Growth Portfolio (the Portfolio), a series of Growth Trust (the Trust), an open-end investment company that has the same objectives as the Fund. The Portfolio invests primarily in common stocks and securities convertible into common stocks of U.S. and foreign companies that appear to offer growth opportunities. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund at July 31, 2005 was 99.99%. - -------------------------------------------------------------------------------- 28 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT All securities held by the Portfolio 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 Trustees of the portfolios, 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. 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. 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 the 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. - -------------------------------------------------------------------------------- 29 -- AXP GROWTH 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 $36,290 and accumulated net realized loss has been decreased by $36,290. 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 $-- $-- Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class I* Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- Class Y Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- * 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 $ 1,171,059 Accumulated long-term gain (loss) $(913,031,953) Unrealized appreciation (depreciation) $ 301,074,137 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. - -------------------------------------------------------------------------------- 30 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with Ameriprise Financial to provide administrative services. Under the current Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administrative 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. 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. - -------------------------------------------------------------------------------- 31 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT 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 $2,726,588 for Class A, $634,395 for Class B and $2,160 for Class C for the year ended July 31, 2005. During the year ended July 31, 2005, the Fund's transfer agency fees were reduced by $114,220 as a result of earnings credits from overnight cash balances. 3. 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 9,267,227 3,475,136 181,331 4,366,146 1,841,710 Issued for reinvested distributions -- -- -- -- -- Redeemed (24,353,716) (8,484,021) (194,446) (44,571) (5,823,100) ----------- ---------- -------- ------- ---------- Net increase (decrease) (15,086,489) (5,008,885) (13,115) 4,321,575 (3,981,390) ----------- ---------- ------- --------- ---------- Year ended July 31, 2004 Class A Class B Class C Class I* Class Y Sold 11,944,233 3,592,298 193,314 751,217 4,533,974 Issued for reinvested distributions -- -- -- -- -- Redeemed (21,995,982) (12,837,345) (164,669) (285) (7,210,738) ----------- ----------- -------- ---- ---------- Net increase (decrease) (10,051,749) (9,245,047) 28,645 750,932 (2,676,764) ----------- ---------- ------ ------- ----------
* Inception date is March 4, 2004. 4. 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. - -------------------------------------------------------------------------------- 32 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $913,031,953 at July 31, 2005, that if not offset by capital gains will expire as follows: 2010 2011 $544,257,626 $368,774,327 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. 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 2002 2001 Net asset value, beginning of period $23.73 $22.80 $20.88 $29.68 $ 54.36 ------ ------ ------ ------ ------- Income from investment operations: Net investment income (loss) .04 .02 -- (.04) (.14) Net gains (losses) (both realized and unrealized) 4.57 .91 1.92 (8.74) (22.34) ------ ------ ------ ------ ------- Total from investment operations 4.61 .93 1.92 (8.78) (22.48) ------ ------ ------ ------ ------- Less distributions: Distributions from realized gains -- -- -- (.02) (2.20) ------ ------ ------ ------ ------- Net asset value, end of period $28.34 $23.73 $22.80 $20.88 $ 29.68 ------ ------ ------ ------ ------- Ratios/supplemental data Net assets, end of period (in millions) $2,101 $2,117 $2,263 $2,213 $3,851 Ratio of expenses to average daily net assets(b) 1.19% 1.03% 1.21% .99% .99% Ratio of net investment income (loss) to average daily net assets .16% .07% --% (.15%) (.34%) Portfolio turnover rate (excluding short-term securities) 136% 171% 205% 225% 41% Total return(c) 19.43% 4.08% 9.20% (29.59%) (42.14%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 33 -- AXP GROWTH FUND -- 2005 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended July 31, 2005 2004 2003 2002 2001 Net asset value, beginning of period $21.95 $21.25 $19.61 $28.11 $ 52.02 ------ ------ ------ ------ ------- Income from investment operations: Net investment income (loss) (.16) (.16) (.17) (.25) (.42) Net gains (losses) (both realized and unrealized) 4.22 .86 1.81 (8.23) (21.29) ------ ------ ------ ------ ------- Total from investment operations 4.06 .70 1.64 (8.48) (21.71) ------ ------ ------ ------ ------- Less distributions: Distributions from realized gains -- -- -- (.02) (2.20) ------ ------ ------ ------ ------- Net asset value, end of period $26.01 $21.95 $21.25 $19.61 $ 28.11 ------ ------ ------ ------ ------- Ratios/supplemental data Net assets, end of period (in millions) $578 $598 $775 $845 $1,510 Ratio of expenses to average daily net assets(b) 1.97% 1.81% 1.99% 1.77% 1.75% Ratio of net investment income (loss) to average daily net assets (.62%) (.71%) (.77%) (.93%) (1.11%) Portfolio turnover rate (excluding short-term securities) 136% 171% 205% 225% 41% Total return(c) 18.50% 3.29% 8.36% (30.18%) (42.57%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge.
Class C Per share income and capital changes(a) Fiscal period ended July 31, 2005 2004 2003 2002 2001 Net asset value, beginning of period $21.95 $21.25 $19.62 $28.12 $ 52.03 ------ ------ ------ ------ ------- Income from investment operations: Net investment income (loss) (.16) (.16) (.17) (.21) (.42) Net gains (losses) (both realized and unrealized) 4.22 .86 1.80 (8.27) (21.29) ------ ------ ------ ------ ------- Total from investment operations 4.06 .70 1.63 (8.48) (21.71) ------ ------ ------ ------ ------- Less distributions: Distributions from realized gains -- -- -- (.02) (2.20) ------ ------ ------ ------ ------- Net asset value, end of period $26.01 $21.95 $21.25 $19.62 $ 28.12 ------ ------ ------ ------ ------- Ratios/supplemental data Net assets, end of period (in millions) $15 $13 $12 $7 $9 Ratio of expenses to average daily net assets(b) 1.97% 1.81% 2.01% 1.80% 1.75% Ratio of net investment income (loss) to average daily net assets (.62%) (.71%) (.81%) (.96%) (1.10%) Portfolio turnover rate (excluding short-term securities) 136% 171% 205% 225% 41% Total return(c) 18.50% 3.29% 8.31% (30.17%) (42.56%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 34 -- AXP GROWTH 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 $24.10 $25.61 ------ ------ Income from investment operations: Net investment income (loss) .12 .09 Net gains (losses) (both realized and unrealized) 4.71 (1.60) ------ ------ Total from investment operations 4.83 (1.51) ------ ------ Net asset value, end of period $28.93 $24.10 ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $147 $18 Ratio of expenses to average daily net assets(c) .75% .57%(d) Ratio of net investment income (loss) to average daily net assets .55% .43%(d) Portfolio turnover rate (excluding short-term securities) 136% 171% Total return(e) 20.04% (5.90%)(f)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date is March 4, 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) Total return does not reflect payment of a sales charge. (f) Not annualized.
Class Y Per share income and capital changes(a) Fiscal period ended July 31, 2005 2004 2003 2002 2001 Net asset value, beginning of period $24.07 $23.09 $21.11 $29.96 $ 54.75 ------ ------ ------ ------ ------- Income from investment operations: Net investment income (loss) .09 .07 .04 -- (.07) Net gains (losses) (both realized and unrealized) 4.65 .91 1.94 (8.83) (22.52) ------ ------ ------ ------ ------- Total from investment operations 4.74 .98 1.98 (8.83) (22.59) ------ ------ ------ ------ ------- Less distributions: Distributions from realized gains -- -- -- (.02) (2.20) ------ ------ ------ ------ ------- Net asset value, end of period $28.81 $24.07 $23.09 $21.11 $ 29.96 ------ ------ ------ ------ ------- Ratios/supplemental data Net assets, end of period (in millions) $304 $350 $398 $481 $974 Ratio of expenses to average daily net assets(b) 1.02% .86% 1.03% .82% .83% Ratio of net investment income (loss) to average daily net assets .34% .25% .18% .02% (.18%) Portfolio turnover rate (excluding short-term securities) 136% 171% 205% 225% 41% Total return(c) 19.69% 4.24% 9.38% (29.48%) (42.04%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 35 -- AXP GROWTH 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 of AXP Growth 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 five-year period ended July 31, 2005. 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. 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 Growth 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 - -------------------------------------------------------------------------------- 36 -- AXP GROWTH 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. - -------------------------------------------------------------------------------- 37 -- AXP GROWTH 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 $1,086.70 $6.29(c) 1.23% Hypothetical (5% return before expenses) $1,000 $1,018.49 $6.09(c) 1.23% Class B Actual(b) $1,000 $1,082.80 $10.27(c) 2.01% Hypothetical (5% return before expenses) $1,000 $1,014.66 $9.93(c) 2.01% Class C Actual(b) $1,000 $1,083.30 $10.27(c) 2.01% Hypothetical (5% return before expenses) $1,000 $1,014.66 $9.93(c) 2.01% Class I Actual(b) $1,000 $1,089.60 $3.89(c) .76% Hypothetical (5% return before expenses) $1,000 $1,020.79 $3.77(c) .76% Class Y Actual(b) $1,000 $1,088.00 $5.38(c) 1.05% Hypothetical (5% return before expenses) $1,000 $1,019.37 $5.20(c) 1.05%
(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: +8.67% for Class A, +8.28% for Class B, +8.33% for Class C, +8.96% for Class I and +8.80% 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 $6.34 for Class A, $10.32 for Class B, $10.32 for Class C, $3.95 for Class I and $5.43 for Class Y; the hypothetical expenses paid would have been $6.14 for Class A, $9.98 for Class B, $9.98 for Class C, $3.82 for Class I and $5.25 for Class Y. - -------------------------------------------------------------------------------- 38 -- AXP GROWTH 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. - -------------------------------------------------------------------------------- 39 -- AXP GROWTH 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. - -------------------------------------------------------------------------------- 40 -- AXP GROWTH 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. - -------------------------------------------------------------------------------- 41 -- AXP GROWTH 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 Feb. 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. - -------------------------------------------------------------------------------- 42 -- AXP GROWTH 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. - -------------------------------------------------------------------------------- 43 -- AXP GROWTH 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. - -------------------------------------------------------------------------------- 44 -- AXP GROWTH 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. 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. AXP(R) Large Cap Value Fund Annual Report for the Period Ended July 31, 2005 AXP Large Cap Value 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 14 Notes to Financial Statements 17 Report of Independent Registered Public Accounting Firm 28 Federal Income Tax Information 29 Fund Expenses Example 31 Board Members and Officers 33 Approval of Investment Management Services Agreement 36 Proxy Voting 38 [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 RiverSourceSM brand. Information regarding the new name of the Fund and other changes will be separately communicated to shareholders. - -------------------------------------------------------------------------------- 2 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Fund Snapshot AT JULY 31, 2005 PORTFOLIO MANAGER Portfolio manager Since Years in industry Robert Ewing, CFA 6/02 16 FUND OBJECTIVE The Fund seeks to provide shareholders with long-term growth of capital. Inception dates by class A: 6/27/02 B: 6/27/02 C: 6/27/02 I: 3/4/04 Y: 6/27/02 Ticker symbols by class A: ALVAX B: ALVBX C: -- I: ALCIX Y: -- Total net assets $141.9 million Number of holdings 177 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 27.7% Energy 12.9% Consumer Discretionary 9.0% Information Technology 8.8% Industrials 8.6% Consumer Staples 8.2% Telecommunication Services 6.5% Health Care 5.8% Short-Term Securities 4.3% Utilities 4.2% Materials 4.0% TOP TEN HOLDINGS Percentage of portfolio assets Exxon Mobil (Oil & Gas) 3.7% Bank of America (Commercial Banks) 3.2 Citigroup (Diversified Financial Services) 3.1 ConocoPhillips (Oil & Gas) 2.5 American Intl Group (Insurance) 2.1 Altria Group (Tobacco) 2.0 JPMorgan Chase & Co (Diversified Financial Services) 1.8 Chevron (Oil & Gas) 1.7 Dow Chemical (Chemicals) 1.4 Wells Fargo & Co (Commercial Banks) 1.4 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. - -------------------------------------------------------------------------------- 3 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Performance Summary [BAR CHART] PERFORMANCE COMPARISON For the year ended July 31, 2005 +14.52% +19.04% +15.06% +14.52% = AXP Large Cap Value Fund Class A (excluding sales charge) +19.04% = Russell 1000 Value Index (unmanaged) +15.06% = Lipper Large-Cap Value 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) (6/27/02) (6/27/02) (6/27/02) (3/4/04) (6/27/02) After After NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) at July 31, 2005 1 year +14.52% +7.93% +13.66% +8.66% +13.62% +12.62% +14.97% +14.67% 3 years +12.62% +10.41% +11.76% +10.68% +11.76% +11.76% N/A +12.85% Since inception +9.32% +7.25% +8.52% +7.69% +8.51% +8.51% +7.44% +9.54% at June 30, 2005 1 year +9.30% +3.01% +8.43% +3.43% +8.59% +7.59% +9.96% +9.66% 3 years +8.66% +6.53% +7.82% +6.66% +7.82% +7.82% N/A +8.88% Since inception +8.78% +6.66% +7.95% +7.08% +7.94% +7.94% +6.12% +9.00%
(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. - -------------------------------------------------------------------------------- 4 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT AXP Large Cap Value Fund's Class A shares advanced 14.52%, excluding sales charge, for the 12 months ended July 31, 2005. The Fund underperformed its benchmark, the Russell 1000 Value Index (Russell Index), which increased 19.04% during the period. The Fund's peer group, the Lipper Large-Cap Value Funds Index, gained 15.06% during the same time frame. Below, Portfolio Manager Robert Ewing discusses the Fund's results and positioning for the annual period ended July 31, 2005. At July 31, 2005, approximately 26% 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 Large Cap Value Fund may experience relatively large purchases or redemptions from AXP Portfolio Builder Funds (see page 22, Class I capital share transactions for related activity during the most recent fiscal period). RiverSource Investments seeks to minimize the impact of these transactions, which may include structuring them over a reasonable period of time. AXP Large Cap Value 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 21 and 31. Q: What factors most significantly affected performance for the period? A: During the annual period, stock selection was favorable in some sectors, while detrimental in others. Stock selection within the information technology and telecommunications sectors helped Fund performance. However, selection within the financials and consumer staples sectors detracted from performance. In terms of sector allocation, the industrial sector did not perform well and as a result, our smaller-than-Russell Index position helped performance. In addition, our larger exposure to the technology sector compared to the Russell Index contributed positively during the fiscal year. The Fund's relatively small 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. Finally, the Fund's low exposure to the utilities sector hurt performance while the sector was up approximately 40%. * Prior to Oct. 1, 2005, Ameriprise Financial, Inc. (formerly American Express Financial Corporation) served as investment manager to the AXP mutual funds. - -------------------------------------------------------------------------------- 5 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Questions & Answers [BEGIN CALLOUT QUOTE] > During the annual period, stock selection was favorable in some sectors, while detrimental in others. [END CALLOUT QUOTE] Overall, the energy sector performed extremely well during the period and stock selection within contributed positively to performance, specifically ConocoPhillips, Andarko Petroleum and Transocean. Cell phone maker Nokia and hospital company HCA also performed well and were significant positive contributors. Conversely, not owning energy stocks or having smaller positions in these stocks during the period detracted from performance. The Fund's significantly lower-than-Russell Index position in Exxon Mobil detracted as the stock was a strong performer. Other smaller Fund positions in strongly performing energy stocks included Occidental Petroleum and refining company Valero. In addition, General Electric, another large percentage of the Russell Index, performed well and our lower exposure hurt performance. Q: What changes did you make to the portfolio and how is it currently positioned? A: We increased the Fund's allocations to the information technology, energy and financials sectors. Throughout the period there were very exploitable valuation opportunities in information technology and we took the chance to add to the sector. Within energy, we added to the Fund's position throughout the year as we found attractive opportunities. However, we are currently in an exciting energy environment and are content to keep the Fund's energy allocation as is until we see how things play out through the close of the year. In addition, the financial sector has had very attractive valuations in our view. We added positions in some of the higher quality, larger cap companies. We eliminated positions in health care, materials and industrials. Specifically, hospitals and health maintenance organizations (HMOs) have performed very well over the year, and we have - -------------------------------------------------------------------------------- 6 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Questions & Answers [BEGIN CALLOUT QUOTE] > We continue to emphasize higher quality stocks over lower quality stocks that have high amounts of leverage or exhibit volatile earnings. [END CALLOUT QUOTE] taken down some of our positions, including well-known HMO Aetna. We also eliminated some strong performing stocks in the chemicals subsector of materials during the period. Finally, we decreased our holdings in the industrial sector as we are late in the economic expansion and a large position does not seem prudent. 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. We are maintaining our key portfolio themes. We continue to emphasize higher quality stocks over lower quality stocks that have high amounts of leverage or exhibit volatile earnings. We have tried to keep the average price/earnings ratio of our holdings below that of the benchmark. We have focused on larger stocks because they tend to be more stable companies, but also because they have been more attractively valued than mid- and small-cap stocks. We have also sought to keep the portfolio's volatility close to or lower than that of the Fund's benchmark, thus positioning the Fund to perform better in a flat or down market. Although it is worth noting that value stocks have outperformed growth stocks for some time and may be susceptible to a market reversal, we consider it more pertinent that small- and mid-cap stocks have outperformed large-caps for a prolonged period. We are finding more opportunities among large-cap stocks, and therefore, the Fund's average market capitalization has increased. At this stage in the economic cycle, we expect economic and corporate growth to decelerate a bit and deceleration tends to favor bigger, more secure companies. - -------------------------------------------------------------------------------- 7 -- AXP LARGE CAP VALUE 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 Value Fund Class A shares (from 7/1/02 to 7/31/05) as compared to the performance of two widely cited performance indices, the Russell 1000 Value Index and the Lipper Large-Cap Value 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 $0.04 $0.07 $0.16 $0.27 July 31, 2004 0.03 0.23 0.01 0.27 July 31, 2003 0.01 -- -- 0.01 July 31, 2002(1) -- -- -- -- (1) For the period from June 27, 2002 (when shares became publicily available) to July 31, 2002. - -------------------------------------------------------------------------------- 8 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP LARGE CAP VALUE FUND AXP Large Cap Value Fund Class A (includes sales charge) $ 9,425 $8,695 $ 9,610 $10,845 $12,420 Russell 1000(R) Value Index(1) $10,000 $9,070 $10,045 $11,821 $14,072 Lipper Large-Cap Value Funds Index(2) $10,000 $9,136 $ 9,923 $11,424 $13,144 7/1/02 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 Value Fund (includes sales charge) Class A Cumulative value of $10,000 $10,793 $13,459 $12,420 Average annual total return +7.93% +10.41% +7.25% Russell 1000(R) Value Index(1) Cumulative value of $10,000 $11,904 $15,512 $14,072 Average annual total return +19.04% +15.76% +11.71% Lipper Large-Cap Value Funds Index(2) Cumulative value of $10,000 $11,506 $14,387 $13,144 Average annual total return +15.06% +12.89% +9.27%
Results for other share classes can be found on page 4. (1) The Russell 1000(R) Value Index, an unmanaged index, measures the performance of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. (2) The Lipper Large-Cap Value Funds Index includes the 30 largest large-cap value funds tracked by Lipper Inc. The index's returns include net reinvested dividends. (3) Fund data is from June 27, 2002. Russell 1000 Value Index and Lipper peer group data is from July 1, 2002. - -------------------------------------------------------------------------------- 9 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Investments in Securities AXP Large Cap Value Fund July 31, 2005 (Percentages represent value of investments compared to net assets) Common Stocks (95.5%) Issuer Shares Value(a) Aerospace & Defense (4.3%) Boeing 8,480 $559,765 Empresa Brasileira de Aeronautica ADR 25,073(c) 810,861 General Dynamics 3,518 405,238 Goodrich 6,558 290,126 Honeywell Intl 26,093 1,024,933 Lockheed Martin 14,643 913,723 Northrop Grumman 22,346 1,239,086 United Technologies 17,739 899,367 Total 6,143,099 Auto Components (0.1%) Lear 3,140 134,298 Automobiles (0.3%) General Motors 10,573 389,298 Beverages (1.3%) Coca-Cola 4,990 218,362 Coca-Cola Enterprises 11,692 274,762 PepsiCo 23,611 1,287,508 Total 1,780,632 Biotechnology (0.1%) Biogen Idec 3,967(b) 155,863 Building Products (0.5%) American Standard Companies 7,623 337,546 Masco 12,394 420,281 Total 757,827 Capital Markets (4.5%) Bank of New York 29,698 914,104 E*TRADE Financial 9,486(b) 147,128 Franklin Resources 6,571 531,068 Investors Financial Services 18,665 642,449 Legg Mason 3,112 317,891 Lehman Brothers Holdings 7,750 814,758 Merrill Lynch & Co 15,029 883,405 Morgan Stanley 32,118 1,703,860 State Street 9,635 479,245 Total 6,433,908 Common Stocks (continued) Issuer Shares Value(a) Chemicals (2.0%) Dow Chemical 42,700 $2,047,466 Eastman Chemical 5,088 281,824 Lyondell Chemical 12,877 359,783 RPM Intl 7,556 141,675 Total 2,830,748 Commercial Banks (7.4%) Bank of America 103,057 4,493,284 Commerce Bancorp 9,621 326,441 PNC Financial Services Group 12,466 683,386 Regions Financial 6,436 216,507 US Bancorp 44,351 1,333,191 Wachovia 29,171 1,469,635 Wells Fargo & Co 32,872 2,016,368 Total 10,538,812 Commercial Services & Supplies (0.9%) Avery Dennison 5,608 317,805 Cendant 44,998 961,158 Total 1,278,963 Communications Equipment (1.2%) Cisco Systems 22,312(b) 427,275 Motorola 17,998 381,198 Nokia ADR 56,979(c) 908,814 Total 1,717,287 Computers & Peripherals (2.9%) Dell 24,173(b) 978,281 EMC 22,541(b) 308,586 Hewlett-Packard 61,981 1,525,973 Intl Business Machines 16,190 1,351,217 Total 4,164,057 Consumer Finance (1.2%) Capital One Financial 12,384 1,021,680 MBNA 26,458 665,683 Total 1,687,363 Containers & Packaging (0.4%) Temple-Inland 15,891 632,303 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Common Stocks (continued) Issuer Shares Value(a) Diversified Financial Services (5.0%) Citigroup 102,393 $4,454,096 JPMorgan Chase & Co 73,652 2,588,131 Total 7,042,227 Diversified Telecommunication Services (5.8%) ALLTEL 3,543 235,610 BellSouth 52,057 1,436,773 Citizens Communications 10,824 142,227 KT ADR 17,568(c) 388,956 MCI 38,163 973,920 SBC Communications 77,172 1,886,855 Sprint 73,683 1,982,073 Telewest Global 9,656(b,c) 215,715 Verizon Communications 29,610 1,013,550 Total 8,275,679 Electric Utilities (2.9%) Entergy 11,825 921,641 Exelon 23,017 1,231,869 FPL Group 10,441 450,216 PPL 7,517 462,897 Southern 23,533 823,420 Xcel Energy 13,683 265,587 Total 4,155,630 Electronic Equipment & Instruments (0.3%) Flextronics Intl 18,712(b,c) 253,361 Solectron 39,406(b) 151,319 Total 404,680 Energy Equipment & Services (1.6%) Cooper Cameron 5,146(b) 365,263 Halliburton 11,544 647,042 Schlumberger 2,989 250,299 Transocean 8,794(b) 496,245 Weatherford Intl 8,576(b) 542,689 Total 2,301,538 Food & Staples Retailing (0.9%) CVS 11,411 354,083 Wal-Mart Stores 19,795 976,884 Total 1,330,967 Food Products (0.9%) General Mills 13,985 662,889 Kellogg 13,189 597,594 Total 1,260,483 Gas Utilities (0.3%) ONEOK 13,526 472,734 Common Stocks (continued) Issuer Shares Value(a) Health Care Equipment & Supplies (1.0%) Baxter Intl 12,585 $494,213 Boston Scientific 4,971(b) 143,910 Guidant 5,132 353,082 Hospira 11,232(b) 429,624 Total 1,420,829 Health Care Providers & Services (1.2%) Cardinal Health 6,367 379,346 CIGNA 4,667 498,202 HCA 11,918 586,962 Medco Health Solutions 4,421(b) 214,153 Total 1,678,663 Household Durables (0.2%) Leggett & Platt 5,905 149,338 Tempur-Pedic Intl 3,925(b) 67,549 Total 216,887 Household Products (2.0%) Colgate-Palmolive 12,802 677,738 Procter & Gamble 20,484 1,139,525 Spectrum Brands 32,243(b) 999,533 Total 2,816,796 Industrial Conglomerates (1.9%) General Electric 33,226 1,146,297 Tyco Intl 51,335(c) 1,564,177 Total 2,710,474 Insurance (5.3%) ACE 34,582(c) 1,598,034 AFLAC 3,498 157,760 Allstate 5,653 346,303 American Intl Group 48,864 2,941,612 Assurant 5,846 216,010 Chubb 12,002 1,066,018 Endurance Specialty Holdings 9,956(c) 388,284 First American 7,501 329,669 Hartford Financial Services Group 4,987 401,803 Montpelier Re Holdings 3,344(c) 120,116 Total 7,565,609 Internet Software & Services (0.1%) Google Cl A 374(b) 107,622 IT Services (0.7%) Accenture Cl A 8,943(b,c) 223,933 Affiliated Computer Services Cl A 14,911(b) 745,102 Total 969,035 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 11 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Common Stocks (continued) Issuer Shares Value(a) Leisure Equipment & Products (0.2%) Mattel 14,279 $266,303 Machinery (0.9%) Caterpillar 8,782 473,438 Illinois Tool Works 2,919 250,012 Ingersoll-Rand Cl A 3,302(c) 258,117 ITT Inds 2,434 258,978 Total 1,240,545 Media (6.2%) Comcast Cl A 20,868(b) 641,274 Comcast Special Cl A 29,059(b) 871,770 EchoStar Communications Cl A 8,946 256,929 Liberty Global Cl A 9,849(b) 467,237 Liberty Media Cl A 133,486(b) 1,173,342 NTL 20,038(b) 1,335,132 Reader's Digest Assn 9,375 152,250 Time Warner 41,543(b) 707,062 Tribune 16,142 589,183 Viacom Cl B 41,994 1,406,378 Vivendi Universal ADR 13,754(c) 437,102 Walt Disney 32,194 825,454 Total 8,863,113 Metals & Mining (0.4%) Alcan 8,773(c) 296,352 Alcoa 11,300 316,965 Total 613,317 Multi-Utilities & Unregulated Power (0.9%) Dominion Resources 17,274 1,275,858 Multiline Retail (1.1%) Federated Dept Stores 4,463 338,608 JC Penney 5,492 308,321 Target 15,223 894,351 Total 1,541,280 Office Electronics (0.1%) Xerox 10,058(b) 132,866 Oil & Gas (11.3%) Anadarko Petroleum 20,184 1,783,256 BP ADR 19,563(c) 1,288,810 Chevron 42,555 2,468,616 ConocoPhillips 57,471 3,597,110 Devon Energy 10,560 592,310 Exxon Mobil 89,695 5,269,581 Newfield Exploration 14,381(b) 611,049 Royal Dutch Shell Cl A ADR 6,025(b,c) 369,212 Total 15,979,944 Common Stocks (continued) Issuer Shares Value(a) Paper & Forest Products (1.1%) Bowater 14,015 $473,847 Intl Paper 20,788 656,901 Weyerhaeuser 6,748 465,477 Total 1,596,225 Personal Products (1.1%) Avon Products 26,328 861,188 Gillette 13,453 722,023 Total 1,583,211 Pharmaceuticals (3.5%) Bristol-Myers Squibb 16,040 400,679 GlaxoSmithKline ADR 4,062(c) 192,701 Johnson & Johnson 6,726 430,195 Merck & Co 21,452 666,299 Novartis ADR 10,092(c) 491,581 Pfizer 75,823 2,009,310 Schering-Plough 19,189 399,515 Wyeth 7,990 365,543 Total 4,955,823 Real Estate Investment Trust (1.1%) Apartment Investment & Management Cl A 8,816 387,904 Equity Office Properties Trust 27,655 980,370 HomeBanc 15,540 140,792 Total 1,509,066 Semiconductors & Semiconductor Equipment (2.4%) ATI Technologies 11,595(b,c) 145,981 Broadcom Cl A 5,940(b) 254,054 Credence Systems 19,325(b) 210,449 Cypress Semiconductor 43,889(b) 630,246 Freescale Semiconductor Cl A 18,707(b) 477,403 Freescale Semiconductor Cl B 3,233(b) 83,250 Intel 26,064 707,376 MEMC Electronic Materials 28,749(b) 488,446 Texas Instruments 12,713 403,765 Total 3,400,970 Software (1.1%) Cadence Design Systems 32,795(b) 527,672 Microsoft 30,420 779,056 Siebel Systems 15,929 133,804 Symantec 5,824(b) 127,953 Total 1,568,485 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 12 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Common Stocks (continued) Issuer Shares Value(a) Specialty Retail (0.9%) Gap 10,228 $215,913 Home Depot 17,606 766,038 PETCO Animal Supplies 11,135(b) 310,332 Total 1,292,283 Thrifts & Mortgage Finance (3.3%) Countrywide Financial 43,844 1,578,384 Fannie Mae 24,368 1,361,196 Freddie Mac 22,178 1,403,424 Washington Mutual 6,564 278,839 Total 4,621,843 Tobacco (2.0%) Altria Group 41,458 2,776,028 Wireless Telecommunication Services (0.7%) Vodafone Group ADR 36,633(c) 946,230 Total Common Stocks (Cost: $123,495,876) $135,537,701 Short-Term Securities (4.3%) Issuer Effective Amount Value(a) yield payable at maturity U.S. Government Agency (2.4%) Federal Home Loan Bank Disc Nt 08-17-05 3.24% $3,400,000 $3,394,201 Commercial Paper (1.9%) Citibank Credit Card Dakota Nts 08-01-05 3.30 2,700,000(d) 2,699,258 Total Short-Term Securities (Cost: $6,094,012) $6,093,459 Total Investments in Securities (Cost: $129,589,888)(e) $141,631,160 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 7.7% of net assets. (d) 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 Fund's Board of Directors. 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 $2,699,258 or 1.9% of net assets. (e) At July 31, 2005, the cost of securities for federal income tax purposes was $130,166,821 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $14,443,575 Unrealized depreciation (2,979,236) ---------- Net unrealized appreciation $11,464,339 ----------- 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. - -------------------------------------------------------------------------------- 13 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Large Cap Value Fund July 31, 2005 Assets Investments in securities, at value (Note 1) (identified cost $129,589,888) $141,631,160 Cash in bank on demand deposit 57,624 Capital shares receivable 2,404 Dividends and accrued interest receivable 214,965 Receivable for investment securities sold 353,880 ------- Total assets 142,260,033 ----------- Liabilities Capital shares payable 13,056 Payable for investment securities purchased 215,338 Accrued investment management services fee 2,351 Accrued distribution fee 1,335 Accrued transfer agency fee 245 Accrued administrative services fee 196 Other accrued expenses 85,043 ------ Total liabilities 317,564 ------- Net assets applicable to outstanding capital stock $141,942,469 ============ Represented by Capital stock -- $.01 par value (Note 1) $ 243,672 Additional paid-in capital 122,863,980 Undistributed net investment income 750,831 Accumulated net realized gain (loss) 6,042,714 Unrealized appreciation (depreciation) on investments 12,041,272 ---------- Total -- representing net assets applicable to outstanding capital stock $141,942,469 ============ Net assets applicable to outstanding shares: Class A $ 74,114,932 Class B $ 28,468,201 Class C $ 1,392,159 Class I $ 37,827,081 Class Y $ 140,096 Net asset value per share of outstanding capital stock: Class A shares 12,713,655 $ 5.83 Class B shares 4,935,011 $ 5.77 Class C shares 241,376 $ 5.77 Class I shares 6,453,226 $ 5.86 Class Y shares 23,947 $ 5.85 ------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT
Statement of operations AXP Large Cap Value Fund Year ended July 31, 2005 Investment income Income: Dividends $ 3,133,148 Interest 98,502 Less foreign taxes withheld (20,161) ------- Total income 3,211,489 --------- Expenses (Note 2): Investment management services fee 803,736 Distribution fee Class A 183,291 Class B 277,867 Class C 14,213 Transfer agency fee 170,475 Incremental transfer agency fee Class A 12,699 Class B 9,182 Class C 566 Service fee -- Class Y 121 Administrative services fees and expenses 67,667 Compensation of board members 9,287 Custodian fees 158,870 Printing and postage 51,645 Registration fees 50,705 Audit fees 20,500 Other 8,798 ----- Total expenses 1,839,622 Earnings credits on cash balances (Note 2) (6,611) ------ Total net expenses 1,833,011 --------- Investment income (loss) -- net 1,378,478 --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 8,924,948 Foreign currency transactions (5) -- Net realized gain (loss) on investments 8,924,943 Net change in unrealized appreciation (depreciation) on investments 7,691,556 --------- Net gain (loss) on investments and foreign currencies 16,616,499 ---------- Net increase (decrease) in net assets resulting from operations $17,994,977 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT
Statements of changes in net assets AXP Large Cap Value Fund Year ended July 31, 2005 2004 Operations and distributions Investment income (loss) -- net $ 1,378,478 $ 556,993 Net realized gain (loss) on investments 8,924,943 5,214,984 Net change in unrealized appreciation (depreciation) on investments 7,691,556 1,187,608 --------- --------- Net increase (decrease) in net assets resulting from operations 17,994,977 6,959,585 ---------- --------- Distributions to shareholders from: Net investment income Class A (546,048) (292,557) Class B (10,205) (34,475) Class C -- (1,580) Class I (382,906) -- Class Y (1,186) (292) Net realized gain Class A (3,015,777) (2,044,844) Class B (1,148,832) (923,944) Class C (57,627) (49,121) Class I (1,527,915) -- Class Y (5,242) (1,778) ------ ------ Total distributions (6,695,738) (3,348,591) ---------- ---------- Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 17,758,111 40,922,272 Class B shares 7,075,931 15,773,087 Class C shares 380,110 859,541 Class I shares 35,295,804 16,471,765 Class Y shares 81,000 46,998 Reinvestment of distributions at net asset value Class A shares 3,502,995 2,313,251 Class B shares 1,145,619 949,778 Class C shares 56,012 49,389 Class I shares 1,910,566 -- Class Y shares 5,863 1,511 Payments for redemptions Class A shares (20,411,526) (9,764,607) Class B shares (Note 2) (7,218,949) (6,087,609) Class C shares (Note 2) (563,631) (329,387) Class I shares (18,207,821) (5,871) Class Y shares (17,206) (17,446) ------- ------- Increase (decrease) in net assets from capital share transactions 20,792,878 61,182,672 ---------- ---------- Total increase (decrease) in net assets 32,092,117 64,793,666 Net assets at beginning of year 109,850,352 45,056,686 ----------- ---------- Net assets at end of year $141,942,469 $109,850,352 ============ ============ Undistributed (excess of distributions over) net investment income $ 750,831 $ 336,307 ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Notes to Financial Statements AXP Large Cap Value 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. 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 26.65% of the Fund's net assets. At July 31, 2005, Ameriprise Financial and the AXP Portfolio Builder Funds owned approximately 27% 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. 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 - -------------------------------------------------------------------------------- 17 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT 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. 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. - -------------------------------------------------------------------------------- 18 -- AXP LARGE CAP VALUE 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 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. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $23,609 and accumulated net realized gain has been increased by $23,609. - -------------------------------------------------------------------------------- 19 -- AXP LARGE CAP VALUE 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 $1,523,416 $2,282,707 Long-term capital gain 2,038,409 54,694 Class B Distributions paid from: Ordinary income 382,524 933,705 Long-term capital gain 776,513 24,714 Class C Distributions paid from: Ordinary income 18,676 49,387 Long-term capital gain 38,951 1,314 Class I* Distributions paid from: Ordinary income 878,081 -- Long-term capital gain 1,032,740 -- Class Y Distributions paid from: Ordinary income 2,885 2,024 Long-term capital gain 3,543 46 * 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 $ 2,717,260 Accumulated long-term gain (loss) $ 4,653,218 Unrealized appreciation (depreciation) $11,464,339 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. - -------------------------------------------------------------------------------- 20 -- AXP LARGE CAP VALUE 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 Value 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 $14,485 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. - -------------------------------------------------------------------------------- 21 -- AXP LARGE CAP VALUE 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 $169,043 for Class A, $19,464 for Class B and $324 for Class C for the year ended July 31, 2005. 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 1.29% for Class A, 2.05% for Class B, 2.06% for Class C, 0.94% for Class I and 1.12% 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 $6,611 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 $89,089,105 and $74,696,039, 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 $276 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 3,185,715 1,283,395 69,124 6,285,074 14,833 Issued for reinvested distributions 628,904 206,791 10,111 341,783 1,049 Redeemed (3,634,034) (1,298,146) (101,928) (3,228,175) (3,074) ---------- ---------- -------- ---------- ------ Net increase (decrease) 180,585 192,040 (22,693) 3,398,682 12,808 ------- ------- ------- --------- ------ Year ended July 31, 2004 Class A Class B Class C Class I* Class Y Sold 7,723,484 3,005,409 163,615 3,055,637 8,912 Issued for reinvested distributions 443,151 182,649 9,516 -- 289 Redeemed (1,837,759) (1,153,773) (61,678) (1,093) (3,191) ---------- ---------- ------- ------ ------ Net increase (decrease) 6,328,876 2,034,285 111,453 3,054,544 6,010 --------- --------- ------- --------- -----
* Inception date is March 4, 2004. - -------------------------------------------------------------------------------- 22 -- AXP LARGE CAP VALUE 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 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. 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 2002(b) Net asset value, beginning of period $5.34 $4.98 $4.52 $4.90 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .06 .04 .03 -- Net gains (losses) (both realized and unrealized) .70 .59 .44 (.38) ----- ----- ----- ----- Total from investment operations .76 .63 .47 (.38) ----- ----- ----- ----- Less distributions: Dividends from net investment income (.04) (.03) (.01) -- Distributions from realized gains (.23) (.24) -- -- ----- ----- ----- ----- Total distributions (.27) (.27) (.01) -- ----- ----- ----- ----- Net asset value, end of period $5.83 $5.34 $4.98 $4.52 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $74 $67 $31 $4 Ratio of expenses to average daily net assets(c) 1.29% 1.24%(d) 1.25%(d) 1.19%(d),(e) Ratio of net investment income (loss) to average daily net assets 1.07% .95% 1.01% .23%(e) Portfolio turnover rate (excluding short-rm securities) 57% 59% 77% 9% Total return(f) 14.52% 12.85% 10.52% (7.75%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 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 1.54%, 2.64% and 20.50% for the periods ended July 31, 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. - -------------------------------------------------------------------------------- 23 -- AXP LARGE CAP VALUE 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 $5.29 $4.95 $4.52 $4.90 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .01 -- .01 -- Net gains (losses) (both realized and unrealized) .70 .59 .43 (.38) ----- ----- ----- ----- Total from investment operations .71 .59 .44 (.38) ----- ----- ----- ----- Less distributions: Dividends from net investment income -- (.01) (.01) -- Distributions from realized gains (.23) (.24) -- -- ----- ----- ----- ----- Total distributions (.23) (.25) (.01) -- ----- ----- ----- ----- Net asset value, end of period $5.77 $5.29 $4.95 $4.52 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $28 $25 $13 $1 Ratio of expenses to average daily net assets(c) 2.05% 2.00%(d) 2.00%(d) 1.95%(d),(e) Ratio of net investment income (loss) to average daily net assets .30% .16% .25% (.49%)(e) Portfolio turnover rate (excluding short-term securities) 57% 59% 77% 9% Total return(f) 13.66% 12.00% 9.66% (7.75%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 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 2.30%, 3.40% and 21.26% for the periods ended July 31, 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. - -------------------------------------------------------------------------------- 24 -- AXP LARGE CAP VALUE 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 $5.29 $4.94 $4.52 $4.90 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .01 -- .01 -- Net gains (losses) (both realized and unrealized) .70 .60 .42 (.38) ----- ----- ----- ----- Total from investment operations .71 .60 .43 (.38) ----- ----- ----- ----- Less distributions: Dividends from net investment income -- (.01) (.01) -- Distributions from realized gains (.23) (.24) -- -- ----- ----- ----- ----- Total distributions (.23) (.25) (.01) -- ----- ----- ----- ----- Net asset value, end of period $5.77 $5.29 $4.94 $4.52 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $1 $1 $1 $-- Ratio of expenses to average daily net assets(c) 2.06% 2.00%(d) 2.00%(d) 1.95%(d),(e) Ratio of net investment income (loss) to average daily net assets .30% .19% .26% (.45%)(e) Portfolio turnover rate (excluding short-term securities) 57% 59% 77% 9% Total return(f) 13.62% 12.19% 9.50% (7.75%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 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 2.30%, 3.40% and 21.26% for the periods ended July 31, 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. - -------------------------------------------------------------------------------- 25 -- AXP LARGE CAP VALUE 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 $5.36 $5.57 ----- ----- Income from investment operations: Net investment income (loss) .07 .03 Net gains (losses) (both realized and unrealized) .72 (.24) ----- ----- Total from investment operations .79 (.21) ----- ----- Less distributions: Dividends from net investment income (.06) -- Distributions from realized gains (.23) -- ----- ----- Total distributions (.29) -- ----- ----- Net asset value, end of period $5.86 $5.36 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $38 $16 Ratio of expenses to average daily net assets(c) .86% .93%(d),(e) Ratio of net investment income (loss) to average daily net assets 1.50% 1.33%(e) Portfolio turnover rate (excluding short-term securities) 57% 59% Total return(f) 14.97% (3.77%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date is 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 ratio of expenses for Class I would have been 1.02% for the period ended July 31, 2004. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 26 -- AXP LARGE CAP VALUE 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 $5.36 $4.99 $4.52 $4.90 ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .07 .04 .03 -- Net gains (losses) (both realized and unrealized) .70 .61 .45 (.38) ----- ----- ----- ----- Total from investment operations .77 .65 .48 (.38) ----- ----- ----- ----- Less distributions: Dividends from net investment income (.05) (.04) (.01) -- Distributions from realized gains (.23) (.24) -- -- ----- ----- ----- ----- Total distributions (.28) (.28) (.01) -- ----- ----- ----- ----- Net asset value, end of period $5.85 $5.36 $4.99 $4.52 ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $-- $-- $-- $-- Ratio of expenses to average daily net assets(c) 1.11% 1.06%(d) .95%(d) 1.01%(d),(e) Ratio of net investment income (loss) to average daily net assets 1.25% 1.12% 1.30% .31%(e) Portfolio turnover rate (excluding short-term securities) 57% 59% 77% 9% Total return(f) 14.67% 13.14% 10.76% (7.75%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 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 1.36%, 2.46% and 20.32% for the periods ended July 31, 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 VALUE 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 Value 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 June 27, 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 Value 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 - -------------------------------------------------------------------------------- 28 -- AXP LARGE CAP VALUE 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 Value Fund Fiscal year ended July 31, 2005 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 55.22% Dividends Received Deduction for corporations 50.94% Payable date Per share Dec. 20, 2004 $0.11650 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 20, 2004 $0.15592 Total distributions $0.27242 Class B Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 55.22% Dividends Received Deduction for corporations 50.94% Payable date Per share Dec. 20, 2004 $0.07681 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 20, 2004 $0.15592 Total distributions $0.23273 - -------------------------------------------------------------------------------- 29 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT Class C Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 55.22% Dividends Received Deduction for corporations 50.94% Payable date Per share Dec. 20, 2004 $0.07476 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 20, 2004 $0.15592 Total distributions $0.23068 Class I Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 55.22% Dividends Received Deduction for corporations 50.94% Payable date Per share Dec. 20, 2004 $0.13257 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 20, 2004 $0.15592 Total distributions $0.28849 Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 55.22% Dividends Received Deduction for corporations 50.94% Payable date Per share Dec. 20, 2004 $0.12697 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 20, 2004 $0.15592 Total distributions $0.28289 - -------------------------------------------------------------------------------- 30 -- AXP LARGE CAP VALUE 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. - -------------------------------------------------------------------------------- 31 -- AXP LARGE CAP VALUE 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 $1,048.60 $6.18(c) 1.23% Hypothetical (5% return before expenses) $1,000 $1,018.49 $6.09(c) 1.23% Class B Actual(b) $1,000 $1,043.40 $10.02(c) 2.00% Hypothetical (5% return before expenses) $1,000 $1,014.71 $9.88(c) 2.00% Class C Actual(b) $1,000 $1,043.40 $10.12(c) 2.02% Hypothetical (5% return before expenses) $1,000 $1,014.61 $9.98(c) 2.02% Class I Actual(b) $1,000 $1,050.20 $3.82(c) .76% Hypothetical (5% return before expenses) $1,000 $1,020.79 $3.77(c) .76% Class Y Actual(b) $1,000 $1,048.40 $5.37(c) 1.07% Hypothetical (5% return before expenses) $1,000 $1,019.27 $5.30(c) 1.07%
(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: +4.86% for Class A, +4.34% for Class B, +4.34% for Class C, +5.02% for Class I and +4.84% 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 1.29% for Class A; 2.05% for Class B; 2.06% for Class C; 0.94% for Class I and 1.12% 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 expenses paid would have been $6.23 for Class A, $10.07 for Class B, $10.17 for Class C, $3.87 for Class I and $5.42 for Class Y; the hypothetical expenses paid would have been $6.14 for Class A, $9.93 for Class B, $10.03 for Class C, $3.82 for Class I and $5.35 for Class Y. - -------------------------------------------------------------------------------- 32 -- AXP LARGE CAP VALUE 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. - -------------------------------------------------------------------------------- 33 -- AXP LARGE CAP VALUE 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. - -------------------------------------------------------------------------------- 34 -- AXP LARGE CAP VALUE 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. - -------------------------------------------------------------------------------- 35 -- AXP LARGE CAP VALUE 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. - -------------------------------------------------------------------------------- 36 -- AXP LARGE CAP VALUE FUND -- 2005 ANNUAL REPORT 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. 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. - -------------------------------------------------------------------------------- 37 -- AXP LARGE CAP VALUE 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. - -------------------------------------------------------------------------------- 38 -- AXP LARGE CAP VALUE 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. 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Livio D. DeSimone and Anne P. Jones, each qualify as audit committee financial experts. Item 4. Principal Accountant Fees and Services Fund - Related Fees* (a) Audit Fees. The fees paid for the years ended July 31, to KPMG LLP for professional services rendered for the audits of the annual financial statements for AXP Growth Series, Inc. were as follows: 2005 - $70,000; 2004 - $67,007 (b) Audit - Related Fees. The fees paid for the years ended July 31, to KPMG LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 for AXP Growth Series, Inc. were as follows: 2005 - $1,077; 2004 - $845 (c) Tax Fees. The fees paid for the years ended July 31, to KPMG LLP for tax compliance related services for AXP Growth Series, Inc. were as follows: 2005 - $10,467; 2004 - $11,375 (d) All Other Fees. The fees paid for the years ended July 31, to KPMG LLP for additional professional services rendered in connection to proxy filing for AXP Growth Series, Inc. were as follows: 2005 - $3,239; 2004 - None (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by KPMG LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2005 and 2004 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees paid for the years ended July 31, by the registrant for non-audit services to KPMG LLP were as follows: 2005 - None; 2004 - None The fees paid for the years ended July 31, to KPMG LLP by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2005 - $38,450; 2004 - $88,450 (h) 100% of the services performed in item (g) above during 2005 and 2004 were pre-approved by the audit committee. *2004 represents bills paid 8/1/03 - 7/31/04 2005 represents bills paid 8/1/04 - 7/31/05 Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) AXP Growth Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date Oct. 3, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date Oct. 3, 2005 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date Oct. 3, 2005 EX-99.CODE ETH 2 code-ethics.txt CODE OF ETHICS AMERICAN EXPRESS FUNDS PREFERRED MASTER TRUST GROUP (THE AXP FUNDS) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Purpose of the Code; Covered Officers This code of ethics ("Code") for the AXP Funds (collectively, "Funds," and each, "Fund") applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers," each of whom is identified in Exhibit A) for the purpose of promoting, in connection with his or her duties: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; o compliance with laws and governmental rules and regulations applicable to the conduct of the Funds' business and their financial reporting; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions, such as the purchase or sale of securities or other property, with the Funds because of their status as "affiliated persons" of the Funds. The compliance programs and -1- procedures of the Funds and of American Express Financial Corporation ("AEFC"), the investment adviser to the Funds, are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and AEFC, of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, whether formally for the Funds or for AEFC, or for both, be involved in establishing policies and implementing decisions that will have different effects on AEFC and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and AEFC and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds. Each Covered Officer must: o not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds; o not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Funds; o not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; III. Disclosure and Compliance o Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including to the Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and AEFC with the goal of promoting full, fair, accurate, timely, and understandable disclosure in the reports -2- and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules, and regulations. IV. Reporting and Accountability Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he or she has received, read, and understands the Code; o annually thereafter affirm to the Board that he or she has complied with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of AEFC or its affiliated persons for reports of potential violations that are made in good faith; and o notify the general counsel of the Funds ("Funds General Counsel") promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. The Funds General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers sought by a Covered Officers will be considered by the Board Effectiveness Committees (the "Committees"). The Funds will follow these procedures in investigating and enforcing this Code: o The Funds General Counsel will take all appropriate action to investigate any potential violations reported to him; o If, after such investigation, the Funds General Counsel believes that no violation has occurred, he or she is not required to take any further action; o Any matter that the Funds General Counsel believes is a violation will be reported to the Committees; o If the Committees concur that a violation has occurred, they will inform the Board, and the Board will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Committees will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, AEFC, or any -3- affiliate of AEFC govern or purport to govern the activities of the Covered Officers, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. AEFC's code of ethics under Rule 17j-1 under the Investment Company Act is a separate requirement applying to the Covered Officers and others, and is not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Fund's Board, including a majority of its independent directors. Date: July, 2003 -4- Exhibit A Persons Covered by this Code of Ethics Paula R. Meyer President Jeffrey P. Fox Treasurer -5- EX-99.CERT 3 ex99-cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Paula Meyer, certify that: 1. I have reviewed this report on Form N-CSR of AXP Growth Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 22, 2005 /s/ Paula R. Meyer ------------------------- Name: Paula R. Meyer Title: President and Chief Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey Fox, certify that: 1. I have reviewed this report on Form N-CSR of AXP Growth Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 22, 2005 /s/ Jeffrey P. Fox -------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 4 ex99-906cert.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION AXP Growth Series, Inc. (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: September 22, 2005 /s/ Paula R. Meyer ------------------- Paula R. Meyer President and Chief Executive Officer Date: September 22, 2005 /s/ Jeffrey P. Fox -------------------- Jeffrey P. Fox Treasurer and Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----