EX-99.17I ANNUAL RPT 8 ex17i-s6244.txt ANNUAL REPORT FOR THE PERIOD ENDED JULY 31, 2005 FOR RIVERSOURCE LARGE CAP EQUITY FUND. 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.