Annual Report RIVERSOURCE INVESTMENTS(SM) LOGO]
RiverSource(SM)
Stock Fund
Annual Report for the
Period Ended Sept. 30, 2005
> RiverSource Stock Fund (formerly AXP(R)Stock Fund) seeks to provide
shareholders with current income and growth of capital.
Table of Contents
Fund Snapshot 3
Performance Summary 4
Questions & Answers
with Portfolio Management 5
The Fund's Long-term Performance 10
Investments in Securities 12
Financial Statements (Portfolio) 18
Notes to Financial Statements (Portfolio) 20
Report of Independent Registered
Public Accounting Firm (Portfolio) 24
Financial Statements (Fund) 25
Notes to Financial Statements (Fund) 28
Report of Independent Registered
Public Accounting Firm (Fund) 38
Federal Income Tax Information 39
Fund Expenses Example 41
Board Members and Officers 43
Approval of Investment Management
Services Agreement 46
Proxy Voting 51
[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.
* As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the
name of the American Express Funds.
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2 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Fund Snapshot
AT SEPT. 30, 2005
PORTFOLIO MANAGERS
Portfolio managers Since Years in industry
Scott Mullinix, CFA 6/04 16
Dimitris Bertsimas, Ph.D. 10/04 12
Gina Mourtzinou, Ph.D. 10/04 9
FUND OBJECTIVE
For investors seeking current income and growth of capital.
Inception dates by class
A: 4/6/45 B: 3/20/95 C: 6/26/00 I: 3/4/04 Y: 3/20/95
Ticker symbols by class
A: INSTX B: IDSBX C: -- I: -- Y: IDSYX
Total net assets $1.928 billion
Number of holdings 251
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
[PIE CHART]
Health Care 16.8%
Financials 16.0%
Energy 13.1%
Information Technology 12.0%
Consumer Staples 11.2%
Consumer Discretionary 9.5%
Industrials 8.8%
Utilities 5.2%
Telecommunication Services 4.5%
Materials 1.9%
Short-Term Securities* 1.0%
* Of the 1.0%, 0.6% is due to security lending activity and 0.4% is the
Portfolio's cash equivalent position.
TOP TEN HOLDINGS
Percentage of portfolio assets
Exxon Mobil (Oil & Gas) 4.0%
Altria Group (Tobacco) 3.6
UnitedHealth Group
(Health Care Providers & Services) 3.1
Johnson & Johnson (Pharmaceuticals) 2.8
Citigroup (Diversified Financial Services) 2.1
Chevron (Oil & Gas) 1.8
Hewlett-Packard (Computers & Peripherals) 1.8
Microsoft (Software) 1.7
Caterpillar (Machinery) 1.7
Procter & Gamble (Household Products) 1.5
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The Global Industry Classification Standard (GICS) was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's, a division of The McGraw-Hill Companies, Inc.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
Fund holdings are subject to change.
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3 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Performance Summary
[BAR CHART]
PERFORMANCE COMPARISON
For the year ended Sept. 30, 2005
+12.58% +12.25% +11.47%
+12.58% = RiverSource Stock Fund Class A (excluding sales charge)
+12.25% = Standard & Poor's 500 Index (unmanaged)
+11.47% = Lipper Large-Cap Core Funds Index
(see "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by calling (800) 862-7919 or visiting
www.riversource.com/investments.
The 5.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
AVERAGE ANNUAL TOTAL RETURNS
Class A Class B Class C Class I Class Y
(Inception dates) (4/6/45) (3/20/95) (6/26/00) (3/4/04) (3/20/95)
After After
NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6)
at Sept. 30, 2005
1 year +12.58% +6.11% +11.72% +6.72% +11.72% +10.72% +13.07% +12.83%
3 years +12.75% +10.54% +11.88% +10.81% +11.88% +11.88% N/A +12.96%
5 years -2.51% -3.66% -3.27% -3.61% -3.27% -3.27% N/A -2.35%
10 years +6.46% +5.84% +5.65% +5.65% N/A N/A N/A +6.62%
Since inception +9.79% +9.68% +6.71% +6.71% -2.96% -2.96% +5.32% +7.68%
(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 RiverSource Portfolio Builder
Funds, six affiliated funds-of-funds.
(6) Sales charge is not applicable to these shares. Shares available to
institutional investors only.
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4 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, RiverSource(SM) Stock Fund's (formerly AXP(R) Stock Fund) portfolio
management team -- Scott Mullinix in Minneapolis and Dimitris Bertsimas and Gina
Mourtzinou in Cambridge, Mass. -- discuss the Fund's results and positioning for
the 2005 fiscal year. In October 2004, Bertsimas and Mourtzinou began managing
approximately 25% of the Fund's assets using a quantitative investing approach.
At fiscal year-end, they managed 50% of the Fund's assets. Shareholders will be
asked to approve a merger of the Fund into RiverSource Disciplined Equity Fund
at a shareholder meeting on Feb. 15, 2006. This approval is not guaranteed.
Q: How did RiverSource Stock Fund perform for the 12 months ended Sept. 30,
2005?
A: RiverSource(SM) Stock Fund's Class A shares rose 12.58%, excluding sales
charge for the 12 months ended Sept. 30, 2005. The Fund outperformed its
benchmark, the broad-based Standard & Poor's 500 Index (S&P 500 Index),
which rose 12.25% for the same period. The Fund's peer group, as represented
by the Lipper Large-Cap Core Funds Index, gained 11.47%.
Q: What factors most significantly affected performance?
Bertsimas and Mourtzinou: In October 2004, we began managing a portion of
the Fund using a quantitative approach. The performance of our portfolio
segment has been quite strong, significantly outpacing the S&P 500 Index.
We rely on three separate, time-tested models -- a momentum model, a value
model and a quality model -- to select individual stocks for the portfolio.
Overall, the stocks chosen by the momentum model were the most significant
contributors to performance during the period. The momentum model
outperformed the S&P 500 Index throughout the period. The value model also
outperformed, but not as dramatically. The quality model lagged the
benchmark, but strong results from the other models more than compensated,
which is a key benefit of our multiple model approach.
Sector weightings within our portfolio segment are a byproduct of stock
selection rather than a top-down strategy. During this period, our models
favored energy stocks and the Fund's large exposure to the sector was
particularly beneficial. Three of the Fund's five largest positive
contributors were in the energy sector -- Exxon Mobil, ConocoPhillips and
Chevron Texaco. Energy stocks advanced sharply this year in response to high
oil and natural gas prices and supply problems that intensified when
Hurricanes Katrina and Rita damaged production capabilities on the U.S. Gulf
Coast.
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5 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Questions & Answers
[BEGIN CALLOUT QUOTE]> Overall, the stocks chosen by the momentum model were
the most significant contributors to performance during the period. [END
CALLOUT QUOTE]
-- Bertsimas and Mourtzinou
The Fund's smaller-than-S&P 500 Index weighting in technology proved
beneficial. Within the sector, Autodesk, which was chosen by our momentum
model, was a key contributor. This company develops computer aided
mechanical design software as well as other technology platforms and is
currently in the midst of a very profitable product cycle that has resulted
in strong price appreciation.
Stock selection within the consumer staples sector was quite strong, and the
Fund's large allocation accounted for a meaningful portion of our
outperformance. Food and tobacco stock Altria, which was selected by both
our momentum and value models, was one of the largest positive contributors.
The stock appeared to be underpriced relative to its earnings as investors
were concerned about litigation issues.
As some of those issues were resolved during the year, Altria's price rose
sharply. Individual stocks in the health care sector also added to
performance.
During the annual period, our models generally favored telecommunications
stocks, leading us to a large weighting in the sector. Telecommunications
was the only sector to detract from performance during the period.
Individual detractors from performance included mortgage finance company
Fannie Mae, which was selected by our value model. Fannie Mae suffered from
accounting issues and concerns about increased regulatory oversight.
Discount retailer Wal-Mart was another detractor. This stock was chosen by
our quality model. Wal-Mart remains a solid company, but has faced near-term
concerns about consumer spending, particularly in light of higher energy
prices.
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6 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Questions & Answers
[BEGIN CALLOUT QUOTE]> Stock selection in the energy sector was a key
contributor as the sector advanced sharply on continued high energy prices
and constrained supplies. [END CALLOUT QUOTE]
-- Mullinix
Because our separate asset allocation model heavily favored international
stocks, we maintained a small international position through holdings of
iShares MSCI EAFE Index Fund, an exchange-traded fund based on the MSCI EAFE
Index. This position added to Fund performance during the fiscal period.
Mullinix: Our segment of the portfolio also performed quite well during the
fiscal year. The best performing areas were energy and industrials. Stock
selection in the energy sector was a key contributor as the sector advanced
sharply on continued high energy prices and constrained supplies. Individual
energy stocks that added to relative return included EnCana, a Canadian oil
and natural gas company, and Peabody Energy, a coal company.
Stock selection in the industrials sector was also favorable, although the
portfolio was hampered by its larger-than-S&P 500 position in the
underperforming sector. Construction and mining equipment company
Caterpillar and industrial automation company Rockwell Automation were two
industrial stocks that positively affected performance.
Stock selection in the technology sector detracted from performance.
Internet search engine Google had a strong positive impact, but wireless
equipment company Qualcomm detracted.
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7 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Questions & Answers
Q: What changes did you make to the Fund and how is it currently positioned?
Bertsimas and Mourtzinou: Energy stocks have become slightly less attractive
according to our models. Consequently, the Fund's energy position has
decreased somewhat, although it is still larger than that of the S&P 500
Index.
The Fund's allocation to industrials stocks decreased as well. The
industrials position is the Fund's largest underweight relative to the S&P
500 Index. During the period, the momentum model had been favoring
industrials stocks, but now considers them less attractive.
The allocation to the financials sector also went down a bit and is still
less than the S&P 500 Index. The technology allocation remains smaller than
the S&P 500 Index weighting, although the position has increased slightly as
the models have become slightly less negative on technology stocks.
Telecommunications has stayed about the same, with a larger-than-S&P 500
Index position.
Mullinix: We moved our segment of the portfolio to a less cyclically
oriented positioning over the course of the period. At the beginning of the
fiscal year, we were generally optimistic about economic growth and the
prospects for the market. As inflation concerns and energy prices have
risen, we have tempered our outlook. The Fund's industrials position had
been materially larger than that of the S&P 500 Index; the position has
since been reduced. We increased the Fund's health care position from a
weighting about equal to the S&P 500 Index, up to a larger-than-S&P 500
Index position. Other sectors have been adjusted slightly, with our consumer
and materials allocations now even smaller relative to the S&P 500 Index.
The financials sector allocation also remains below that of the S&P 500
Index.
Q: How do you intend to manage the Fund in the coming months?
Bertsimas and Mourtzinou: We will continue to use our three well-tested
models, striving to find the best performing stocks regardless of market
conditions. We will also continue to monitor weightings as a risk control,
so that no individual security, industry or sector becomes too large within
the portfolio segment. We also intend to continue to employ our risk
controls, including restrictions on market capitalization, price, quality,
turnover and transaction costs.
Because the portfolio's stocks are selected by a quantitative process, our
economic and market outlook is not a meaningful factor in our portfolio
management. That said, we think it is likely that our momentum model will -
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8 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Questions & Answers
continue to outperform through the remainder of the calendar year. However,
should it weaken, we would expect the performance of the other two models to
help support the Fund's return. That is a primary benefit of combining three
separate and diverse models into one strategy. We are optimistic that with
this approach the Fund can perform well regardless of the types of stock or
sectors leading the market.
Mullinix: In our view, stock valuations appeared fair to relatively cheap at
fiscal year-end. As a result, we do not see significant valuation risk. We
consider the corporate profit outlook to be healthy, but not wildly robust.
We see higher inflation, interest rates and energy prices as the most
prominent risks currently affecting the market. We consider these risks to
be linked and also believe they could resolve themselves in a positive way.
However, we are maintaining a cautious strategy in case these risks threaten
market performance.
We are keeping the Fund's market capitalization a little higher than the S&P
500 Index and have somewhat de-emphasized sector allocations as a means to
add value. Though we are looking for outperformance from our positions in
the industrial and health care sector, we are mainly trying to add value
through stock selection as we have done in the past fiscal year. In terms of
individual stocks, we are focused on those with positive fundamentals that
are leaders in their industries and exhibit attractive valuations. Overall,
the Fund is positioned such that we would expect it to participate in any
market advance, but also effectively weather any downturns.
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9 -- RIVERSOURCE STOCK 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 RiverSource Stock Fund Class A shares (from 10/1/95 to 9/30/05) as
compared to the performance of two widely cited performance indices, the
Standard & Poor's 500 Index (S&P 500 Index) and the Lipper Large-Cap Core Funds
Index. In comparing the Fund's Class A shares to these indices, you should take
into account the fact that the Fund's performance reflects the maximum sales
charge of 5.75%, while such charges are not reflected in the performance of the
indices. Returns for the Fund include the reinvestment of any distribution paid
during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. 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
Sept. 30, 2005 $0.25 $ -- $ -- $0.25
Sept. 30, 2004 0.19 -- -- 0.19
Sept. 30, 2003 0.18 -- -- 0.18
Sept. 30, 2002 0.17 -- -- 0.17
Sept. 30, 2001 0.18 0.88 1.93 2.99
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10 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
[LINE CHART]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE STOCK FUND
Riversource Stock Fund
(includes sales charge) $9,425 $10,979 $14,297 $14,589 $17,172 $20,021 $15,042 $12,304 $14,277 $15,664 $17,635
S&P 500 Index $10,000 $12,034 $16,901 $18,430 $23,554 $26,682 $19,576 $15,565 $19,363 $22,049 $24,750
Lippper Large-Cap Core Funds Index $10,000 $11,803 $15,955 $16,992 $21,242 $25,006 $18,032 $14,689 $17,637 $19,517 $21,756
`95 `96 `97 `98 `99 `00 `01 `02 `03 `04 `05
COMPARATIVE RESULTS
Results at Sept. 30, 2005 Since
1 year 3 years 5 years 10 years inception(3)
RiverSource Stock Fund (includes sales charge)
Class A Cumulative value of $10,000 $10,611 $13,507 $8,299 $17,635 $2,673,656
Average annual total return +6.11% +10.54% -3.66% +5.84% +9.68%
S&P 500 Index(1)
Cumulative value of $10,000 $11,225 $15,901 $9,277 $24,750 N/A
Average annual total return +12.25% +16.72% -1.49% +9.49% N/A
Lipper Large-Cap Core Funds Index(2)
Cumulative value of $10,000 $11,147 $14,812 $8,699 $21,756 N/A
Average annual total return +11.47% +13.99% -2.75% +8.08% N/A
Results for other share classes can be found on page 4.
(1) The S&P 500 Index, an unmanaged index of common stocks, is frequently used
as a general measure of market performance. The index reflects reinvestment
of all distributions and changes in market prices, but excludes brokerage
commissions or other fees.
(2) The Lipper Large-Cap Core Funds Index includes the 30 largest large-cap core
funds tracked by Lipper Inc. The index's returns include net reinvested
dividends. The Fund's performance is currently measured against this index
for purposes of determining the performance incentive adjustment. See "Fund
Management and Compensation" for more information.
(3) Fund data is from April 6, 1945. The Fund began operating before the
inception of the S&P 500 Index and the Lipper peer group.
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11 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Investments in Securities
Equity Portfolio
Sept. 30, 2005
(Percentages represent value of investments compared to net assets)
Common Stocks (96.8%)
Issuer Shares Value(a)
Aerospace & Defense (2.9%)
Boeing 253,530 $17,227,364
General Dynamics 2,866 342,630
Goodrich 23,131 1,025,629
Honeywell Intl 220,000 8,250,000
Lockheed Martin 150,000 9,156,000
Rockwell Collins 55,762 2,694,420
United Technologies 335,544 17,394,600
Total 56,090,643
Air Freight & Logistics (0.1%)
FedEx 11,782 1,026,566
Auto Components (0.1%)
Dana 30,576 287,720
Delphi 111,477 307,677
Johnson Controls 25,635 1,590,651
Total 2,186,048
Automobiles (0.6%)
Ford Motor 512,472 5,052,974
General Motors 151,189(d) 4,627,895
Harley-Davidson 51,295 2,484,730
Total 12,165,599
Beverages (1.8%)
Coca-Cola 448,176 19,356,721
Constellation Brands Cl A 74,283(b) 1,931,358
PepsiCo 234,777 13,314,204
Total 34,602,283
Biotechnology (0.7%)
Amgen 150,000(b) 11,950,500
Gilead Sciences 29,741(b) 1,450,171
Total 13,400,671
Capital Markets (2.4%)
Bear Stearns Companies 13,037 1,430,811
Franklin Resources 94,915 7,969,063
Goldman Sachs Group 150,000 18,237,001
Janus Capital Group 64,951 938,542
Common Stocks (continued)
Issuer Shares Value(a)
Capital Markets (cont.)
Lehman Brothers Holdings 111,553 $12,993,693
Merrill Lynch & Co 34,591 2,122,158
Morgan Stanley 59,546 3,211,911
Total 46,903,179
Chemicals (0.3%)
Dow Chemical 56,605 2,358,730
Monsanto 68,798 4,317,075
Total 6,675,805
Commercial Banks (2.7%)
Bank of America 210,000 8,841,000
Comerica 21,570 1,270,473
KeyCorp 43,553 1,404,584
Natl City 172,364 5,763,852
PNC Financial Services Group 98,614 5,721,584
US Bancorp 330,000 9,266,400
Wachovia 27,465 1,307,059
Wells Fargo & Co 320,000 18,742,401
Total 52,317,353
Commercial Services & Supplies (--%)
Equifax 27,434 958,544
Communications Equipment (1.4%)
Cisco Systems 480,000(b) 8,606,400
Comverse Technology 71,637(b) 1,881,904
Corning 356,027(b) 6,882,002
Motorola 360,000 7,952,400
Tellabs 102,379(b) 1,077,027
Total 26,399,733
Computers & Peripherals (3.5%)
Apple Computer 251,040(b) 13,458,254
Dell 90,000(b) 3,078,000
EMC 580,000(b) 7,505,200
Gateway 251,317(b) 678,556
Hewlett-Packard 1,155,152 33,730,438
Lexmark Intl Cl A 15,641(b) 954,883
NCR 40,190(b) 1,282,463
Network Appliance 107,784(b) 2,558,792
QLogic 145,178(b) 4,965,088
Total 68,211,674
See accompanying notes to investments in securities.
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12 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Construction & Engineering (--%)
Fluor 13,516 $870,160
Consumer Finance (0.8%)
MBNA 79,188 1,951,192
Providian Financial 52,700(b) 931,736
SLM 220,000 11,800,800
Total 14,683,728
Distributors (0.1%)
Genuine Parts 28,762 1,233,890
Diversified Financial Services (3.4%)
CIT Group 34,530 1,560,065
Citigroup 867,558 39,491,241
iShares MSCI EAFE Index Fund 407,600 23,677,484
Moody's 20,581 1,051,277
Total 65,780,067
Diversified Telecommunication Services (4.4%)
AT&T 386,118 7,645,136
BellSouth 679,135 17,861,251
SBC Communications 963,781 23,101,830
Sprint Nextel 667,110 15,863,876
Verizon Communications 599,438 19,595,628
Total 84,067,721
Electric Utilities (3.4%)
Allegheny Energy 49,289(b) 1,514,158
American Electric Power 61,522 2,442,423
CenterPoint Energy 81,337 1,209,481
DTE Energy 7,313 335,374
Edison Intl 31,102 1,470,503
Exelon 207,773 11,103,389
FPL Group 51,979 2,474,200
PG&E 108,523 4,259,528
PPL 440,000 14,225,201
Southern 360,000 12,873,600
TECO Energy 99,311 1,789,584
TXU 101,331 11,438,243
Xcel Energy 51,961 1,018,955
Total 66,154,639
Electrical Equipment (0.4%)
American Power Conversion 72,997 1,890,622
Rockwell Automation 121,883(d) 6,447,611
Total 8,338,233
Electronic Equipment & Instruments (0.2%)
Jabil Circuit 31,906(b) 986,534
Sanmina-SCI 787,345(b) 3,377,710
Total 4,364,244
Common Stocks (continued)
Issuer Shares Value(a)
Energy Equipment & Services (2.5%)
Baker Hughes 180,000 $10,742,400
Halliburton 218,157 14,948,117
Natl Oilwell Varco 21,945(b) 1,443,981
Noble 32,093 2,197,087
Schlumberger 100,000 8,438,000
Transocean 173,396(b) 10,630,909
Total 48,400,494
Food & Staples Retailing (2.5%)
Albertson's 82,337 2,111,944
CVS 402,856 11,686,853
Kroger 183,056(b) 3,769,123
Safeway 129,805 3,323,008
SYSCO 42,579 1,335,703
Wal-Mart Stores 591,524 25,920,582
Total 48,147,213
Food Products (1.4%)
Archer-Daniels-Midland 202,405 4,991,307
Hershey 23,734 1,336,462
Kellogg 220,000 10,148,600
WM Wrigley Jr 150,000 10,782,000
Total 27,258,369
Health Care Equipment & Supplies (2.6%)
Baxter Intl 190,000 7,575,300
Becton, Dickinson & Co 24,737 1,296,961
Guidant 20,378 1,403,840
Medtronic 436,831 23,422,879
St. Jude Medical 180,000(b) 8,424,000
Stryker 145,000 7,167,350
Total 49,290,330
Health Care Providers & Services (6.8%)
Aetna 107,567 9,265,821
Cardinal Health 46,110 2,925,218
Caremark Rx 108,287(b) 5,406,770
CIGNA 86,047 10,141,499
Express Scripts 20,594(b) 1,280,947
HCA 113,610 5,444,191
Humana 51,440(b) 2,462,947
McKesson 78,501 3,724,872
Medco Health Solutions 63,244(b) 3,467,669
Quest Diagnostics 39,405 1,991,529
Tenet Healthcare 69,745(b) 783,236
UnitedHealth Group 1,051,384 59,087,782
WellPoint 334,149(b) 25,335,178
Total 131,317,659
See accompanying notes to investments in securities.
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13 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Hotels, Restaurants & Leisure (1.6%)
Darden Restaurants 50,646 $1,538,119
Harrah's Entertainment 189,387 12,346,139
Marriott Intl Cl A 208,825 13,155,974
Wendy's Intl 22,198 1,002,240
Yum! Brands 55,583 2,690,773
Total 30,733,245
Household Durables (1.2%)
Centex 73,255 4,730,808
DR Horton 191,481 6,935,442
KB HOME 53,290 3,900,828
Pulte Homes 110,575 4,745,879
Stanley Works 4,742 221,357
Whirlpool 21,968 1,664,515
Total 22,198,829
Household Products (1.6%)
Kimberly-Clark 38,134 2,270,117
Procter & Gamble 480,000 28,540,800
Total 30,810,917
Industrial Conglomerates (1.9%)
3M 122,286 8,970,901
General Electric 810,000 27,272,700
Total 36,243,601
Insurance (4.5%)
ACE 12,982(c) 611,063
Allstate 274,851 15,196,511
Ambac Financial Group 43,792 3,155,652
American Intl Group 190,000 11,772,400
Aon 56,826 1,822,978
Chubb 124,009 11,105,006
Hartford Financial
Services Group 19,040 1,469,317
Jefferson-Pilot 14,239 728,610
Lincoln Natl 62,101 3,230,494
Loews 38,931 3,597,614
Marsh & McLennan
Companies 95,414 2,899,631
MBIA 53,750 3,258,325
Prudential Financial 161,681 10,923,168
Safeco 18,055 963,776
St. Paul Travelers Companies 316,775 14,213,694
Torchmark 22,084 1,166,698
UnumProvident 76,942 1,577,311
Total 87,692,248
Internet & Catalog Retail (0.2%)
eBay 83,280(b) 3,431,136
Common Stocks (continued)
Issuer Shares Value(a)
Internet Software & Services (0.7%)
Google Cl A 25,000(b) $7,911,500
Yahoo! 140,000(b) 4,737,600
Total 12,649,100
IT Services (0.4%)
Affiliated Computer
Services Cl A 19,858(b) 1,084,247
Automatic Data Processing 21,107 908,445
Convergys 108,755(b) 1,562,809
Electronic Data Systems 95,135 2,134,830
Sabre Holdings Cl A 53,261 1,080,133
Unisys 153,647(b,g) 1,020,216
Total 7,790,680
Leisure Equipment & Products (0.2%)
Eastman Kodak 115,450 2,808,899
Mattel 120,252 2,005,803
Total 4,814,702
Machinery (2.2%)
Caterpillar 533,574 31,347,473
Ingersoll-Rand Cl A 25,846(c) 988,093
ITT Inds 82,384 9,358,822
PACCAR 14,299 970,759
Total 42,665,147
Media (0.4%)
Time Warner 300,000 5,433,000
Walt Disney 121,048 2,920,888
Total 8,353,888
Metals & Mining (1.5%)
BHP Billiton ADR 325,000(c) 11,108,500
Nucor 10,550 622,345
Peabody Energy 80,000 6,748,000
Phelps Dodge 87,001 11,304,039
Total 29,782,884
Multi-Utilities & Unregulated Power (1.7%)
AES 254,585(b) 4,182,832
CMS Energy 111,348(b) 1,831,675
Constellation Energy Group 23,442 1,444,027
Dominion Resources 122,059 10,514,161
Duke Energy 244,784 7,140,349
Public Service
Enterprise Group 82,300 5,296,828
Sempra Energy 35,742 1,682,019
Total 32,091,891
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
14 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Multiline Retail (2.3%)
Dollar General 81,264 $1,490,382
Family Dollar Stores 38,890 772,744
Federated Dept Stores 90,167 6,029,467
JC Penney 32,168 1,525,407
Kohl's 150,000(b) 7,527,000
Nordstrom 86,390 2,964,905
Sears Holdings 2,908(b) 361,813
Target 450,000 23,368,500
Total 44,040,218
Oil & Gas (10.4%)
Amerada Hess 9,921 1,364,138
Anadarko Petroleum 28,997 2,776,463
BG Group ADR 290,000(c) 13,830,100
Chevron 522,473 33,819,677
ConocoPhillips 340,857 23,829,313
Devon Energy 110,790 7,604,626
El Paso 227,662 3,164,502
EnCana 240,000(c) 13,994,400
EOG Resources 79,258 5,936,424
Exxon Mobil 1,199,078 76,189,416
Kerr-McGee 14,959 1,452,668
Kinder Morgan 38,796 3,730,623
Marathon Oil 31,607 2,178,671
Occidental Petroleum 25,800 2,204,094
Sunoco 43,220 3,379,804
Valero Energy 32,149 3,634,766
Total 199,089,685
Pharmaceuticals (6.3%)
Abbott Laboratories 72,778 3,085,787
Bristol-Myers Squibb 565,979 13,617,455
Johnson & Johnson 835,361 52,861,645
Merck & Co 764,577 20,804,140
Pfizer 581,530 14,520,804
Roche Holding ADR 190,000(c) 13,248,795
Wyeth 78,704 3,641,634
Total 121,780,260
Real Estate Investment Turst (0.2%)
Apartment Investment &
Management Cl A 18,334 710,993
Equity Office Properties Trust 52,744 1,725,256
Simon Property Group 14,650 1,085,858
Total 3,522,107
Common Stocks (continued)
Issuer Shares Value(a)
Road & Rail (1.1%)
Burlington Northern Santa Fe 69,012 $4,126,918
CSX 267,916 12,452,735
Norfolk Southern 74,244 3,011,337
Union Pacific 10,324 740,231
Total 20,331,221
Semiconductors & Semiconductor Equipment (2.4%)
Advanced Micro Devices 96,742(b) 2,437,898
Applied Micro Circuits 361,162(b) 1,083,486
Intel 867,380 21,380,917
LSI Logic 100,831(b) 993,185
Maxim Integrated Products 120,000 5,118,000
Natl Semiconductor 44,096 1,159,725
NVIDIA 82,546(b) 2,829,677
Texas Instruments 310,000 10,509,000
Total 45,511,888
Software (3.1%)
Adobe Systems 58,882(d) 1,757,628
Autodesk 41,982 1,949,644
Citrix Systems 41,974(b) 1,055,226
Compuware 301,837(b) 2,867,452
Microsoft 1,235,210 31,781,953
Oracle 867,629(b) 10,749,923
SAP ADR 200,000(c) 8,666,000
Symantec 71,785(b) 1,626,648
Total 60,454,474
Specialty Retail (2.3%)
AutoNation 46,675(b) 932,100
Best Buy 255,079(g) 11,103,589
Home Depot 613,978 23,417,120
Lowe's Companies 100,000 6,440,000
Office Depot 46,048(b) 1,367,626
Staples 43,797 933,752
Total 44,194,187
Textiles, Apparel & Luxury Goods (0.3%)
Coach 28,636(b) 898,025
Liz Claiborne 15,157 595,973
Nike Cl B 47,341 3,866,813
VF 16,538 958,708
Total 6,319,519
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
15 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Common Stocks (continued)
Issuer Shares Value(a)
Thrifts & Mortgage Finance (1.6%)
Countrywide Financial 55,068 $1,816,143
Fannie Mae 287,414 12,881,895
Freddie Mac 106,639 6,020,838
MGIC Investment 28,521 1,831,048
Washington Mutual 206,790 8,110,304
Total 30,660,228
Tobacco (3.6%)
Altria Group 926,178 68,268,580
UST 42,237 1,768,041
Total 70,036,621
Total Common Stocks
(Cost: $1,714,526,918) $1,866,043,521
Short-Term Securities (1.0%)(e)
Issuer Effective Amount Value(a)
yield payable at
maturity
Commercial Paper
Alpine Securitization
10-03-05 3.89% $7,600,000(f) $7,597,536
Citigroup Funding
10-03-05 3.89 900,000 899,708
Societe Generale North America
10-03-05 3.76 10,000,000 9,996,867
Total Short-Term Securities
(Cost: $18,496,074) $18,494,111
Total Investments in Securities
(Cost: $1,733,022,992)(h) $1,884,537,632
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
16 -- RIVERSOURCE STOCK 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 Sept. 30, 2005, the
value of foreign securities represented 3.2% of net assets.
(d) At Sept. 30, 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 0.6% of net assets. See Note 5 to the
financial statements. 0.4% of net assets is the Portfolio's cash
equivalent position.
(f) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors." This security has been determined to be
liquid under guidelines established by the Fund's Board of Directors.
These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At Sept. 30, 2005, the value
of these securities amounted to $7,597,536 or 0.4% of net assets.
(g) Partially pledged as initial margin deposit on the following open stock
index futures contracts (see Note 4 to the financial statements):
Type of security Contracts
Purchase contracts
S&P 500 Index, Dec. 2005 68
(h) At Sept. 30, 2005, the cost of securities for federal income tax purposes
was $1,739,134,415 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $192,876,508
Unrealized depreciation (47,473,291)
-----------
Net unrealized appreciation $145,403,217
------------
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.
- --------------------------------------------------------------------------------
17 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
Equity Portfolio
Sept. 30, 2005
Assets
Investments in securities, at value (Note 1)*
(identified cost $1,733,022,992) $1,884,537,632
Dividends and accrued interest receivable 2,409,178
Receivable for investment securities sold 56,700,145
----------
Total assets 1,943,646,955
-------------
Liabilities
Disbursements in excess of cash on demand deposit 343,645
Payable for investment securities purchased 3,821,390
Payable upon return of securities loaned (Note 5) 10,845,600
Accrued investment management services fee 26,371
Other accrued expenses 94,442
------
Total liabilities 15,131,448
----------
Net assets $1,928,515,507
==============
* Including securities on loan, at value (Note 5) $ 10,494,679
--------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Statement of operations
Equity Portfolio
Year ended Sept. 30, 2005
Investment income
Income:
Dividends $ 44,375,628
Interest 981,342
Fee income from securities lending (Note 5) 111,840
Less foreign taxes withheld (25,100)
-------
Total income 45,443,710
----------
Expenses (Note 2):
Investment management services fee 9,961,824
Compensation of board members 17,218
Custodian fees 181,769
Audit fees 33,750
Other 80,906
------
Total expenses 10,275,467
Earnings credits on cash balances (Note 2) (149)
----
Total net expenses 10,275,318
----------
Investment income (loss) -- net 35,168,392
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 219,675,266
Futures contracts 1,037,011
---------
Net realized gain (loss) on investments 220,712,277
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 1,908,523
---------
Net gain (loss) on investments and foreign currencies 222,620,800
-----------
Net increase (decrease) in net assets resulting from operations $257,789,192
============
Statements of changes in net assets
Equity Portfolio
Year ended Sept. 30, 2005 2004
Operations
Investment income (loss) -- net $ 35,168,392 $ 35,485,819
Net realized gain (loss) on investments 220,712,277 197,097,988
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 1,908,523 6,927,011
--------- ---------
Net increase (decrease) in net assets resulting from operations 257,789,192 239,510,818
----------- -----------
Proceeds from contributions 59,766,885 19,586,930
Fair value of withdrawals (584,032,050) (428,338,955)
------------ ------------
Net contributions (withdrawals) from partners (524,265,165) (408,752,025)
------------ ------------
Total increase (decrease) in net assets (266,475,973) (169,241,207)
Net assets at beginning of year 2,194,991,480 2,364,232,687
------------- -------------
Net assets at end of year $1,928,515,507 $2,194,991,480
============== ==============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
19 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Notes to Financial Statements
Equity Portfolio
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Equity Portfolio (the Portfolio) is a series of Growth and Income Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company. Equity Portfolio
invests primarily in common stocks and securities convertible into common
stocks. In pursuit of its income objective, the Portfolio will invest in
income-producing equity securities (such as convertible securities and preferred
stocks) and short-term debt instruments (such as commercial paper). The
Declaration of Trust permits the Trustees to issue non-transferable interests in
the Portfolio.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to U.S generally accepted accounting
principles requires management to make estimates (e.g., on assets, liabilities
and contingent assets and liabilities) that could differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Pursuant to procedures adopted by the Board of Trustees of the portfolios,
Ameriprise Financial, Inc. (Ameriprise Financial) (formerly American Express
Financial Corporation) utilizes Fair Value Pricing (FVP). FVP determinations are
made in good faith in accordance with these procedures. If a development or
event is so significant that there is a reasonably high degree of certainty that
the effect of the development or event has actually caused the closing price to
no longer reflect the actual value, the closing prices, as determined at the
close of the applicable foreign market, may be adjusted to reflect the fair
value of the affected foreign securities as of the close of the New York Stock
Exchange. Significant events include material movements in the U.S. securities
markets prior to the opening of foreign markets on the following trading day.
FVP results in an estimated price that reasonably reflects the current market
conditions in order to value the portfolio holdings such that shareholder
transactions receive a fair net asset value. Short-term securities maturing in
more than 60 days from the valuation date are valued at the market price or
approximate market value based on current interest rates; those maturing in 60
days or less are valued at amortized cost.
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends upon the credit standing of the other party. The
Portfolio also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
profit if the
- --------------------------------------------------------------------------------
20 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
market price of the security increases. The risk in writing a put option is that
the Portfolio may incur a loss if the market price of the security decreases and
the option is exercised. The risk in buying an option is that the Portfolio pays
a premium whether or not the option is exercised. The Portfolio also has the
additional risk of being unable to enter into a closing transaction if a liquid
secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss when the option transaction expires or closes. When
an option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Futures transactions
To gain exposure to or protect itself from market changes, the Portfolio may buy
and sell financial futures contracts traded on any U.S. or foreign exchange. The
Portfolio also may buy and write put and call options on these futures
contracts. Risks of entering into futures contracts and related options include
the possibility of an illiquid market and that a change in the value of the
contract or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete its contract obligations.
- --------------------------------------------------------------------------------
21 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Guarantees and indemnifications
Under the Portfolio's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Portfolio. In addition, certain of the Portfolio's contracts with
its service providers contain general indemnification clauses. The Portfolio's
maximum exposure under these arrangements is unknown since the amount of any
future claims that may be made against the Portfolio cannot be determined and
the Portfolio has no historical basis for predicting the likelihood of any such
claims.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with RiverSource Investments, LLC (the Investment Manager) to manage
its portfolio. Prior to Oct. 1, 2005, investment management services were
provided by Ameriprise Financial. Under this agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Portfolio's average daily net assets that declines from
0.53% to 0.40% annually as the Portfolio's assets increase. The fee may be
adjusted upward or downward by a performance incentive adjustment based on a
comparison of the performance of Class A shares of RiverSource Stock 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 $423,352 for the year ended Sept. 30, 2005.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the Board.
Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer
receipt of their compensation. Deferred amounts are treated as though equivalent
dollar amounts had been invested in shares of the underlying Fund or other
RiverSource funds. The Portfolio's liability for these amounts is adjusted for
market value changes and remains in the Portfolio until distributed in
accordance with the Plan.
- --------------------------------------------------------------------------------
22 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
During the year ended Sept. 30, 2005, the Portfolio's custodian fees were
reduced by $149 as a result of earnings credits from overnight cash balances.
The Portfolio also pays custodian fees to Ameriprise Trust Company (formerly
American Express Trust Company), an affiliate of Ameriprise Financial.
According to a Placement Agency Agreement, Ameriprise Financial Services, Inc.
(formerly American Express Financial Advisors Inc.) acts as placement agent of
the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $2,687,689,212 and $3,113,480,622, respectively, for the
year ended Sept. 30, 2005. Realized gains and losses are determined on an
identified cost basis.
Brokerage clearing fees paid to brokers affiliated with Ameriprise Financial
were $23,308 for the year ended Sept. 30, 2005.
4. STOCK INDEX FUTURES CONTRACTS
At Sept. 30, 2005, investments in securities included securities valued at
$5,323,940 that were pledged as collateral to cover initial margin deposits on
68 open purchase contracts. The notional market value of the open purchase
contracts at Sept. 30, 2005 was $20,983,100 with a net unrealized gain of
$152,424. See "Summary of significant accounting policies" and "Notes to
investments in securities."
5. LENDING OF PORTFOLIO SECURITIES
At Sept. 30, 2005, securities valued at $10,494,679 were on loan to brokers. For
collateral, the Portfolio received $10,845,600 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 $111,840 for the year ended Sept. 30, 2005. The risks to the
Portfolio of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
6. FINANCIAL HIGHLIGHTS
The table below shows certain important financial information for evaluating the
Portfolio's results.
Ratios/supplemental data
Fiscal period ended Sept. 30, 2005 2004 2003 2002 2001
Ratio of expenses to average daily net assets(a) .49% .47% .47% .49% .48%
Ratio of net investment income (loss) to average daily net assets 1.68% 1.48% 1.56% 1.35% 1.27%
Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87%
Total return(b) 13.05% 10.19% 16.53% (17.87%) (24.59%)
(a) Expense ratio is based on total expenses of the Portfolio before reduction
of earnings credits on cash balances. The ratio does not include feeder
fund expenses.
(b) Total return is based on a calculated Portfolio net asset value and does
not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
23 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Report of Independent
Registered Public Accounting Firm
THE BOARD OF TRUSTEES AND UNITHOLDERS
GROWTH AND INCOME TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Equity Portfolio (a series of
Growth and Income Trust) as of September 30, 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 September 30, 2005, and the
financial highlights for each of the years in the five-year period ended
September 30, 2005. These financial statements and the financial highlights are
the responsibility of portfolio management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and 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 September 30, 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 Equity
Portfolio as of September 30, 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
November 21, 2005
- --------------------------------------------------------------------------------
24 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
RiverSource Stock Fund
Sept. 30, 2005
Assets
Investment in Portfolio (Note 1) $1,928,427,199
Capital shares receivable 3,471
-----
Total assets 1,928,430,670
-------------
Liabilities
Capital shares payable 21,923
Accrued distribution fee 693,279
Accrued service fee 910
Accrued transfer agency fee 1,201
Accrued administrative services fee 1,788
Other accrued expenses 142,682
-------
Total liabilities 861,783
-------
Net assets applicable to outstanding capital stock $1,927,568,887
==============
Represented by
Capital stock -- $.01 par value (Note 1) $ 962,872
Additional paid-in capital 1,813,573,085
Undistributed net investment income 435,066
Accumulated net realized gain (loss) (Note 5) (39,078,047)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 151,675,911
-----------
Total -- representing net assets applicable to outstanding capital stock $1,927,568,887
==============
Net assets applicable to outstanding shares: Class A $1,465,893,330
Class B $ 96,842,633
Class C $ 2,561,437
Class I $ 29,862,147
Class Y $ 332,409,340
Net asset value per share of outstanding capital stock: Class A shares 73,190,529 $ 20.03
Class B shares 4,876,852 $ 19.86
Class C shares 129,515 $ 19.78
Class I shares 1,491,161 $ 20.03
Class Y shares 16,599,166 $ 20.03
---------- --------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
25 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Statement of operations
RiverSource Stock Fund
Year ended Sept. 30, 2005
Investment income
Income:
Dividends $ 44,373,878
Interest 981,547
Fee income from securities lending 111,835
Less foreign taxes withheld (25,099)
-------
Total income 45,442,161
----------
Expenses (Note 2):
Expenses allocated from Portfolio 10,274,907
Distribution fee
Class A 3,845,677
Class B 1,296,503
Class C 28,462
Transfer agency fee 2,221,703
Incremental transfer agency fee
Class A 147,751
Class B 46,200
Class C 940
Service fee -- Class Y 398,708
Administrative services fees and expenses 712,884
Compensation of board members 13,518
Printing and postage 349,010
Registration fees 43,633
Audit fees 11,250
Other 39,840
------
Total expenses 19,430,986
Earnings credits on cash balances (Note 2) (82,322)
-------
Total net expenses 19,348,664
----------
Investment income (loss) -- net 26,093,497
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 219,667,986
Futures contracts 1,036,976
---------
Net realized gain (loss) on investments 220,704,962
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 1,907,020
---------
Net gain (loss) on investments and foreign currencies 222,611,982
-----------
Net increase (decrease) in net assets resulting from operations $248,705,479
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
26 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Statements of changes in net assets
RiverSource Stock Fund
Year ended Sept. 30, 2005 2004
Operations and distributions
Investment income (loss) -- net $ 26,093,497 $ 24,794,317
Net realized gain (loss) on investments 220,704,962 197,092,357
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 1,907,020 6,926,582
--------- ---------
Net increase (decrease) in net assets resulting from operations 248,705,479 228,813,256
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (19,994,077) (17,822,836)
Class B (687,745) (462,784)
Class C (15,405) (9,793)
Class I (336,154) (73,594)
Class Y (5,892,670) (6,002,196)
---------- ----------
Total distributions (26,926,051) (24,371,203)
----------- -----------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 38,099,206 63,479,881
Class B shares 6,244,292 12,358,184
Class C shares 340,354 856,199
Class I shares 17,726,947 13,794,550
Class Y shares 23,186,848 103,308,321
Reinvestment of distributions at net asset value
Class A shares 18,040,932 16,110,619
Class B shares 674,826 454,174
Class C shares 15,084 9,509
Class I shares 335,983 73,495
Class Y shares 5,892,670 6,002,197
Payments for redemptions
Class A shares (350,217,134) (277,171,254)
Class B shares (Note 2) (69,260,145) (73,507,847)
Class C shares (Note 2) (1,247,181) (793,152)
Class I shares (2,402,445) (1,535,947)
Class Y shares (176,240,953) (237,347,682)
------------ ------------
Increase (decrease) in net assets from capital share transactions (488,810,716) (373,908,753)
------------ ------------
Total increase (decrease) in net assets (267,031,288) (169,466,700)
Net assets at beginning of year 2,194,600,175 2,364,066,875
------------- -------------
Net assets at end of year $1,927,568,887 $2,194,600,175
============== ==============
Undistributed net investment income $ 435,066 $ 1,307,250
-------------- --------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
27 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Notes to Financial Statements
RiverSource Stock Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Stock Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Stock Series, Inc. has 10 billion authorized
shares of capital stock that can be allocated among the separate series as
designated by the Board.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
The Fund offers an additional class of shares, Class I, exclusively to certain
institutional investors. Class I shares have no sales charge and are made
available through a separate prospectus supplement provided to investors
eligible to purchase the shares. At Sept. 30, 2005, Ameriprise Financial and the
RiverSource Portfolio Builder Funds owned 100% of Class I shares, which
represents 1.55% of the Fund's net assets.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, transfer agency fees and service fee (class specific
expenses) differ among classes. Income, expenses (other than class specific
expenses) and realized and unrealized gains or losses on investments are
allocated to each class of shares based upon its relative net assets.
Investment in Equity Portfolio
The Fund currently invests all of its assets in Equity Portfolio (the
Portfolio), a series of Growth and Income Trust (the Trust), an open-end
investment company that has the same objectives as the Fund. The Portfolio
invests primarily in common stocks and securities convertible into common
stocks. In pursuit of its income objective, the Portfolio will invest in
income-producing equity securities (such as convertible securities and preferred
stocks) and short-term debt instruments (such as commercial paper).
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at the value that is equal to
the Fund's proportionate ownership interest in the Portfolio's net assets. The
percentage of the Portfolio owned by the Fund at Sept. 30, 2005 was 99.99%.
The Fund's Board has approved the withdrawal of the Fund's assets from the
Portfolio, which is expected to be completed in late 2005 or early 2006. After
that date, the Fund will invest directly in and manage its own portfolio of
securities rather than investing in the Portfolio.
- --------------------------------------------------------------------------------
28 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
All securities held by the Portfolio are valued at the close of each business
day. Securities traded on national securities exchanges or included in national
market systems are valued at the last quoted sales price. Debt securities are
generally traded in the over-the-counter market and are valued at a price that
reflects fair value as quoted by dealers in these securities or by an
independent pricing service. Pursuant to procedures adopted by the Board of
Trustees of the portfolios, Ameriprise Financial utilizes Fair Value Pricing
(FVP). FVP determinations are made in good faith in accordance with these
procedures. If a development or event is so significant that there is a
reasonably high degree of certainty that the effect of the development or event
has actually caused the closing price to no longer reflect the actual value, the
closing prices, as determined at the close of the applicable foreign market, may
be adjusted to reflect the fair value of the affected foreign securities as of
the close of the New York Stock Exchange. Significant events include material
movements in the U.S. securities markets prior to the opening of foreign markets
on the following trading day. FVP results in an estimated price that reasonably
reflects the current market conditions in order to value the portfolio holdings
such that shareholder transactions receive a fair net asset value. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
Use of estimates
Preparing financial statements that conform to U.S generally accepted accounting
principles requires management to make estimates (e.g., on assets, liabilities
and contingent assets and liabilities) that could differ from actual results.
Guarantees and indemnifications
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to the shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes, and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
- --------------------------------------------------------------------------------
29 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $39,630
and accumulated net realized loss has been decreased by $39,630.
The tax character of distributions paid for the years indicated is as follows:
Year ended Sept. 30, 2005 2004
Class A
Distributions paid from:
Ordinary income $19,994,077 $17,822,836
Long-term capital gain -- --
Class B
Distributions paid from:
Ordinary income 687,745 462,784
Long-term capital gain -- --
Class C
Distributions paid from:
Ordinary income 15,405 9,793
Long-term capital gain -- --
Class I*
Distributions paid from:
Ordinary income 336,154 73,594
Long-term capital gain -- --
Class Y
Distributions paid from:
Ordinary income 5,892,670 6,002,196
Long-term capital gain -- --
* Inception date is March 4, 2004.
At Sept. 30, 2005, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $ 432,975
Accumulated long-term gain (loss) $(32,594,987)
Unrealized appreciation (depreciation) $145,194,942
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar quarter,
when available, are reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed along
with the last income dividend of the calendar year.
- --------------------------------------------------------------------------------
30 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
The Fund has an agreement with Ameriprise Financial to provide administrative
services. Under the current Administrative Services Agreement, the Fund pays
Ameriprise Financial a fee for administration and accounting services at a
percentage of the Fund's average daily net assets that declines from 0.04% to
0.02% annually as the Fund's assets increase. Effective Oct. 1, 2005, the fee
percentage of the Fund's average daily net assets declines 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
RiverSource 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 Sept. 30, 2005 and are included in the transfer agency fees on the
statement of operations.
The Fund has agreements with Ameriprise Financial Services, Inc. (formerly
American Express Financial Advisors Inc.) (the Distributor) for distribution and
shareholder services. Under a Plan and Agreement of Distribution pursuant to
Rule 12b-1, the Fund pays a fee at an annual rate up to 0.25% of the Fund's
average daily net assets attributable to Class A shares and up to 1.00% for
Class B and Class C shares.
- --------------------------------------------------------------------------------
31 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$363,572 for Class A, $69,470 for Class B and $66 for Class C for the year ended
Sept. 30, 2005.
During the year ended Sept. 30, 2005, the Fund's transfer agency fees were
reduced by $82,322 as a result of earnings credits from overnight cash balances.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended Sept. 30, 2005
Class A Class B Class C Class I Class Y
Sold 1,971,686 331,033 18,146 927,451 1,226,230
Issued for reinvested distributions 933,025 35,239 790 17,335 304,989
Redeemed (18,300,800) (3,638,263) (66,361) (130,408) (9,233,441)
----------- ---------- ------- -------- ----------
Net increase (decrease) (15,396,089) (3,271,991) (47,425) 814,378 (7,702,222)
----------- ---------- ------- ------- ----------
Year ended Sept. 30, 2004
Class A Class B Class C Class I* Class Y
Sold 3,548,705 689,923 48,092 759,831 5,707,084
Issued for reinvested distributions 890,502 25,336 534 4,073 331,674
Redeemed (15,333,355) (4,140,596) (44,248) (87,121) (13,073,718)
----------- ---------- ------- ------- -----------
Net increase (decrease) (10,894,148) (3,425,337) 4,378 676,783 (7,034,960)
----------- ---------- ----- ------- ----------
* Inception date is March 4, 2004
4. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
JPMorgan Chase Bank, N.A. (JPMCB), 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. 20, 2005. The Fund must maintain asset
coverage for borrowings of at least 300%. The agreement, which enables the Fund
to participate with other RiverSource 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
0.40% or the JPMCB Prime Commercial 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 0.07%
per annum. Prior to this agreement, the Fund had a revolving credit agreement
that permitted borrowings up to $500 million with The Bank of New York. The Fund
had no borrowings outstanding during the year ended Sept. 30, 2005.
5. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$32,594,987 at Sept. 30, 2005, that if not offset by capital gains will expire
in 2011. 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.
- --------------------------------------------------------------------------------
32 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
6. SUBSEQUENT EVENT
Shareholders will be asked to approve a merger of RiverSource Stock Fund into
RiverSource Disciplined Equity Fund (formerly AXP Quantitative Large Cap Equity
Fund) at a shareholder meeting on Feb. 15, 2006. This approval is not
guaranteed.
7. 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 Sept. 30, 2005 2004 2003 2002 2001
Net asset value, beginning of period $18.02 $16.60 $14.47 $17.86 $27.12
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .24 .20 .18 .17 .20
Net gains (losses) (both realized and unrealized) 2.02 1.41 2.13 (3.39) (6.47)
------ ------ ------ ------ ------
Total from investment operations 2.26 1.61 2.31 (3.22) (6.27)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (.25) (.19) (.18) (.17) (.18)
Distributions from realized gains -- -- -- -- (2.81)
------ ------ ------ ------ ------
Total distributions (.25) (.19) (.18) (.17) (2.99)
------ ------ ------ ------ ------
Net asset value, end of period $20.03 $18.02 $16.60 $14.47 $17.86
------ ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $1,466 $1,596 $1,651 $1,599 $2,277
Ratio of expenses to average daily net assets(b) .91% .89% .92% .92% .87%
Ratio of net investment income (loss) to average daily net assets 1.26% 1.06% 1.12% .93% .88%
Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87%
Total return(c) 12.58% 9.72% 16.03% (18.20%) (24.87%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
33 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended Sept. 30, 2005 2004 2003 2002 2001
Net asset value, beginning of period $17.86 $16.44 $14.34 $17.70 $26.90
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .09 .05 .06 .03 .01
Net gains (losses) (both realized and unrealized) 2.00 1.42 2.10 (3.36) (6.39)
------ ------ ------ ------ ------
Total from investment operations 2.09 1.47 2.16 (3.33) (6.38)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (.09) (.05) (.06) (.03) (.01)
Distributions from realized gains -- -- -- -- (2.81)
------ ------ ------ ------ ------
Total distributions (.09) (.05) (.06) (.03) (2.82)
------ ------ ------ ------ ------
Net asset value, end of period $19.86 $17.86 $16.44 $14.34 $17.70
------ ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $97 $146 $190 $210 $306
Ratio of expenses to average daily net assets(b) 1.69% 1.67% 1.69% 1.69% 1.64%
Ratio of net investment income (loss) to average daily net assets .51% .27% .35% .15% .11%
Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87%
Total return(c) 11.72% 8.91% 15.09% (18.84%) (25.48%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
34 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended Sept. 30, 2005 2004 2003 2002 2001
Net asset value, beginning of period $17.79 $16.39 $14.30 $17.66 $26.88
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .09 .06 .07 .04 .04
Net gains (losses) (both realized and unrealized) 1.99 1.39 2.09 (3.36) (6.41)
------ ------ ------ ------ ------
Total from investment operations 2.08 1.45 2.16 (3.32) (6.37)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (.09) (.05) (.07) (.04) (.04)
Distributions from realized gains -- -- -- -- (2.81)
------ ------ ------ ------ ------
Total distributions (.09) (.05) (.07) (.04) (2.85)
------ ------ ------ ------ ------
Net asset value, end of period $19.78 $17.79 $16.39 $14.30 $17.66
------ ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $3 $3 $3 $2 $2
Ratio of expenses to average daily net assets(b) 1.69% 1.67% 1.70% 1.71% 1.64%
Ratio of net investment income (loss) to average daily net assets .51% .29% .32% .14% .16%
Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87%
Total return(c) 11.72% 8.87% 15.11% (18.84%) (25.47%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
35 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Class I
Per share income and capital changes(a)
Fiscal period ended Sept. 30, 2005 2004(b)
Net asset value, beginning of period $18.01 $18.96
------ ------
Income from investment operations:
Net investment income (loss) .31 .20
Net gains (losses) (both realized and unrealized) 2.03 (.96)
------ ------
Total from investment operations 2.34 (.76)
------ ------
Less distributions:
Dividends from net investment income (.32) (.19)
------ ------
Net asset value, end of period $20.03 $18.01
------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $30 $12
Ratio of expenses to average daily net assets(c) .56% .52%(d)
Ratio of net investment income (loss) to average daily net assets 1.48% 1.50%(d)
Portfolio turnover rate (excluding short-term securities) 132% 76%
Total return(e) 13.07% (4.03%)(f)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date is March 4, 2004.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
- --------------------------------------------------------------------------------
36 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended Sept. 30, 2005 2004 2003 2002 2001
Net asset value, beginning of period $18.01 $16.59 $14.46 $17.86 $27.13
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .27 .23 .20 .20 .23
Net gains (losses) (both realized and unrealized) 2.03 1.41 2.14 (3.40) (6.47)
------ ------ ------ ------ ------
Total from investment operations 2.30 1.64 2.34 (3.20) (6.24)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (.28) (.22) (.21) (.20) (.22)
Distributions from realized gains -- -- -- -- (2.81)
------ ------ ------ ------ ------
Total distributions (.28) (.22) (.21) (.20) (3.03)
------ ------ ------ ------ ------
Net asset value, end of period $20.03 $18.01 $16.59 $14.46 $17.86
------ ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $332 $438 $520 $490 $694
Ratio of expenses to average daily net assets(b) .75% .73% .76% .76% .71%
Ratio of net investment income (loss) to average daily net assets 1.44% 1.23% 1.28% 1.08% 1.04%
Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87%
Total return(c) 12.83% 9.90% 16.23% (18.12%) (24.77%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
37 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Report of Independent
Registered Public Accounting Firm
THE BOARD AND SHAREHOLDERS
AXP STOCK SERIES, INC.
We have audited the accompanying statement of assets and liabilities of
RiverSource Stock Fund (a series of AXP Stock Series, Inc.) as of September 30,
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 September 30, 2005, and the financial highlights for each of the years in
the five-year period ended September 30, 2005. These financial statements and
the financial highlights are the responsibility of fund management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
RiverSource Stock Fund as of September 30, 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
November 21, 2005
- --------------------------------------------------------------------------------
38 -- RIVERSOURCE STOCK 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.
RiverSource Stock Fund
Fiscal year ended Sept. 30, 2005
Class A
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 100%
Payable date Per share
Dec. 22, 2004 $0.12588
March 28, 2005 0.03557
June 28, 2005 0.04590
Sept. 28, 2005 0.04043
Total distributions $0.24778
Class B
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 100%
Payable date Per share
Dec. 22, 2004 $0.08943
June 28, 2005 0.00098
Total distributions $0.09041
- --------------------------------------------------------------------------------
39 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Class C
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 100%
Payable date Per share
Dec. 22, 2004 $0.09030
Sept. 28, 2005 0.00219
Total distributions $0.09249
Class I
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 100%
Payable date Per share
Dec. 22, 2004 0.14313
March 28, 2005 0.05432
June 28, 2005 0.06408
Sept. 28, 2005 0.05895
Total $0.32048
Class Y
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 100%
Payable date Per share
Dec. 22, 2004 $0.13346
March 28, 2005 0.04359
June 28, 2005 0.05417
Sept. 28, 2005 0.04852
Total distributions $0.27974
- --------------------------------------------------------------------------------
40 -- RIVERSOURCE STOCK 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 Sept. 30, 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.
- --------------------------------------------------------------------------------
41 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Beginning Ending Expenses
account value account value paid during Annualized
April 1, 2005 Sept. 30, 2005 the period(a) expense ratio
Class A
Actual(b) $1,000 $1,057.70 $4.85(c) .94%
Hypothetical (5% return before expenses) $1,000 $1,020.36 $4.76(c) .94%
Class B
Actual(b) $1,000 $1,053.60 $8.80(c) 1.71%
Hypothetical (5% return before expenses) $1,000 $1,016.50 $8.64(c) 1.71%
Class C
Actual(b) $1,000 $1,053.40 $8.80(c) 1.71%
Hypothetical (5% return before expenses) $1,000 $1,016.50 $8.64(c) 1.71%
Class I
Actual(b) $1,000 $1,059.70 $2.94(c) .57%
Hypothetical (5% return before expenses) $1,000 $1,022.21 $2.89(c) .57%
Class Y
Actual(b) $1,000 $1,058.60 $3.97(c) .77%
Hypothetical (5% return before expenses) $1,000 $1,021.21 $3.90(c) .77%
(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 183/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Sept. 30, 2005: +5.77%
for Class A, +5.36% for Class B, +5.34% for Class C, +5.97% for Class I and
+5.86% for Class Y.
(c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to
the fee schedule under the Administrative Services Agreement between
Ameriprise Financial and the Fund. If the revised fee schedule under the
Administrative Services Agreement had been in place for the entire
six-month period ended Sept. 30, 2005, the actual expenses paid would have
been $4.95 for Class A, $8.91 for Class B, $8.91 for Class C, $3.05 for
Class I and $4.08 for Class Y; the hypothetical expenses paid would have
been $4.86 for Class A, $8.74 for Class B, $8.74 for Class C, $2.99 for
Class I and $4.00 for Class Y.
- --------------------------------------------------------------------------------
42 -- RIVERSOURCE STOCK 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 11
Master Trust portfolios and 90 RiverSource funds. Board members serve until the
next regular shareholders' meeting or until he or she reaches the mandatory
retirement age established by the Board. Under the current Board policy, members
may serve until the end of the meeting following their 75th birthday, or the
fifteenth anniversary of the first Board meeting they attended as members of the
Board, whichever occurs first. This policy does not apply to Ms. Jones who may
retire after her 75th birthday.
Independent Board Members
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Arne H. Carlson Board member Chair, Board Services Corporation
901 S. Marquette Ave. since 1999 (provides administrative services
Minneapolis, MN 55402 to boards); former Governor of
Age 71 Minnesota
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Philip J. Carroll, Jr*. Board member Retired Chairman and CEO, Fluor Scottish Power PLC,
901 S. Marquette Ave. since 2002 Corporation (engineering and Vulcan Materials
Minneapolis, MN 55402 construction) Company, Inc.
Age 67 (construction
materials/chemicals)
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Patricia M. Flynn Board member Trustee Professor of Economics and
901 S. Marquette Ave. since 2004 Management, Bentley College;
Minneapolis, MN 55402 former Dean, McCallum Graduate
Age 54 School of Business, Bentley College
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 70
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Jeffrey Laikind Board member Former Managing Director, Shikiar American Progressive
901 S. Marquette Ave. since 2005 Asset Management Insurance
Minneapolis, MN 55402
Age 70
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Professor Valmont Industries,
901 S. Marquette Ave. since 2002 of Economics, Carleton College Inc. (manufactures
Minneapolis, MN 55402 irrigation systems)
Age 65
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Catherine James Paglia Board member Director, Enterprise Asset Strategic
901 S. Marquette Ave. since 2004 Management, Inc. (private real Distribution, Inc.
Minneapolis, MN 55402 estate and asset management (transportation,
Age 53 company) distribution and
logistics consultants)
- -------------------------------------- ------------------- ------------------------------------ ------------------------
* Phillip J. Carroll, Jr. retired as a member of the Board, effective Nov. 10,
2005
- --------------------------------------------------------------------------------
43 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Alan K. Simpson Board member Former three-term United States
1201 Sunshine Ave. since 1997 Senator for Wyoming
Cody, WY 82414
Age 74
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Alison Taunton-Rigby Board member Chief Executive Officer, Hybridon, Inc.
901 S. Marquette Ave. since 2002 RiboNovix, Inc. since 2003 (biotechnology)
Minneapolis, MN 55402 (biotechnology); former President,
Age 61 Forester Biotech
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Board Member Affiliated with Ameriprise Financial, Inc. (formerly AEFC)**
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- -------------------------------------- ------------------- ------------------------------------ ------------------------
William F. Truscott Board member President - U.S. Asset Management
53600 Ameriprise Financial Center since 2001, Vice and Chief Investment Officer of
Minneapolis, MN 55474 President since Ameriprise Financial, Inc. and
Age 45 2002 President, Chairman of the Board
and Chief Investment Officer of
RiverSource Investments, LLC
since 2005. Senior Vice President
- Chief Investment Officer of
Ameriprise Financial, Inc. and
Chairman of the Board and Chief
Investment Officer of RiverSource
Investments, LLC, 2001-2005;
former Chief Investment Officer
and Managing Director, Zurich
Scudder
- -------------------------------------- ------------------- ------------------------------------ ------------------------
** 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.
- --------------------------------------------------------------------------------
44 -- RIVERSOURCE STOCK 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:
Fund Officers
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Jeffrey P. Fox Treasurer Vice President - Investment
105 Ameriprise Financial Center since 2002 Accounting, Ameriprise Financial,
Minneapolis, MN 55474 Inc., since 2002; Vice President -
Age 50 Finance, American Express Company,
2000-2002; Vice President -
Corporate Controller, Ameriprise
Financial, Inc., 1996-2000
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Paula R. Meyer President Senior Vice President - Mutual
596 Ameriprise Financial Center since 2002 Funds, Ameriprise Financial,
Minneapolis, MN 55474 Inc., since 2002 and Senior Vice
Age 51 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 Services
901 S. Marquette Ave. General Counsel, Corporation
Minneapolis, MN 55402 and Secretary
Age 67 since 1978
- -------------------------------------- ------------------- ------------------------------------ ------------------------
Beth E. Weimer Chief Compliance Vice President and Chief
172 Ameriprise Financial Center Officer since 2004 Compliance Officer, Ameriprise
Minneapolis, MN 55474 Financial, Inc., since 2001 and
Age 52 Chief Compliance Officer,
RiverSource Investments, LLC
since 2005; Vice President and
Chief Compliance Officer - Asset
Management and Insurance,
Ameriprise Financial Services,
Inc., since 2001; 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.
- --------------------------------------------------------------------------------
45 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Approval of Investment Management Services Agreement
RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of
Ameriprise Financial, Inc. (Ameriprise Financial; formerly, American Express
Financial Corporation), serves as the investment manager to the Fund. Under an
investment management services agreement (the IMS Agreement), the investment
manager provides investment advice and other services to the Fund. Throughout
the year, the Fund's Board of Directors (the Board) and the Board's Investment
Review and Contracts Committees monitor these services.
Ameriprise Financial had served as investment manager to the Fund until Sept.
29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise
Financial transferred its rights, title, and interest and its burdens and
obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary.
Each year, the Board determines whether to continue the IMS Agreement by
evaluating the quality and level of service received and the costs associated
with those services. To assist the Board in making this determination, the
investment manager prepares detailed reports for the Board and its Contracts
Committee in March and April and provides data prepared by independent
organizations. The Board gives considerable weight to the work, deliberations
and conclusions of the Contracts and Investment Review Committees in determining
whether to continue the IMS Agreement.
This past year, prior to the Board's annual review process, on Feb. 1, 2005,
American Express Company, the former parent of Ameriprise Financial, announced
its intention to pursue a spin-off of Ameriprise Financial by distributing
shares of the common stock of Ameriprise Financial to shareholders of American
Express Company. Following this announcement, the Board determined to proceed
with its annual review process and, after thorough review of the reports and
data provided, at a meeting held in person on April 14, 2005, the Board,
including all of its independent members, determined that the quality and level
of advisory services provided pursuant to the IMS Agreement were satisfactory
and that fees were fair and reasonable. However, in light of the announced plans
of the spin-off, the Board approved continuation of the IMS Agreement with
Ameriprise Financial for only an interim period ending on the later of (i) the
effective date of the spin-off; or (ii) the approval of a new IMS Agreement with
Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in
no event for a period longer than one year. A detailed discussion of the Board's
considerations and determinations is provided below under "Board Considerations
Related to Renewal of IMS Agreement for an Interim Period."
While it was expected that the spin-off would not result in an "assignment" of
the IMS Agreement under the Investment Company Act of 1940 and, therefore, would
not cause the termination of the IMS Agreement according to its terms,
independent counsel to the Board advised the Board that the legal question of
whether the spin-off would result in an assignment turns on a highly
fact-sensitive analysis. Therefore, the Board determined, as a matter of
prudence, to proceed as if the IMS Agreement would terminate as a result of the
spin-off. Accordingly, the Board determined to renew the IMS Agreement for the
interim period only and to consider a new IMS Agreement for the Fund prior to
the spin-off. In light of the need to consider new contracts, the Board also
determined to review, and consider where appropriate, making changes to the
current terms of the IMS Agreement.
- --------------------------------------------------------------------------------
46 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
During the course of the six-month period following the April 2005 meeting, the
Board and its committees met at five in-person meetings to consider proposed new
contracts for the Fund. At a meeting of the Board held on Sept. 8, 2005, the
Board, including all of its independent members, approved, and recommended
shareholders approve, a proposed new IMS Agreement with RiverSource (the New IMS
Agreement). A meeting of the Fund's shareholders is expected to be held on Feb.
15, 2006, to consider approval of the new agreement. If approved, the New IMS
Agreement would take effect shortly after the shareholder meeting. A detailed
discussion of the Board's considerations and determinations respecting the New
IMS Agreement is provided below under "Board Considerations Related to the New
IMS Agreement."
Board Considerations Related to Renewal of IMS Agreement for an Interim Period
Investment performance is a major factor in the evaluation process, and the
Board reviewed the Fund's performance over a range of different periods by
comparing its performance to relevant Lipper and broader market indices. The
Board considered that, over time, the Fund's investment performance should be
above median for a peer group of funds with similar investment goals and noted
that the Fund's investment performance in 2004 was below median. Ameriprise
Financial has taken steps to address the below median performance.
The Board noted that, in addition to portfolio management and investment
research, Ameriprise Financial 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 Ameriprise Financial's internal processes. The
Board concluded that the services provided were consistent with services
provided by investment managers to comparable mutual funds.
The Board also evaluated the price paid for the services provided by Ameriprise
Financial, noting the existence of a pricing philosophy, established by the
Board and Ameriprise Financial, that seeks to maintain total Fund expenses
within a range of the median expenses charged to comparable funds sold through
financial advisers. The Board considered detailed information set forth in an
annual report on fees and expenses, including, among other things, data showing
(i) a comparison of the Fund's expenses with median expenses paid by funds in
its comparison group and (ii) the Fund's contribution to Ameriprise Financial'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 Ameriprise
Financial 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
IMS Agreement provided for lower fees as assets increase at pre-established
breakpoints and concluded that the IMS Agreement satisfactorily provided for
sharing these economies of scale.
The Board took into account the Contracts Committee's discussion comparing the
fees Ameriprise Financial 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 such as the Fund, and the operation of a
- --------------------------------------------------------------------------------
47 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
large mutual fund family. The Board also considered the profitability realized
by Ameriprise Financial and its affiliates from its relationship with the Fund.
The Board took into account the services acquired by Ameriprise Financial
through the use of commission dollars paid by the Fund on portfolio
transactions. The Board concluded that Ameriprise Financial'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 Ameriprise
Financial 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 Ameriprise Financial under
the IMS Agreement were fair and reasonable and determined to approve renewal of
the IMS Agreement for the interim period.
Board Considerations Related to Approval of New IMS Agreement
For the six months following the April 2005 meeting, the Board evaluated whether
to approve the New IMS Agreements for each of the funds within the Ameriprise
Financial fund complex (together, the Funds) with post-spin Ameriprise Financial
(or RiverSource). Independent counsel, Schulte Roth & Zabel LLP (Schulte),
assisted the Boards in fulfilling their statutory and other responsibilities
associated with the spin-off and the resulting consideration of new contracts,
including the New IMS Agreement. The Board and its committees were provided with
a wealth of written and oral information in this regard. Furthermore, in
connection with the Board's considerations as to whether post-spin Ameriprise
Financial, as an entity independent from American Express Company, would be
capable of continuing to provide a high quality of services to the Funds, the
Board's independent members retained their own financial adviser, Credit Suisse
First Boston LLC (CSFB) to assist it in analyzing the capital adequacy of
post-spin Ameriprise Financial. (The costs of independent counsel and CSFB and
of additional meetings of the Boards were borne by Ameriprise Financial as part
of the commitment of American Express Company to ensure a complete and thorough
review of the proposed spin-off and its effect on the services provided by
Ameriprise Financial and its subsidiaries.)
In carrying out its legal responsibilities associated with the consideration of
the New IMS Agreement, the Board evaluated the following factors:
Nature, Extent and Quality of Services to be Provided by Post-Spin Ameriprise
Financial (and Its Subsidiaries)
The Board recognized that only a few months had passed since its April 2005
conclusion that the nature, extent and quality of services provided by
Ameriprise Financial were satisfactory and consistent with those that would be
expected for a fund family of the size of the Funds and its determination to
renew the IMS Agreement for the interim period. However, the Board also
recognized the need to supplement this assessment with an evaluation of whether
the spin-off or other factors would result in changes to the advisory services
being provided under the current IMS Agreement.
The Board focused its evaluation on the following factors potentially impacting
the nature, extent and quality of advisory services to be provided by Ameriprise
Financial: (i) Ameriprise Financial's projected capital structure and capital
adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its
ability to retain and attract personnel; and (iv) its ability to successfully
re-brand its products and services. Based on extensive presentations and reports
- --------------------------------------------------------------------------------
48 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed
capital structure (which includes certain indemnification commitments made by
American Express Company) should enable RiverSource to continue to provide a
high quality and level of advisory services to the Fund. In making this
determination, the Board took into account representations by management of
Ameriprise Financial that projected capital levels would allow Ameriprise
Financial and RiverSource to meet legal and compliance responsibilities, build
their distribution network, pursue technological upgrades, make capital
commitments necessary to retain and attract key personnel devoted to legal and
compliance responsibilities, portfolio management and distribution, and pursue
smaller asset management acquisitions to help grow the asset management
business. The Board accorded significant weight to CSFB's confirmation as to the
reasonableness of the proposed capital structure. The Board also considered the
fact that there were no expected departures of key personnel involved in the
portfolio management, operations and marketing of the Funds as a result of the
announcement of the spin-off.
The Board concluded that, based on all of the materials and information
provided, post-spin Ameriprise Financial (including RiverSource) would be in a
position to continue to provide a high quality and level of advisory services to
the Fund.
Investment Performance
The Board next focused on investment performance. The Board reviewed reports
documenting the Fund's performance over one-, three- and/or five-year periods,
as well as the entire period during which its current portfolio manager has
managed the Fund, and compared to relevant Lipper and market indices. The Board
took into account its determination in April 2005 that investment performance
had not met expectations but appropriate action, such as adding the Cambridge
office to the portfolio management team, had been pursued in order to help the
Fund achieve its longer-term performance objective.
The Board also considered that it had been receiving monthly performance reports
for the Fund and that there had been no significant deviations from April's
overall performance data.
Cost of Services Provided
The Board evaluated comparative fees and the costs of services under the current
IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise
Financial (including RiverSource and other subsidiaries) to institutional
clients. The Board studied RiverSource's effort (i.e., its "pricing philosophy")
to set substantially all Funds' total expense ratios at or below the median
expense ratio of comparable mutual funds (as compiled by Lipper). The Board
observed that the proposed advisory fee changes are designed to work in tandem
with proposed changes to administrative services fees. It also noted that
RiverSource has agreed to voluntarily impose expense caps or waivers to achieve
this pricing objective whenever the expense ratio exceeded the median expense
ratio by more than three basis points (unless the higher ratio was due to the
impact of the performance fee adjustment.) The Board considered that advisory
fees under the New IMS Agreements would stay the same or decrease. The Board
also took into account the effect of the proposed performance incentive
adjustment on the advisory fee. In this regard, the Board recalled its past
determinations regarding the appropriateness of (i) the use of the relevant
index for the performance comparison; (ii) the methodology for determining when
the Board may change an index used
- --------------------------------------------------------------------------------
49 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
to calculate the performance incentive adjustment; (iii) the periods used for
averaging the Fund's assets and computing investment performance; and (iv) the
length of the period over which performance is computed.
The Board next considered the expected profitability to Ameriprise Financial and
RiverSource derived from their relationship with the Fund, recalling the April
2005 determination that the profitability level was appropriate. The Board noted
that projected profitability of Ameriprise Financial would allow it to operate
effectively and, at the same time, reinvest in RiverSource and its other asset
management businesses. The Board also considered that the proposed changes in
advisory fees and the mergers of certain other Funds would result in revenue
gains to Ameriprise Financial, but that these increases would not materially
alter profit margins due to expected increases in costs associated with the
spin-off, particularly re-branding and separation. CSFB also reported that
Ameriprise Financial's projected level of return on equity was generally
reasonable in light of the returns on equity of its industry competitors. In
evaluating profitability, the Board also considered the benefits Ameriprise
Financial obtains through the use of commission dollars paid on portfolio
transactions for the Fund and from other business relationships that result from
managing the Fund. The Board also considered the fees charged by Ameriprise
Financial (and its subsidiaries) to institutional clients as well as the fees
paid to, and charged by, sub-advisers, noting the differences in services
provided in each case. In light of these considerations, the Board concluded
that projected profitability levels were appropriate.
Other Considerations
In addition, the Board accorded weight to the fact that, under the New IMS
Agreement, RiverSource Investments is held to a higher standard of care than
under the current IMS Agreements. The Board also noted Ameriprise Financial's
commitment to a culture that adheres to ethical business practice, assigns
accountability to senior management and seeks to identify conflicts and propose
appropriate action to minimize the risks posed by the conflicts.
Furthermore, the Board recognized that it was not limited to considering
management's proposed contracts. In this regard, the Board evaluated the
circumstances under which it would consider the retention of an investment
adviser different from RiverSource Investments. The Board concluded, based on
its consultation with independent counsel, that pursuing the retention of a
different adviser was not necessary, primarily because, in its best judgment,
Ameriprise Financial continues to be basically the same organization (from a
functional and managerial standpoint), as was prior to the spin-off. The Board
reasoned that shareholders purchased shares of the Fund with an expectation that
the current investment advisory organization would be servicing the Fund.
The Fund's Board has approved a merger of the Fund into RiverSource Disciplined
Equity Fund. Completion of the merger is subject to final approval by
shareholders of the Fund. Proxy materials regarding the merger will be
distributed to shareholders in December 2005, and a meeting of shareholders to
consider the merger will be scheduled for February 2006.
- --------------------------------------------------------------------------------
50 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the website www.riversource.com/investments; or by
searching the website of the Securities and Exchange Commission (SEC) at
http://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; by looking at the website
www.riversource.com/investments; or by searching the website of the SEC at
www.sec.gov.
- --------------------------------------------------------------------------------
51 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
[RIVERSOURCE INVESTMENTS(SM) LOGO]
RiverSource Investments
200 Ameriprise Financial Center
Minneapolis, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
RiverSource funds are managed by RiverSource Investments, LLC and distributed by
Ameriprise Financial Services, Inc., Member NASD. Both companies are part of
Ameriprise Financial, Inc.