Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE(R)
FUNDAMENTAL GROWTH FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
MAY 31, 2007
(Prospectus also enclosed)
RIVERSOURCE FUNDAMENTAL GROWTH
FUND SEEKS TO PROVIDE SHAREHOLDERS
WITH LONG-TERM CAPITAL GROWTH.
This annual report includes a prospectus that
describes in detail the Fund's objective,
investment strategy, risks, sales charges, fees
and other matters of interest. Please read the
prospectus carefully before you invest or send
money.
LETTER TO SHAREHOLDERS
In this report and going forward, the Chairman of the RiverSource Funds' Boards
(Boards) and the President of RiverSource Funds are co-authors of this letter to
shareholders. Information about Stephen Lewis, Chairman of the Boards; Patrick
Bannigan, President of RiverSource Funds; and other officers and directors
elected or appointed to serve RiverSource Funds shareholders appear in the
"Board Members and Officers" section of this report.
Dear Fellow RiverSource Funds Shareholder:
As newly appointed in our respective roles as Chairman of the Boards and
President of RiverSource Funds, we are committed to continuing the successful
leadership efforts of Ted Truscott, a member of the Boards and Chief Investment
Officer of RiverSource Investments, LLC; and Governor Arne Carlson, who served
as Chairman of the Boards for eight years and will continue to serve on the
Boards.
As RiverSource Funds shareholders, we want our investments to deliver
consistent, competitive investment performance that can help us achieve our
financial goals. We are sure you feel the same way. We are pleased to report
that the investment management teams at RiverSource Investments have delivered
on our expectations. As a result, many of our funds are receiving positive
recognition in the financial media.
When discussing your financial plans with your advisor, we encourage you to take
a long-term view. The economy is cyclical and markets are inherently volatile,
so there will be periods when economic or market conditions may appear to throw
a wrench into any portfolio. A diversified mutual fund portfolio and an
experienced financial advisor can help keep your plan on track and also keep
your expectations in line with current market realities.
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THIS PAGE IS NOT PART OF THE ANNUAL REPORT
Being an informed investor is a key component to your overall investing success.
The information contained in this report can help "connect the dots" so you can
see how your fund performed in the context of the broader market. While this
shareholder report looks back over a specific period of time, current
performance information is always available online at riversource.com/funds.
We value your connection with RiverSource Funds and strive to provide the
performance, service and information that can help move you closer to your
financial goals.
/s/ STEPHEN R. LEWIS, JR.
Stephen R. Lewis, Jr.
Chairman of the Boards
/s/ PATRICK T. BANNIGAN
Patrick T. Bannigan
President, RiverSource Funds
Past performance does not guarantee future results.
- --------------------------------------------------------------------------------
THIS PAGE IS NOT PART OF THE ANNUAL REPORT
TABLE OF CONTENTS
<Table>
Fund Snapshot....................... 3
Performance Summary................. 5
Questions & Answers
with Portfolio Management........ 7
The Fund's Long-term Performance ... 12
Fund Expenses Example............... 14
Investments in Securities........... 16
Financial Statements................ 20
Notes to Financial Statements....... 23
Report of Independent Registered
Public Accounting Firm........... 41
Federal Income Tax Information...... 42
Board Members and Officers.......... 44
Approval of Investment Management
Services Agreement............... 48
Proxy Voting........................ 51
</Table>
(DALBAR LOGO)
The RiverSource mutual fund
shareholder reports 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.
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2 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
FUND SNAPSHOT AT MAY 31, 2007
FUND OBJECTIVE
RiverSource Fundamental Growth Fund seeks to provide shareholders with long-term
capital growth.
SECTOR BREAKDOWN*
Percentage of portfolio assets
(PIE CHART)
<Table>
Other(1) 16.5%
Energy 8.8%
Industrials 9.4%
Financials 11.4%
Information Technology 27.7%
Health Care 14.3%
Consumer Discretionary 11.9%
</Table>
* Sectors can be comprised of several industries. Please refer to the section
entitled "Investments in Securities" for a complete listing. No single
industry exceeds 25% of portfolio assets.
(1) Includes Consumer Staples 7.2%, Telecommunication Services 5.2%, Materials
1.9%, and Cash & Cash Equivalents 2.2%.
TOP TEN HOLDINGS
Percentage of portfolio assets
<Table>
Google Cl A 3.2%
Cisco Systems 2.8%
Baker Hughes 2.0%
Western Union 2.0%
PepsiCo 2.0%
Schering-Plough 1.9%
Suncor Energy 1.9%
St. Jude Medical 1.9%
Medtronic 1.9%
Merck & Co 1.8%
</Table>
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The Global Industry Classification Standard (GICS) was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's, a division of The McGraw-Hill Companies, Inc.
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
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RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 3
FUND SNAPSHOT AT MAY 31, 2007
STYLE MATRIX
<Table>
<Caption>
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
</Table>
Shading within the style matrix indicates areas in which the Fund generally
invests.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO MANAGERS
GOLDMAN SACHS ASSET MANAGEMENT, L.P.
<Table>
<Caption>
YEARS IN INDUSTRY
Steven Barry 22
Gregory Ekizian, CFA 22
David Shell, CFA 20
</Table>
WELLINGTON MANAGEMENT COMPANY, LLP
<Table>
Andrew Shilling, CFA 16
</Table>
FUND FACTS
<Table>
<Caption>
TICKER SYMBOL INCEPTION DATE
Class A AXPAX 04/24/03
Class B -- 04/24/03
Class C -- 04/24/03
Class I APGIX 03/04/04
Class R4(1) -- 04/24/03
(1) Effective Dec. 11, 2006, Class Y was renamed Class
R4.
Total net assets $237.9 million
Number of holdings 108
</Table>
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4 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
PERFORMANCE SUMMARY
PERFORMANCE COMPARISON
For the year ended May 31, 2007
(BAR CHART)
<Table>
RiverSource Fundamental Growth Fund Class A
(excluding sales charge) +17.25%
Russell 1000(R) Growth Index (unmanaged) +20.37%
Lipper Large-Cap Growth Funds Index +16.85%
</Table>
(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 contacting your financial institution or
visiting riversource.com/funds.
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.
It is not possible to invest directly in an index.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
<Table>
<Caption>
TOTAL(A)
Class A 1.41%
Class B 2.17%
Class C 2.16%
Class I 0.91%
Class R4(b) 1.22%
</Table>
(a) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until May 31, 2008,
unless sooner terminated at the discretion of the Fund's Board. Any amounts
waived will not be reimbursed by the Fund. Under this agreement, net fund
expenses (excluding fees and expenses of acquired funds), before giving
effect to any performance incentive adjustment (that increased the
management fee by 0.001%), will not exceed 1.42% for Class A, 2.18% for
Class B, 2.18% for Class C, 0.99% for Class I and 1.29% for Class R4.
(b) Effective Dec. 11, 2006, Class Y was renamed Class R4.
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RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 5
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
AT MAY 31, 2007
SINCE
WITHOUT SALES CHARGE 1 YEAR 3 YEARS INCEPTION
Class A (inception 4/24/03) +17.25% +7.48% +9.23%
Class B (inception 4/24/03) +16.34% +6.62% +8.37%
Class C (inception 4/24/03) +16.50% +6.61% +8.40%
Class I (inception 3/4/04) +17.93% +7.89% +5.68%
Class R4* (inception 4/24/03) +17.47% +7.65% +9.46%
</Table>
<Table>
<Caption>
With sales charge
Class A (inception 4/24/03) +10.50% +5.38% +7.67%
Class B (inception 4/24/03) +11.34% +5.43% +7.98%
Class C (inception 4/24/03) +15.50% +6.61% +8.40%
</Table>
<Table>
<Caption>
AT JUNE 30, 2007
SINCE
WITHOUT SALES CHARGE 1 YEAR 3 YEARS INCEPTION
Class A (inception 4/24/03) +16.90% +6.71% +8.71%
Class B (inception 4/24/03) +15.96% +5.90% +7.85%
Class C (inception 4/24/03) +16.13% +5.89% +7.89%
Class I (inception 3/4/04) +17.75% +7.23% +5.18%
Class R4* (inception 4/24/03) +17.28% +7.00% +8.97%
</Table>
<Table>
<Caption>
With sales charge
Class A (inception 4/24/03) +10.18% +4.62% +7.18%
Class B (inception 4/24/03) +10.96% +4.70% +7.47%
Class C (inception 4/24/03) +15.13% +5.89% +7.89%
</Table>
Class A share performance reflects the maximum sales charge of 5.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase. Sales charges do
not apply to Class I and Class R4 shares. Class I and Class R4 shares are
available to institutional investors only.
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
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6 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT
RiverSource Fundamental Growth Fund increased 17.25% for the 12 months ended May
31, 2007 (Class A shares excluding sales charge), underperforming its benchmark,
the Russell 1000(R) Growth Index (Russell Index), which increased 20.37% during
the same period. The Fund outperformed its peer group, as represented by the
Lipper Large-Cap Growth Funds Index, which rose 16.85%.
RiverSource Fundamental Growth Fund's portfolio is managed by two independent
money management firms. As of May 31, 2007, Goldman Sachs Asset Management, L.P.
(Goldman Sachs) and Wellington Management Company, LLP (Wellington Management)
each managed approximately 50% of the Fund's portfolio.
As of May 31, 2007, approximately 89% of the Fund's shares were owned in the
aggregate by affiliated funds-of-funds managed by RiverSource Investments, LLC
(RiverSource). As a result of asset allocation decisions by RiverSource, it is
possible that RiverSource Fundamental Growth Fund may experience relatively
large purchases or redemptions from affiliated funds-of-funds (see page 32,
Class I capital share transactions for related activity during the most recent
fiscal period). RiverSource seeks to minimize the impact of these transactions
by structuring them over a reasonable period of time. RiverSource Fundamental
Growth Fund may experience increased expenses as it buys and sells securities as
a result of purchases or redemptions by affiliated funds-of-funds. For more
information on the Fund's expenses, see the discussions beginning on pages 14
and 28.
Q: What factors most significantly affected the performance of your portion of
the Fund for the period?
GOLDMAN SACHS: Favorable results in our portfolio segment came from energy
stocks and holdings of companies that operate wireless communications towers.
Conversely, select technology companies hampered results.
Shares of Research In Motion, maker of BlackBerry personal digital
assistants, contributed to performance as continued subscriber growth was
driven by businesses adopting mobile email and introducing it more deeply
within their organizations. Recently, shares of Research In Motion rallied on
the company's positive outlook for long-term growth prospects. We believe
consumer-focused BlackBerry products are broadening the brand's appeal into a
larger market.
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RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 7
QUESTIONS & ANSWERS
Health care company MedImmune, which makes FluMist, was another leading
contributor. In April 2007, AstraZeneca agreed to buy MedImmune at a 21%
premium to the company's then current stock price after a competitive bidding
process that involved at least four large pharmaceutical companies.
Acquisitions are one way the gap between the stock price and the economic
value of a business can close, and we believe the MedImmune example validates
our approach of owning high quality businesses for the long term.
Publisher McGraw-Hill Companies aided results as the company reported higher
fiscal third quarter earnings and announced expectations to post double-
digit earnings growth in 2007. While weakness in the education market
remained, management attributed the company's strength to improved cost
management and performance within its financial services segment, Standard &
Poor's. We continue to favor Standard & Poor's, a bond ratings agency, and
believe its strong fundamentals should enable it to sustain long-term
double-digit growth rates.
Shares of pharmaceutical company Amgen were weak during the period due to the
Food and Drug Administration's (FDA) concern about doctors overprescribing
anemia drugs as well as prescribing them for unapproved uses. We continue to
like the company for its ability to generate free cash flow, strong balance
sheet and emerging new product pipeline. We expect Amgen to deploy capital
towards share repurchases and strategic acquisitions to deliver longer term
growth.
WELLINGTON MANAGEMENT: Stock selection in the information technology and
financials sectors was predominantly responsible for underperformance in our
segment of the portfolio. Among the largest detractors were SanDisk and
Motorola in the information technology sector and Commerce Bancorp in the
financials sector.
Shares of storage device maker SanDisk fell in concert with falling prices on
NAND-flash memory chips. Cell phone manufacturer Motorola stumbled as its
revenue expectations and average selling prices weakened. Commerce Bancorp
shares were weak largely due to the impact of the inverted yield curve.
Short-term interest rates that the bank pays depositors have generally been
higher than longer term rates, which are what the bank earns in interest on
loans.
- --------------------------------------------------------------------------------
8 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
QUESTIONS & ANSWERS
Favorable stock selection within materials, telecommunication services and
health care had a positive impact on results. Pharmaceutical company
Schering-Plough, financial services firm Franklin Resources and technology
company Adobe Systems were among the leading individual contributors to
performance. Schering-Plough's shares rose on strong earnings results and
investor enthusiasm for its announced acquisition of Organon Biosciences.
Global investment manager Franklin Resources experienced favorable asset flow
trends, while Adobe Systems benefited from solid sales and positive
expectations for the release of its new Creative Suite 3 software product.
FAVORABLE STOCK SELECTION WITHIN MATERIALS, TELECOMMUNICATION SERVICES AND
HEALTH CARE HAD A POSITIVE IMPACT ON RESULTS.
-- WELLINGTON MANAGEMENT
Q: What changes did you make to your portion of the Fund during the period?
GOLDMAN SACHS: During the period, Hershey's stock was weak and detracted from
performance. Hershey found that reigniting growth in the U.S. market was more
difficult than anticipated and decided to increase spending on consumer
promotion, advertising and new product development, which we believe could
have a lasting detrimental impact on company profit margins and forecasts for
longer term growth. We are concerned Hershey's current valuation does not
leave enough margin of safety for the risks inherent in the proposed
strategies for reinvigorating growth, so we sold the position in favor of
investments that we believe have more favorable risk-reward characteristics.
There were no material changes to the investment strategy during the period.
When evaluating a potential investment, we look for very specific investment
characteristics that we believe make a company a high-quality growth
business. These criteria are divided into three categories: strong business
franchises, favorable long-term prospects and excellent management. We also
include a valuation component in the process.
We typically sell a position if a company's long-term fundamentals
deteriorate, if the stock reaches what we consider full valuation, if the
company pursues a strategy that in our view does not maximize shareholder
value, or if the position grows beyond a weight that is comfortable from a
risk management standpoint.
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RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 9
QUESTIONS & ANSWERS
WHEN EVALUATING A POTENTIAL INVESTMENT, WE LOOK FOR VERY SPECIFIC
INVESTMENT CHARACTERISTICS THAT WE BELIEVE MAKE A COMPANY A HIGH-QUALITY
GROWTH BUSINESS.
-- GOLDMAN SACHS
WELLINGTON MANAGEMENT: During the period we reduced the portfolio's weight in
financials by cutting back exposure to banks and diversified financial
companies. We increased exposure to information technology by establishing
new positions in software firms Oracle and Accenture and hardware companies
IBM and Research In Motion. We also added to industrials, ending the period
with a greater-than-Russell Index weights in capital goods firms like General
Dynamics and Boeing. Health care exposure declined and was smaller than that
of the Russell Index due to reduced positions in both equipment and services
and pharmaceuticals. Though exposure to consumer-related sectors increased as
we added positions in office retailer Staples and apparel firm Nike, the
portfolio's weight remained smaller than that of the Russell Index.
Q. How do you intend to manage your portion of the Fund in the coming months?
GOLDMAN SACHS: For the past several years, strong global growth has supported
the persistent outperformance of lower quality companies, creating a
difficult headwind for our style. Today there are signs the environment may
be changing, making us optimistic that higher quality stocks are positioned
to better reflect their underlying business values.
As business buyers, we do not attempt to predict the economy or position the
portfolio for any specific economic environment, but we believe there is
currently a great opportunity for investing in quality growth stocks. To us,
quality boils down to sustainability of growth, returns, margin structure,
competitive advantage, etc. In our research, we look for specific
characteristics that give us confidence in this sustainability. We believe
that if a business has a dominant market position, a long product lifecycle,
pricing power and the ability to generate significant free cash flow that
management rationally allocates, then the business will have the barriers to
entry required to drive high returns on equity, and therefore an increase in
its economic value. Over time, we believe the stock price of that business
will reflect this value.
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10 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
QUESTIONS & ANSWERS
WELLINGTON MANAGEMENT: We continue to use security-specific research to build
our portion of the Fund one stock at a time. We seek to identify individual
companies that possess an explicit sustainable growth advantage or barrier to
entry that will enable them to maintain an above-average growth rate for an
extended period. As a result of bottom-up investment decisions, our segment
ended the period with information technology and industrials as its largest
overweights and consumer staples and consumer discretionary as its largest
underweights, all relative to the Russell Index.
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource Fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource Fund.
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RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 11
THE FUND'S LONG-TERM PERFORMANCE
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Fundamental Growth Fund Class A shares (from 5/1/03 to
5/31/07)* as compared to the performance of two widely cited performance
indices, the Russell 1000(R) Growth Index and the Lipper Large-Cap Growth Funds
Index. In comparing the Fund's Class A shares to these indices, you should take
into account the fact that the Fund's performance reflects the maximum sales
charge of 5.75%, while such charges are not reflected in the performance of the
indices. Returns for the Fund include the reinvestment of any distribution paid
during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. 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
contacting your financial institution or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
* Fund data is from April 24, 2003. Russell 1000 Growth Index and Lipper peer
group data is from May 1, 2003.
COMPARATIVE RESULTS
<Table>
<Caption>
Results at May 31, 2007 SINCE
1 YEAR 3 YEARS INCEPTION(3)
RIVERSOURCE FUNDAMENTAL GROWTH FUND (INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $11,050 $11,702 $13,539
Average annual total return +10.50% +5.38% +7.67%
RUSSELL 1000 GROWTH INDEX(1)
Cumulative value of $10,000 $12,037 $13,201 $16,358
Average annual total return +20.37% +9.70% +12.81%
LIPPER LARGE-CAP GROWTH FUNDS INDEX(2)
Cumulative value of $10,000 $11,685 $13,061 $15,808
Average annual total return +16.85% +9.31% +11.87%
</Table>
Results for other share classes can be found on page 6.
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12 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE FUNDAMENTAL GROWTH
FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE FUNDAMENTAL
GROWTH FUND CLASS A
(INCLUDES SALES CHARGE) RUSSELL 1000 GROWTH LIPPER LARGE-CAP GROWTH
($13,539) INDEX(1) ($16,358) FUNDS INDEX(2) ($15,808)
----------------------- ------------------- ------------------------
5/1/03 9425 10000 10000
5/03 9886 10499 10490
5/04 10906 12391 12104
5/05 10963 12804 12722
5/06 11547 13590 13528
5/07 13539 16358 15808
</Table>
(1) The Russell 1000 Growth Index, an unmanaged index, measures the performance
of those stocks in the Russell 1000 Index with higher price-to-book ratios
and higher forecasted growth values. The index reflects reinvestment of all
distributions and changes in market prices.
(2) The Lipper Large-Cap Growth Funds Index includes the 30 largest large-cap
growth funds tracked by Lipper Inc. The index's returns include net
reinvested dividends. The Fund's performance is currently measured against
this index for purposes of determining the performance incentive
adjustment.
(3) Fund data is from April 24, 2003. Russell 1000 Growth Index and Lipper peer
group data is from May 1, 2003.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 13
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, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and 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.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the acquired funds expense ratio as of the most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended May 31, 2007.
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.
- --------------------------------------------------------------------------------
14 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
DEC. 1, 2006 MAY 31, 2007 THE PERIOD(A) EXPENSE RATIO
Class A
Actual(b) $1,000 $1,091.90 $ 7.15(c) 1.37%
Hypothetical
(5% return before
expenses) $1,000 $1,018.10 $ 6.89(c) 1.37%
Class B
Actual(b) $1,000 $1,086.50 $11.08(c) 2.13%
Hypothetical
(5% return before
expenses) $1,000 $1,014.31 $10.70(c) 2.13%
Class C
Actual(b) $1,000 $1,086.40 $11.03(c) 2.12%
Hypothetical
(5% return before
expenses) $1,000 $1,014.36 $10.65(c) 2.12%
Class I
Actual(b) $1,000 $1,093.80 $ 4.59(c) .88%
Hypothetical
(5% return before
expenses) $1,000 $1,020.54 $ 4.43(c) .88%
Class R4
Actual(b) $1,000 $1,091.00 $ 6.15(c) 1.18%
Hypothetical
(5% return before
expenses) $1,000 $1,019.05 $ 5.94(c) 1.18%
</Table>
(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 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended May 31, 2007: +9.19%
for Class A, +8.65% for Class B, +8.64% for Class C, +9.38% for Class I and
+9.10% for Class R4.
(c) In September 2006, the Board approved renaming Class Y as Class R4,
terminating the shareholder servicing agreement, revising the fee structure
under the transfer agent agreement from an account-based fee to an
asset-based fee, and adopting a plan administration services agreement.
These changes were effective Dec. 11, 2006. In addition, the investment
manager and its affiliates have contractually agreed to waive certain fees
and to absorb certain expenses until May 31, 2008, unless sooner terminated
at the discretion of the Fund's Board, such that net expenses, (excluding
fees and expenses of acquired funds), before giving effect to any
performance incentive adjustment, will not exceed: 1.42% for Class A, 2.18%
for Class B, 2.18% for Class C, 0.99% for Class I and 1.29% for Class R4.
Any amounts waived will not be reimbursed by the Fund. This change was
effective June 1, 2007. If these changes had been in place for the entire
six months ended May 31, 2007, the actual and hypothetical expenses paid
for Class A, Class B, Class C, Class I and Class R4 would have been the
same as those expenses presented in the table above.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 15
INVESTMENTS IN SECURITIES
MAY 31, 2007
(Percentages represent value of investments compared to net assets)
<Table>
<Caption>
COMMON STOCKS (97.6%)
ISSUER SHARES VALUE(A)
AEROSPACE & DEFENSE (3.4%)
Boeing 32,320 $3,251,069
General Dynamics 42,000 3,370,080
United Technologies 22,320 1,574,676
---------------
Total 8,195,825
- -----------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS (0.7%)
United Parcel Service Cl B 22,890 1,647,393
- -----------------------------------------------------------------------------------
BEVERAGES (2.0%)
PepsiCo 68,830 4,703,154
- -----------------------------------------------------------------------------------
BIOTECHNOLOGY (3.6%)
Amgen 49,400(b) 2,782,701
Amylin Pharmaceuticals 14,372(b) 664,705
Celgene 42,140(b) 2,580,654
Genentech 22,910(b) 1,827,531
Gilead Sciences 8,640(b) 715,133
---------------
Total 8,570,724
- -----------------------------------------------------------------------------------
CAPITAL MARKETS (6.2%)
Charles Schwab 141,860 3,187,594
Franklin Resources 15,470 2,099,898
Goldman Sachs Group 3,850 888,657
Invesco ADR 14,200(c) 341,510
Legg Mason 24,030 2,427,751
Morgan Stanley 14,410 1,225,426
State Street 29,660 2,024,888
UBS 44,210(c) 2,884,260
---------------
Total 15,079,984
- -----------------------------------------------------------------------------------
CHEMICALS (1.3%)
Agrium 20,410(c) 788,438
Monsanto 19,650 1,210,440
Potash Corporation of Saskatchewan 16,740(c) 1,187,703
---------------
Total 3,186,581
- -----------------------------------------------------------------------------------
COMMERCIAL BANKS (1.3%)
Commerce Bancorp 38,560 1,331,091
SunTrust Banks 18,830 1,681,331
---------------
Total 3,012,422
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
COMMERCIAL SERVICES & SUPPLIES (1.9%)
Equifax 33,290 $1,399,179
Manpower 13,180 1,212,560
Monster Worldwide 15,940(b) 752,527
Waste Management 27,410 1,059,945
---------------
Total 4,424,211
- -----------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (5.9%)
Cisco Systems 248,040(b) 6,677,236
QUALCOMM 78,480 3,370,716
Research In Motion 23,890(b,c) 3,967,651
---------------
Total 14,015,603
- -----------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS (3.7%)
Apple 19,040(b) 2,314,502
EMC 56,760(b) 958,676
Hewlett-Packard 12,650 578,232
Intl Business Machines 19,360 2,063,776
Network Appliance 86,180(b) 2,774,135
---------------
Total 8,689,321
- -----------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING (1.0%)
Fluor 23,800 2,477,580
- -----------------------------------------------------------------------------------
CONSUMER FINANCE (0.9%)
American Express 33,650 2,186,577
- -----------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES (0.5%)
Apollo Group Cl A 23,620(b) 1,133,051
- -----------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (1.1%)
Chicago Mercantile Exchange Holdings Cl A 1,670 886,770
NASDAQ Stock Market 49,589(b) 1,650,322
---------------
Total 2,537,092
- -----------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.5%)
AT&T 26,650 1,101,711
- -----------------------------------------------------------------------------------
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
16 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
ENERGY EQUIPMENT & SERVICES (5.7%)
Baker Hughes 58,870 $4,855,597
Halliburton 27,030 971,729
Schlumberger 53,300 4,150,471
Transocean 14,290(b) 1,403,850
Weatherford Intl 38,550(b) 2,094,807
---------------
Total 13,476,454
- -----------------------------------------------------------------------------------
FOOD & STAPLES RETAILING (2.2%)
CVS Caremark 63,180 2,434,957
Wal-Mart Stores 48,150 2,291,940
Whole Foods Market 9,920 407,712
---------------
Total 5,134,609
- -----------------------------------------------------------------------------------
FOOD PRODUCTS (1.1%)
Kraft Foods Cl A 35,590 1,204,366
WM Wrigley Jr 24,375 1,428,375
---------------
Total 2,632,741
- -----------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES (3.8%)
Medtronic 84,000 4,466,280
St. Jude Medical 105,110(b) 4,487,146
---------------
Total 8,953,426
- -----------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE (1.1%)
Intl Game Technology 17,050 685,240
Starbucks 27,070(b) 779,887
Starwood Hotels & Resorts Worldwide 14,580 1,050,780
---------------
Total 2,515,907
- -----------------------------------------------------------------------------------
HOUSEHOLD DURABLES (1.0%)
Fortune Brands 30,680 2,478,330
- -----------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (1.4%)
Procter & Gamble 53,090 3,373,870
- -----------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (1.0%)
General Electric 36,270 1,363,027
Siemens ADR 7,450(c) 983,400
---------------
Total 2,346,427
- -----------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES (4.8%)
Akamai Technologies 11,830(b) 523,004
Google Cl A 15,280(b) 7,605,620
Yahoo! 118,310(b) 3,395,497
---------------
Total 11,524,121
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
IT SERVICES (4.2%)
Accenture Cl A 53,890(c) $2,206,257
Alliance Data Systems 17,870(b) 1,392,430
Automatic Data Processing 32,240 1,602,328
Western Union 215,220 4,831,689
---------------
Total 10,032,704
- -----------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES (1.1%)
Thermo Fisher Scientific 46,510(b) 2,539,446
- -----------------------------------------------------------------------------------
MACHINERY (1.4%)
Danaher 26,840 1,972,740
Parker Hannifin 12,360 1,252,810
---------------
Total 3,225,550
- -----------------------------------------------------------------------------------
MEDIA (3.6%)
Lamar Advertising Cl A 12,770 836,435
McGraw-Hill Companies 52,060 3,660,339
Viacom Cl B 54,260(b) 2,437,359
Walt Disney 47,725 1,691,374
---------------
Total 8,625,507
- -----------------------------------------------------------------------------------
METALS & MINING (0.5%)
Freeport-McMoRan Copper & Gold 16,230 1,277,301
- -----------------------------------------------------------------------------------
MULTILINE RETAIL (1.6%)
Kohl's 17,600(b) 1,325,632
Target 38,150 2,381,705
---------------
Total 3,707,337
- -----------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS (3.1%)
Cameco 55,310(c) 2,874,461
Suncor Energy 52,010(c) 4,534,232
---------------
Total 7,408,693
- -----------------------------------------------------------------------------------
PHARMACEUTICALS (5.8%)
Abbott Laboratories 31,230 1,759,811
AstraZeneca ADR 14,880(c) 791,318
Merck & Co 82,590 4,331,846
Sanofi-Aventis ADR 22,610(c) 1,087,541
Schering-Plough 140,640 4,604,553
Wyeth 20,500 1,185,720
---------------
Total 13,760,789
- -----------------------------------------------------------------------------------
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 17
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (2.1%)
Altera 64,690 $1,475,579
Linear Technology 101,160 3,630,632
---------------
Total 5,106,211
- -----------------------------------------------------------------------------------
SOFTWARE (6.8%)
Adobe Systems 44,240(b) 1,950,099
Autodesk 45,800(b) 2,081,610
Electronic Arts 66,540(b) 3,251,810
McAfee 5,700(b) 209,532
Microsoft 120,320 3,690,214
Oracle 216,330(b) 4,192,475
Symantec 50,330(b) 1,006,097
---------------
Total 16,381,837
- -----------------------------------------------------------------------------------
SPECIALTY RETAIL (3.5%)
Home Depot 59,510 2,313,154
Lowe's Companies 87,050 2,856,981
Staples 78,000 1,954,680
Williams-Sonoma 32,600 1,104,814
---------------
Total 8,229,629
- -----------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS (0.7%)
Nike Cl B 28,020 1,590,135
- -----------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (1.8%)
Freddie Mac 64,340 4,297,269
- -----------------------------------------------------------------------------------
TOBACCO (0.5%)
Altria Group 16,920 1,203,012
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
WIRELESS TELECOMMUNICATION SERVICES (4.8%)
America Movil ADR Series L 8,250(c) $499,538
American Tower Cl A 81,090(b) 3,501,465
Crown Castle Intl 62,220(b) 2,290,940
MetroPCS Communications 17,702(b) 631,253
NII Holdings 16,650(b) 1,356,476
Sprint Nextel 133,110 3,041,564
---------------
Total 11,321,236
- -----------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $203,651,558) $232,103,770
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (2.2%)
SHARES VALUE(A)
RiverSource Short-Term Cash Fund 5,211,595(d) $5,211,595
- -----------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $5,211,595) $5,211,595
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $208,863,153)(e) $237,315,365
===================================================================================
</Table>
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 May 31, 2007, the
value of foreign securities represented 9.3% of net assets.
(d) Affiliated Money Market Fund -- See Note 5 to the financial statements.
(e) At May 31, 2007, the cost of securities for federal income tax purposes was
$211,739,256 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $27,671,177
Unrealized depreciation (2,095,068)
- ------------------------------------------------------------------------------
Net unrealized appreciation $25,576,109
- ------------------------------------------------------------------------------
</Table>
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.
- --------------------------------------------------------------------------------
18 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
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 riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 19
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2007
<Table>
ASSETS
Investments in securities, at value (Note 1)
Unaffiliated issuers (identified cost $203,651,558) $232,103,770
Affiliated money market fund (identified cost $5,211,595)
(Note 5) 5,211,595
- ----------------------------------------------------------------------------
Total investments in securities (identified cost
$208,863,153) 237,315,365
Capital shares receivable 5,153
Dividends and accrued interest receivable 156,231
Receivable for investment securities sold 2,034,601
- ----------------------------------------------------------------------------
Total assets 239,511,350
- ----------------------------------------------------------------------------
LIABILITIES
Capital shares payable 2,100
Payable for investment securities purchased 1,529,926
Accrued investment management services fee 5,070
Accrued distribution fee 6,074
Accrued transfer agency fee 31
Accrued administrative services fee 390
Accrued plan administration services fee 11
Other accrued expenses 58,386
- ----------------------------------------------------------------------------
Total liabilities 1,601,988
- ----------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $237,909,362
============================================================================
REPRESENTED BY
Capital stock -- $.01 par value (Note 1) $ 336,031
Additional paid-in capital 195,495,973
Undistributed net investment income 671,746
Accumulated net realized gain (loss) 12,953,400
Unrealized appreciation (depreciation) on investments 28,452,212
- ----------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $237,909,362
============================================================================
</Table>
<Table>
Net assets applicable to outstanding
shares: Class A $ 18,943,663
Class B $ 5,745,289
Class C $ 758,297
Class I $212,413,837
Class R4 $ 48,276
Net asset value per share of outstanding
capital stock: Class A shares 2,707,778 $ 7.00
Class B shares 848,868 $ 6.77
Class C shares 111,896 $ 6.78
Class I shares 29,927,715 $ 7.10
Class R4 shares 6,836 $ 7.06
- ------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
20 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 2007
<Table>
INVESTMENT INCOME
Income:
Dividends $ 1,953,291
Interest 113,793
Income distributions from affiliated money market fund (Note
5) 255,834
Less foreign taxes withheld (15,017)
- ---------------------------------------------------------------------------
Total income 2,307,901
- ---------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 1,824,581
Distribution fee
Class A 49,742
Class B 62,405
Class C 6,619
Transfer agency fee
Class A 48,053
Class B 16,069
Class C 1,659
Class R4 61
Service fee -- Class R4 24
Administrative services fees and expenses 140,084
Plan administration services fee -- Class R4 57
Compensation of board members 3,854
Custodian fees 60,565
Printing and postage 25,725
Registration fees 32,764
Professional fees 22,083
Other 15,304
- ---------------------------------------------------------------------------
Total expenses 2,309,649
Earnings and bank fee credits on cash balances (Note 2) (1,892)
- ---------------------------------------------------------------------------
Total net expenses 2,307,757
- ---------------------------------------------------------------------------
Investment income (loss) -- net 144
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (Note 3) 16,366,306
Foreign currency transactions (170)
Payment from affiliate (Note 2) 17
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments 16,366,153
Net change in unrealized appreciation (depreciation) on
investments 23,700,464
- ---------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies 40,066,617
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $40,066,761
===========================================================================
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 21
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED MAY 31, 2007 2006
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 144 $ (88,997)
Net realized gain (loss) on investments 16,366,153 4,310,395
Net change in unrealized appreciation (depreciation) on
investments 23,700,464 1,143,623
- --------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 40,066,761 5,365,021
- --------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class I -- (114,610)
Net realized gain
Class A (403,131) (28,537)
Class B (128,283) (10,640)
Class C (13,891) (783)
Class I (4,785,679) (159,894)
Class R4 (1,400) (51)
- --------------------------------------------------------------------------------------
Total distributions (5,332,384) (314,515)
- --------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 4,276,141 9,755,222
Class B shares 1,107,154 2,941,155
Class C shares 173,670 466,724
Class I shares 105,371,811 72,232,825
Class R4 shares 26,619 19,000
Reinvestment of distributions at net asset value
Class A shares 395,368 28,270
Class B shares 127,840 10,611
Class C shares 13,631 766
Class I shares 4,785,466 274,479
Class R4 shares 1,141 34
Payments for redemptions
Class A shares (8,909,555) (8,492,982)
Class B shares (Note 2) (3,524,944) (2,870,610)
Class C shares (Note 2) (135,177) (185,373)
Class I shares (65,786,644) (2,414,797)
Class R4 shares (26,612) --
- --------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions 37,895,909 71,765,324
- --------------------------------------------------------------------------------------
Total increase (decrease) in net assets 72,630,286 76,815,830
Net assets at beginning of year 165,279,076 88,463,246
- --------------------------------------------------------------------------------------
Net assets at end of year $237,909,362 $165,279,076
======================================================================================
Undistributed net investment income $ 671,746 $ --
- --------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
22 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of RiverSource Managers Series, Inc. and is registered
under the Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. RiverSource Managers Series, Inc. has 10 billion
authorized shares of capital stock that can be allocated among the separate
series as designated by the Board. The Fund invests primarily in publicly traded
U.S. securities.
The Fund offers Class A, Class B, Class C, Class I and Class R4 shares.
- - Class A shares are sold with a front-end sales charge.
- - 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.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares have no sales charge and are offered only to
qualifying institutional investors.
Effective Dec. 11, 2006, the Board approved renaming Class Y as Class R4,
terminating the shareholder servicing agreement, revising the fee structure
under the transfer agent agreement from account-based to asset-based, and
adopting a plan administration services agreement.
At May 31, 2007, Ameriprise Financial, Inc. (Ameriprise Financial) and the
affiliated funds-of-funds owned 100% of Class I shares.
At May 31, 2007, Ameriprise Financial and the affiliated funds-of-funds owned
approximately 89% of the total outstanding Fund shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration fees) differ among classes. Income, expenses (other
than class specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative net
assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 23
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.
Foreign securities are valued based on quotations from the principal market in
which such securities are normally traded. The procedures adopted by the Board
of Directors of the funds generally contemplate the use of fair valuation in the
event that price quotations or valuations are not readily available, price
quotations or valuations from other sources are not reflective of market value
and thus deemed unreliable, or a significant event has occurred in relation to a
security or class of securities (such as foreign equities) that is not reflected
in price quotations or valuations from other sources. A fair value price is a
good faith estimate of the value of a security at a given point in time. Many
securities markets and exchanges outside the U.S. close prior to the close of
the New York Stock Exchange and therefore the closing prices for securities in
such markets or on such exchanges may not fully reflect events that occur after
such close but before the close of the New York Stock Exchange, including
significant movements in the U.S. market after foreign exchanges have closed.
Accordingly, in those situations, Ameriprise Financial will fair value foreign
equity securities pursuant to procedures adopted by the Board of Directors of
the funds, including utilizing a third party pricing service to determine these
fair values. These procedures take into account multiple factors, including
movements in the U.S. securities markets, to determine a good faith estimate
that reasonably reflects the current market conditions as of the close of the
New York Stock Exchange. Short-term securities maturing in more than 60 days
from the valuation date are valued at the market price or approximate market
value based on current interest rates; those maturing in 60 days or less are
valued at amortized cost.
OPTION TRANSACTIONS
To produce incremental earnings, protect gains, and facilitate buying and
selling of securities for investments, the Fund may buy and write options traded
on any U.S. or foreign exchange or in the over-the-counter market where
completing the obligation depends upon the credit standing of the other party.
The Fund also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the security
decreases and the option is exercised. The risk in buying an option is that the
Fund pays a premium whether or not the option is exercised. The Fund also has
the additional risk of being unable to enter into a closing transaction if a
liquid secondary market does not exist.
- --------------------------------------------------------------------------------
24 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When an
option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
FOREIGN CURRENCY TRANSLATIONS AND FOREIGN CURRENCY CONTRACTS
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete its contract obligations.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 25
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 Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $671,602
and accumulated net realized gain has been decreased by $671,602.
- --------------------------------------------------------------------------------
26 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED MAY 31, 2007 2006
- ----------------------------------------------------------------------------
CLASS A
Distributions paid from:
Ordinary income............................. $ -- $ --
Long-term capital gain...................... 403,131 28,537
CLASS B
Distributions paid from:
Ordinary income............................. -- --
Long-term capital gain...................... 128,283 10,640
CLASS C
Distributions paid from:
Ordinary income............................. -- --
Long-term capital gain...................... 13,891 783
CLASS I
Distributions paid from:
Ordinary income............................. -- 114,610
Long-term capital gain...................... 4,785,679 159,894
CLASS R4*
Distributions paid from:
Ordinary income............................. -- --
Long-term capital gain...................... 1,400 51
</Table>
* Effective Dec. 11, 2006, Class Y renamed Class R4.
At May 31, 2007, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income............................. $ 6,570,876
Accumulated long-term gain (loss)......................... $ 9,930,373
Unrealized appreciation (depreciation).................... $25,576,109
</Table>
RECENT ACCOUNTING PRONOUNCEMENTS
On Sept. 20, 2006, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 157 "Fair Value Measurements"
(SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional disclosures
about fair-value measurements. The application of SFAS 157 is required for
fiscal years beginning after Nov. 15, 2007 and interim periods within those
fiscal years. The impact of SFAS 157 on the Fund's financial statements is being
evaluated.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 27
In June 2006, the FASB issued FASB Interpretation 48 (FIN 48), "Accounting for
Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in accordance with FASB Statement 109, "Accounting for
Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a
tax position taken or expected to be taken in a tax return. The first step is to
determine whether a tax position has met the more-likely-than-not recognition
threshold and the second step is to measure a tax position that meets the
threshold to determine the amount of benefit to recognize. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after Dec. 15, 2006. Tax positions of the Fund are being evaluated to
determine the impact, if any, to the Fund. The adoption of FIN 48 is not
anticipated to have a material impact on the Fund.
DIVIDENDS TO SHAREHOLDERS
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, RiverSource Investments, LLC
(the Investment Manager) determines which securities will be purchased, held or
sold. The management fee is a percentage of the Fund's average daily net assets
that declines from 0.78% to 0.68% annually as the Fund's assets increase. The
fee may be adjusted upward or downward by a performance incentive adjustment
based on a comparison of the performance of Class A shares of the Fund to the
Lipper Large-Cap Growth Funds Index. In certain circumstances, the Board may
approve a change in the index. The maximum adjustment is 0.12% per year. If the
performance difference is less than 0.50%, the adjustment will be zero. The
adjustment increased the fee by $3,495 for the year ended May 31, 2007.
The Investment Manager has Subadvisory Agreements with Goldman Sachs Asset
Management, L.P. and Wellington Management Company, LLP. New investments in the
Fund, net of any redemptions, are allocated in accordance with the Investment
Manager's determination of the allocation that is in the best interests of the
shareholders. Each subadviser's proportionate share of investments in the Fund
will vary due to market fluctuations.
- --------------------------------------------------------------------------------
28 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
Under an 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 0.06% to 0.03% annually as the
Fund's assets increase.
Other expenses in the amount of $5,352 is for, among other things, certain
expenses of the Fund or the Board including: Fund boardroom and office expense,
employee compensation, employee health and retirement benefits, and certain
other expenses. Payment of these Fund and Board expenses is facilitated by a
company providing limited administrative services to the Fund and the Board.
Compensation of Board members includes, for the former Board Chair, compensation
as well as retirement benefits. Certain other aspects of the former Board
Chair's compensation, including health benefits and payment of certain other
expenses, are included under other expenses.
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.
Professional fees include fees paid by the Fund for legal services and
independent auditor services.
Under a Transfer Agency Agreement, RiverSource 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:
- - Class A $19.50
- - Class B $20.50
- - Class C $20.00
Effective Dec. 11, 2006, as part of the Board's approval to rename Class Y as
Class R4, the fee structure under the Transfer Agency Agreement was revised from
an account-based fee for Class Y to an asset-based fee for Class R4. The Fund
pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the
Fund's average daily net assets attributable to Class R4 shares. Prior to Dec.
11, 2006, the Fund paid the Transfer Agent an annual account-based fee of $17.50
per shareholder account.
Prior to Dec. 11, 2006, Class I paid 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. Effective Dec. 11, 2006, this fee was eliminated.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 29
The Transfer Agent charges 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 are included in the transfer agency fees on the
statement of operations.
The Fund has agreements with Ameriprise Financial Services, Inc. and RiverSource
Distributors, Inc. (collectively, 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 of up to 0.25% of the Fund's
average daily net assets attributable to Class A shares and a fee at an annual
rate of up to 1.00% of the Fund's average daily net assets attributable to Class
B and Class C shares.
Effective Dec. 11, 2006, a new Plan Administration Services Agreement was
adopted for the restructured Class R4. The fee is calculated at a rate of 0.25%
of the Fund's average daily net assets attributable to Class R4 shares.
Prior to Dec. 11, 2006, under a Shareholder Service Agreement, the Fund paid the
Distributor a fee for service provided to shareholders by the Distributor and
other servicing agents with respect to Class Y shares. The fee was calculated at
a rate of 0.10% of the Fund's average daily net assets attributable to Class Y
shares. Effective Dec. 11, 2006, this agreement was terminated.
Sales charges received by the Distributor for distributing Fund shares were
$44,880 for Class A, $8,322 for Class B and $4 for Class C for the year ended
May 31, 2007.
In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in which
it invests (also referred to as "acquired funds"), including affiliated and non-
affiliated pooled investment vehicles (including mutual funds and exchange
traded funds). Because the acquired funds have varied expense and fee levels and
the Fund may own different proportions of acquired funds at different times, the
amount of fees and expenses incurred indirectly by the Fund will vary.
- --------------------------------------------------------------------------------
30 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
The Investment Manager and its affiliates agreed to waive certain fees and
expenses until May 31, 2007, such that net expenses (excluding fees and expenses
of acquired funds), before giving effect to any performance incentive
adjustment, would not exceed 1.55% for Class A, 2.32% for Class B, 2.32% for
Class C, 1.20% for Class I and 1.32% for Class R4 of the Fund's average daily
net assets. For the year ended May 31, 2007, the waiver was not invoked since
the Fund's expenses were below the cap amount. Effective June 1, 2007, the
Investment Manager and its affiliates have agreed to waive certain fees and
expenses until May 31, 2008, unless sooner terminated at the discretion of the
Board, such that net expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment will not exceed
1.42% for Class A, 2.18% for Class B, 2.18% for Class C, 0.99% for Class I and
1.29% for Class R4 of the Fund's average daily net assets.
During the year ended May 31, 2007, the Fund's custodian and transfer agency
fees were reduced by $1,892 as a result of earnings and bank fee credits from
overnight cash balances. The Fund also pays custodian fees to Ameriprise Trust
Company, an affiliate of Ameriprise Financial.
In addition, the Fund received a one time payment of $17 by Ameriprise Financial
for additional earnings from overnight cash balances determined to be owed for
prior years. This amount was insignificant to the Fund's net asset value and
total return.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $221,628,450 and $190,178,994, respectively, for the
year ended May 31, 2007. Realized gains and losses are determined on an
identified cost basis.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 31
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<Table>
<Caption>
YEAR ENDED MAY 31, 2007
CLASS A CLASS B CLASS C CLASS I CLASS R4*
- ------------------------------------------------------------------------------------
Sold 686,011 182,445 28,335 16,719,701 4,052
Issued for reinvested
distributions 61,297 20,422 2,174 732,842 175
Redeemed (1,399,747) (582,620) (21,706) (9,808,696) (4,132)
- ------------------------------------------------------------------------------------
Net increase (decrease) (652,439) (379,753) 8,803 7,643,847 95
- ------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED MAY 31, 2006
CLASS A CLASS B CLASS C CLASS I CLASS R4*
- ------------------------------------------------------------------------------------
Sold 1,588,882 491,321 77,973 11,820,012 3,139
Issued for reinvested
distributions 4,530 1,737 125 43,707 5
Redeemed (1,400,717) (480,454) (30,970) (385,685) --
- ------------------------------------------------------------------------------------
Net increase (decrease) 192,695 12,604 47,128 11,478,034 3,144
- ------------------------------------------------------------------------------------
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
5. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the RiverSource funds
and other institutional clients of RiverSource Investments.
6. 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. 19, 2006. 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 0.06%
per annum. Prior to this agreement, the Fund paid a commitment fee equal to its
pro rata share of the amount of the credit facility at a rate of 0.07% per
annum. The Fund had no borrowings under the facility outstanding during the year
ended May 31, 2007.
- --------------------------------------------------------------------------------
32 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
7. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. In response to defendants' motion to dismiss the
complaint, the Court dismissed one of plaintiffs' four claims and granted
plaintiffs limited discovery. Defendants moved for summary judgment in April
2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The
plaintiffs may file a notice of appeal with the Eighth Circuit Court of Appeals
within 30 days from the date of judgment.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), the parent company of RiverSource Investments, LLC
(RiverSource Investments), entered into settlement agreements with the
Securities and Exchange Commission (SEC) and Minnesota Department of Commerce
(MDOC) related to market timing activities. In connection with these matters,
the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain
provisions of the federal and Minnesota securities laws by failing to adequately
disclose market timing activities by allowing certain identified market timers
to continue to market time contrary to disclosures in mutual fund and variable
annuity product prospectuses. The Orders also alleged that AEFC failed to
implement procedures to detect and prevent market timing in 401(k) plans for
employees of AEFC and related companies and failed to adequately disclose that
there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged
that AEFC allowed inappropriate market timing to occur by failing to have
written policies and procedures and failing to properly supervise its employees.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 33
As a result of the Orders, AEFC was censured and ordered to cease and desist
from committing or causing any violations of certain provisions of the
Investment Advisers Act of 1940, the Investment Company Act of 1940, and various
Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to make presentations at least annually to its board of directors and the
relevant mutual funds' board that include an overview of policies and procedures
to prevent market timing, material changes to these policies and procedures and
whether disclosures related to market timing are consistent with the SEC order
and federal securities laws. AEFC also agreed to retain an independent
distribution consultant to assist in developing a plan for distribution of all
disgorgement and civil penalties ordered by the SEC in accordance with various
undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In
addition, AEFC agreed to complete and submit to the MDOC a compliance review of
its procedures regarding market timing within one year of the MDOC Order,
including a summary of actions taken to ensure compliance with applicable laws
and regulations and certification by a senior officer regarding compliance and
supervisory procedures.
Ameriprise Financial and its affiliates have cooperated with the SEC and the
MDOC in these legal proceedings, and have made regular reports to the
RiverSource Funds' Boards of Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
- --------------------------------------------------------------------------------
34 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are unable to estimate the possible loss or range
of loss that may result. An adverse outcome in one or more of these proceedings
could result in adverse judgments, settlements, fines, penalties or other relief
that could have a material adverse effect on the consolidated financial
condition or results of operations of Ameriprise Financial.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 35
8. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007 2006 2005 2004 2003(B)
Net asset value, beginning of period $6.09 $5.79 $5.79 $5.36 $5.11
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.01) (.01) (.01) (.02) --
Net gains (losses) (both realized and
unrealized) 1.05 .32 .04 .57 .25
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 1.04 .31 .03 .55 .25
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from realized gains (.13) (.01) (.03) (.12) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.00 $6.09 $5.79 $5.79 $5.36
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $19 $20 $18 $12 $5
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(c),(d) 1.41% 1.38%(e) 1.50%(e) 1.40%(e) 1.20%(e),(f)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets (.42%) (.38%) (.18%) (.48%) .16%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 85% 62% 122% 66% 10%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 17.25% 5.33% .52% 10.32% 4.89%(h)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to May 31, 2003.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 1.42%, 1.56%, 3.06% and 23.71% for the periods
ended May 31, 2006, 2005, 2004 and 2003, respectively.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- --------------------------------------------------------------------------------
36 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007 2006 2005 2004 2003(B)
Net asset value, beginning of period $5.94 $5.69 $5.74 $5.35 $5.11
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.05) (.03) (.04) (.03) (.01)
Net gains (losses) (both realized and
unrealized) 1.01 .29 .02 .54 .25
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .96 .26 (.02) .51 .24
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from realized gains (.13) (.01) (.03) (.12) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.77 $5.94 $5.69 $5.74 $5.35
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $6 $7 $7 $4 $--
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(c),(d) 2.17% 2.15%(e) 2.27%(e) 2.17%(e) 1.89%(e),(f)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets (1.18%) (1.15%) (.97%) (1.25%) (.78%)(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 85% 62% 122% 66% 10%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 16.34% 4.54% (.34%) 9.57% 4.70%(h)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to May 31, 2003.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 2.18%, 2.34%, 3.83% and 24.48% for the periods
ended May 31, 2006, 2005, 2004 and 2003, respectively.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 37
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007 2006 2005 2004 2003(B)
Net asset value, beginning of period $5.94 $5.69 $5.75 $5.35 $5.11
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.05) (.03) (.05) (.03) (.01)
Net gains (losses) (both realized and
unrealized) 1.02 .29 .02 .55 .25
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .97 .26 (.03) .52 .24
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from realized gains (.13) (.01) (.03) (.12) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.78 $5.94 $5.69 $5.75 $5.35
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $1 $1 $-- $-- $--
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(c),(d) 2.16% 2.14%(e) 2.27%(e) 2.18%(e) 1.86%(e),(f)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets (1.17%) (1.14%) (.94%) (1.27%) (.53%)(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 85% 62% 122% 66% 10%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 16.50% 4.54% (.52%) 9.75% 4.70%(h)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to May 31, 2003.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 2.18%, 2.35%, 3.83% and 24.49% for the periods
ended May 31, 2006, 2005, 2004 and 2003, respectively.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- --------------------------------------------------------------------------------
38 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007 2006 2005 2004(B)
Net asset value, beginning of period $6.14 $5.82 $5.80 $6.10
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) -- -- .01 (.01)
Net gains (losses) (both realized and
unrealized) 1.09 .33 .04 (.29)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 1.09 .33 .05 (.30)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from realized gains (.13) (.01) (.03) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.10 $6.14 $5.82 $5.80
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $212 $137 $63 $8
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(c),(d) .91% .93% 1.11% 1.03%(e),(f)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets .08% .07% .22% .03%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 85% 62% 122% 66%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 17.93% 5.75% .88% (4.91%)(h)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (inception date) to May 31, 2004.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class I would have been 1.58% for the period ended May 31, 2004.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 39
CLASS R4*
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007 2006 2005 2004 2003(B)
Net asset value, beginning of period $6.13 $5.82 $5.81 $5.36 $5.11
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.01) (.01) .01 (.01) --
Net gains (losses) (both realized and
unrealized) 1.07 .33 .03 .58 .25
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 1.06 .32 .04 .57 .25
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from realized gains (.13) (.01) (.03) (.12) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.06 $6.13 $5.82 $5.81 $5.36
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $-- $-- $-- $-- $--
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(c),(d) 1.22% 1.20%(e) 1.31%(e) 1.22%(e) 1.07%(e),(f)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets (.21%) (.20%) .09% (.33%) .31%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 85% 62% 122% 66% 10%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 17.47% 5.47% .70% 10.72% 4.89%(h)
- -----------------------------------------------------------------------------------------------------------
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to May 31, 2003.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class R4 would have been 1.23%, 1.39%, 2.87% and 23.53% for the periods
ended May 31, 2006, 2005, 2004 and 2003, respectively.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- --------------------------------------------------------------------------------
40 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD AND SHAREHOLDERS
RIVERSOURCE MANAGERS SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of RiverSource Fundamental Growth
Fund (a series of RiverSource Managers Series, Inc.) as of May 31, 2007, 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 May 31,
2007 and the financial highlights for each of the years or periods in the
five-year period ended May 31, 2007. These financial statements and the
financial highlights are the responsibility of fund management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of May 31, 2007, 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
RiverSource Fundamental Growth Fund as of May 31, 2007, 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
July 20, 2007
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 41
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.
Fiscal year ended May 31, 2007
CLASS A
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 44.28%
Dividends Received Deduction for corporations......... 35.34%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06648
</Table>
<Table>
<Caption>
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06325
Total distributions......................................... $0.12973
</Table>
CLASS B
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 44.28%
Dividends Received Deduction for corporations......... 35.34%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06648
</Table>
<Table>
<Caption>
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06325
Total distributions......................................... $0.12973
</Table>
CLASS C
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 44.28%
Dividends Received Deduction for corporations......... 35.34%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06648
</Table>
<Table>
<Caption>
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06325
Total distributions......................................... $0.12973
</Table>
- --------------------------------------------------------------------------------
42 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
CLASS I
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 44.28%
Dividends Received Deduction for corporations......... 35.34%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06648
</Table>
<Table>
<Caption>
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06325
Total distributions......................................... $0.12973
</Table>
CLASS R4*
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 44.28%
Dividends Received Deduction for corporations......... 35.34%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06648
</Table>
<Table>
<Caption>
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 20, 2006............................................... $0.06325
Total distributions......................................... $0.12973
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 43
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 102
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
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
Kathleen Blatz Board member Chief Justice, Minnesota Supreme
901 S. Marquette Ave. since 2006 Court, 1998-2005
Minneapolis, MN 55402
Age 53
- -----------------------------------------------------------------------------------------------------
Arne H. Carlson Board member Chair, RiverSource Funds,
901 S. Marquette Ave. since 1999 1999-2006; former Governor of
Minneapolis, MN 55402 Minnesota
Age 72
- -----------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member President, Springboard-Partners in
901 S. Marquette Ave. since 2007 Cross Cultural Leadership
Minneapolis, MN 55402 (consulting company)
Age 52
- -----------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member Trustee Professor of Economics and
901 S. Marquette Ave. since 2004 Management, Bentley College; former
Minneapolis, MN 55402 Dean, McCallum Graduate School of
Age 56 Business, Bentley College
- -----------------------------------------------------------------------------------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 72
- -----------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive
901 S. Marquette Ave. since 2005 Asset Management Insurance
Minneapolis, MN 55402
Age 71
- -----------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries,
901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures
Minneapolis, MN 55402 Chair of the irrigation systems)
Age 68 Board since 2007
- -----------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
44 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
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 54 company) distribution and
logistics
consultants)
- -----------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member Chief Executive Officer, RiboNovix, Hybridon, Inc.
901 S. Marquette Ave. since 2002 Inc. since 2003 (biotechnology); (biotechnology);
Minneapolis, MN 55402 former President, Forester Biotech American Healthways,
Age 63 Inc. (health
management programs)
- -----------------------------------------------------------------------------------------------------
</Table>
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
William F. Truscott Board member President -- U.S. Asset Management
53600 Ameriprise since 2001, and Chief Investment Officer,
Financial Center Vice President Ameriprise Financial, Inc. and
Minneapolis, MN 55474 since 2002 President, Chairman of the Board
Age 46 and Chief Investment Officer,
RiverSource Investments, LLC since
2005; President, Ameriprise
Certificate Company since 2006;
Senior Vice President -- Chief
Investment Officer, Ameriprise
Financial, Inc. and Chairman of the
Board and Chief Investment Officer,
RiverSource Investments, LLC,
2001-2005
- -----------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling RiverSource Funds at (888)
791-3380; contacting your financial institution; or visiting
riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 45
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
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Patrick T. Bannigan President since Senior Vice President -- Asset Management,
172 Ameriprise 2006 RiverSource Investments, LLC since 2006;
Financial Center Managing Director and Global Head of Product,
Minneapolis, MN 55474 Morgan Stanley Investment Management,
Age 41 2004-2006; President, Touchstone Investments,
2002-2004; Director of Strategic Planning,
Evergreen Investments, 1995-2002
- ------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed
172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and
Financial Center RiverSource Investments, LLC since 2006; Vice
Minneapolis, MN 55474 President -- Investments, Ameriprise
Age 43 Certificate Company since 2003; Senior Vice
President -- Fixed Income, Ameriprise
Financial, Inc., 2002-2006 and RiverSource
Investments, LLC, 2004-2006; Managing
Director, Zurich Global Assets, 2001-2002
- ------------------------------------------------------------------------------------------
Amy K. Johnson Vice President Vice President -- Asset Management and Trust
5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC
Financial Center since 2006; Vice President -- Operations and
Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC,
Age 41 2004-2006; Director of Product
Development -- Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- ------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting,
105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Vice
Financial Center President -- Finance, American Express
Minneapolis, MN 55474 Company, 2000-2002
Age 52
- ------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset
5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since
Financial Center and Secretary 2005; Vice President, General Counsel and
Minneapolis, MN 55474 since 2006 Secretary, Ameriprise Certificate Company
Age 47 since 2005; Vice President -- Asset Management
Compliance, Ameriprise Financial, Inc.,
2004-2005; Senior Vice President and Chief
Compliance Officer, U.S. Bancorp Asset
Management, 2002-2004; Second Vice President
and Assistant General Counsel, Hartford Life,
2001-2002
- ------------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance
172 Ameriprise Officer since Officer, RiverSource Investments, LLC since
Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset
Minneapolis, MN 55474 Management, 2003-2006; Director of Finance,
Age 46 Voyageur Asset Management, 2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
46 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
FUND OFFICERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering
2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since
Financial Center Officer since 2004; Manager Anti-Money Laundering,
Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004;
Age 43 Compliance Director and Bank Secrecy Act
Officer, American Express Centurion Bank,
2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 47
APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT
RiverSource Investments, LLC ("RiverSource"), a wholly-owned subsidiary of
Ameriprise Financial, Inc. ("Ameriprise Financial"), serves as the investment
manager to the Fund. Under an investment management services agreement (the "IMS
Agreement") RiverSource provides investment advice and other services to the
Fund and all RiverSource funds (collectively, the "Funds"). In addition, under
the subadvisory agreements between RiverSource and each subadviser
(collectively, the "Subadvisers") (the "Subadvisory Agreements"), the
Subadvisers perform portfolio management and related services for the Fund. The
Fund's Board of Directors (the "Board") and the Board's Investment Review and
Contracts Committees monitor these services throughout the year.
On an annual basis, the Board, including the independent Board members (the
"Independent Directors"), considers renewal of the IMS Agreement and the
Subadvisory Agreements (together, the "Advisory Agreements"). RiverSource
prepares detailed reports for the Board and its Contracts Committee in March and
April, including reports based on data provided by independent organizations to
assist the Board in making this determination. In addition, throughout the year,
the Board (or its committees) reviews information prepared by RiverSource
addressing the services RiverSource provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts and Investment Review Committees in determining whether to continue
the Advisory Agreements. At the April 11-12, 2007 in-person Board meeting,
independent legal counsel to the Independent Directors reviewed with the
Independent Directors various factors relevant to the Board's consideration of
advisory agreements and the Board's legal responsibilities related to such
consideration. Following an analysis and discussion of the factors identified
below, the Board, including all of the Independent Directors, approved renewal
of the Advisory Agreements.
- --------------------------------------------------------------------------------
48 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
Nature, Extent and Quality of Services Provided by RiverSource and the
Subadvisers: The Board analyzed various reports and presentations it had
received detailing the services performed by RiverSource and the Subadvisers, as
well as their expertise, resources and capabilities. The Board specifically
considered many developments during the past year concerning the services
provided by RiverSource, including, in particular, the growing strength and
capabilities of many RiverSource offices and the increased investment and
resources dedicated to the Fund's operations, particularly in the areas of
trading systems, legal and compliance. Further, in connection with the Board's
evaluation of the overall package of services provided by RiverSource, the Board
considered the quality of the administrative, custody and transfer agency
services provided by RiverSource affiliates to the Fund. The Board also reviewed
the financial condition of RiverSource and each Subadviser, and each entity's
ability to carry out its responsibilities under the Advisory Agreements. The
Board also discussed the acceptability of the terms of the Advisory Agreements
(including the relatively broad scope of services required to be performed by
RiverSource and each Subadviser). The Board concluded that the services being
performed under the Advisory Agreements were of a reasonably high quality.
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board determined that RiverSource and each of the
Subadvisers were in a position to continue to provide a high quality and level
of services to the Fund.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the Advisory Agreements, the Board carefully
reviewed the investment performance of the Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of the Fund, the
performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund; and (ii) a report detailing the
Fund's performance over various periods (including since inception), recent Fund
inflows (and outflows) and a comparison of the Fund's net assets from December
2006 to December 2005. The Board observed that the Fund's investment performance
was appropriate in light of the particular management style and market
conditions involved. Additionally, the Board reviewed the performance of the
Subadvisers and the overall "subadvised" strategy. The Board noted, in
particular, management's ongoing oversight and monitoring of each Subadviser's
investment process and performance.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 49
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource and its Affiliates from their Relationships with the Fund: The
Board reviewed comparative fees and the costs of services to be provided under
the Advisory Agreements. The Board members considered detailed comparative
information set forth in an annual report on fees and expenses, including, among
other things, data (prepared by an independent organization) showing a
comparison of the Fund's expenses with median expenses paid by funds in its peer
group, as well as data showing the Fund's contribution to RiverSource's
profitability. The Board accorded particular weight to the notion that the level
of fees should reflect a rational pricing model applied consistently across the
various product lines in the Funds' family, while assuring that the overall fees
for each fund are generally in line with the "pricing philosophy" (i.e., that
the total expense ratio of each fund, with few exceptions, is at or below the
median expense ratio of funds in the same comparison group). The Board took into
account that the Fund's total expense ratio (after considering proposed expense
caps/waivers) approximated the peer group's median expense ratio. Based on its
review, the Board concluded that the Fund's management fee was fair and
reasonable in light of the extent and quality of services that the Fund
receives.
The Board also considered the expected profitability of RiverSource and its
affiliates in connection with RiverSource providing investment management
services to the Fund. In this regard, the Board referred to a detailed
profitability report, discussing the profitability to RiverSource and Ameriprise
Financial from managing and operating the Fund, including data showing
comparative profitability over the last three years. The Board also considered
the services acquired by the investment manager through the use of commission
dollars paid by the Funds on portfolio transactions. The Board noted that the
fees paid by the Fund should permit the investment manager to offer competitive
compensation to its personnel, make necessary investments in its business and
earn an appropriate profit. The Board concluded that profitability levels were
reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource as the Fund grows and took note of
the extent to which Fund shareholders might also benefit from such growth. The
Board considered that the IMS Agreement provides for lower fees as assets
increase at pre-established breakpoints and concluded that the IMS Agreement
satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees and subadvisory fees were
fair and reasonable in light of the extent and quality of services provided. In
reaching this conclusion, no single factor was determinative. On April 12, 2007,
the Board, including all of the Independent Directors, approved the renewal of
the Advisory Agreements.
- --------------------------------------------------------------------------------
50 RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT
PROXY VOTING
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or 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 is filed
with the SEC by August 31 for the most recent 12-month period ending June 30 of
that year, and is available without charge by visiting riversource.com/funds; or
searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDAMENTAL GROWTH FUND -- 2007 ANNUAL REPORT 51
THROUGH THE RIVERSOURCE INVESTMENTS FAMILY OF FUNDS, YOU CAN BUILD A DIVERSIFIED
PORTFOLIO THAT IS DESIGNED TO HELP YOU REACH YOUR GOALS.
<Table>
GROWTH FUNDS
RiverSource Growth Fund
RiverSource Fundamental Growth Fund
RiverSource Disciplined Large Cap
Growth Fund
RiverSource Mid Cap Growth Fund
RiverSource Aggressive Growth Fund
RiverSource Small Cap Growth Fund
Sector: RiverSource Global
Technology Fund
BLEND FUNDS
RiverSource Disciplined Equity Fund
RiverSource Large Cap Equity Fund
RiverSource S&P 500 Index Fund*
RiverSource Disciplined Small and
Mid Cap Equity Fund
RiverSource Small Cap Advantage
Fund
RiverSource Small Company Index
Fund
RiverSource Small Cap Equity Fund
Sector: RiverSource Precious Metals
and Mining Fund
VALUE FUNDS
RiverSource Dividend Opportunity
Fund
RiverSource Value Fund
RiverSource Fundamental Value Fund
RiverSource Equity Value Fund
RiverSource Large Cap Value Fund
RiverSource Diversified Equity
Income Fund
RiverSource Select Value Fund
RiverSource Mid Cap Value Fund
RiverSource Disciplined Small Cap
Value Fund
RiverSource Small Cap Value Fund
Sector: RiverSource Real Estate
Fund
ASSET ALLOCATION FUNDS
RiverSource Portfolio Builder
Conservative Fund
RiverSource Income Builder Basic
Income Fund
RiverSource Income Builder Moderate
Income Fund
RiverSource Income Builder Enhanced
Income Fund
RiverSource Portfolio Builder
Moderate Conservative Fund
RiverSource Portfolio Builder
Moderate Fund
RiverSource Retirement Plus(SM)
2010 Fund
RiverSource Balanced Fund
RiverSource Portfolio Builder
Moderate Aggressive Fund
RiverSource Retirement Plus(SM)
2015 Fund
RiverSource Strategic Allocation
Fund
RiverSource Retirement Plus(SM)
2020 Fund
RiverSource Portfolio Builder
Aggressive Fund
RiverSource Retirement Plus(SM)
2025 Fund
RiverSource Retirement Plus(SM)
2030 Fund
RiverSource Retirement Plus(SM)
2035 Fund
RiverSource Retirement Plus(SM)
2040 Fund
RiverSource Retirement Plus(SM)
2045 Fund
RiverSource Portfolio Builder Total
Equity Fund
</Table>
- --------------------------------------------------------------------------------
THIS PAGE IS NOT PART OF THE ANNUAL REPORT
<Table>
TAXABLE INCOME FUNDS
RiverSource Cash Management Fund**
RiverSource Short Duration U.S.
Government Fund
RiverSource U.S. Government
Mortgage Fund
RiverSource Inflation Protected
Securities Fund
RiverSource Floating Rate Fund
RiverSource Limited Duration Bond
Fund
RiverSource Core Bond Fund
RiverSource Diversified Bond Fund
RiverSource Strategic Income
Allocation Fund
RiverSource Income Opportunities
Fund
RiverSource High Yield Bond Fund
RiverSource Global Bond Fund
RiverSource Emerging Markets Bond
Fund
TAX-EXEMPT FUNDS
RiverSource Tax-Exempt Money Market
Fund**
RiverSource Intermediate Tax-Exempt
Fund
RiverSource Tax-Exempt Bond Fund
RiverSource State Tax-Exempt Funds
RiverSource Tax-Exempt High Income
Fund
GLOBAL/INTERNATIONAL FUNDS
RiverSource Global Equity Fund
RiverSource International Select
Value Fund
RiverSource International Equity
Fund
RiverSource Disciplined
International Equity Fund
RiverSource International
Opportunity Fund
RiverSource International Small Cap
Fund
RiverSource International
Aggressive Growth Fund
RiverSource European Equity Fund
RiverSource Emerging Markets Fund
</Table>
You should consider the investment objectives, risks, charges and expenses of a
mutual fund carefully before investing. For a free prospectus of any of the
funds listed above, which contains this and other important information about
the funds, contact your financial institution or visit riversource.com/funds.
Read the prospectus carefully before investing.
Investment products, including shares of mutual funds, involve risks including
possible loss of principal and fluctuation in value. Investing in certain funds
involves special risks, such as those related to investments in foreign
securities, small- and mid-capitalization stocks, fixed income securities
(especially high-yield securities), and funds which focus their investments in a
particular sector, such as real estate, technology and precious metals. See each
fund's prospectus for specific risks associated with the fund.
* "Standard & Poor's(R)," "S&P," "S&P 500(R)," and "Standard & Poor's 500(R)"
are trademarks of the McGraw-Hill Companies, Inc. These trademarks have been
licensed for use by Ameriprise Financial, Inc. The fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's or any of their subsidiaries
or affiliates (the "Licensors") and the Licensors make no representation
regarding the advisability of investing in the fund.
** AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH A MONEY MARKET FUND SEEKS TO MAINTAIN THE VALUE OF YOUR INVESTMENT
AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A MONEY
MARKET FUND.
- --------------------------------------------------------------------------------
THIS PAGE IS NOT PART OF THE ANNUAL REPORT
RIVERSOURCE(R) FUNDAMENTAL GROWTH FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
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This report must be accompanied or preceded by the Fund's
current prospectus.
RiverSource(R) mutual funds are distributed by RiverSource
Distributors, Inc.
and Ameriprise Financial Services, Inc., Members NASD, and
managed by
(RIVERSOURCE INVESTMENTS RiverSource Investments, LLC. These companies are part of
LOGO) Ameriprise Financial, Inc. S-6261 H (7/07)
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