EX-99.12B TAX OPIN 4 tax-opinionstock_discequity.txt TAX OPINION FOR REORGANIZATION OF RIVERSOURCE STOCK FUND AND RIVERSOURCE DISCIPLINED EQUITY FUND [GRAPHIC OMITTED][GRAPHIC OMITTED] March 10, 2006 RiverSource Stock Fund AXP Stock Series, Inc. 70100 AXP Financial Center Minneapolis, MN 55474 RiverSource Disciplined Equity Fund AXP Growth Series, Inc. 70100 AXP Financial Center Minneapolis, MN 55474 Ladies and Gentlemen: We have acted as counsel in connection with the Agreement and Plan of Reorganization (the "Agreement") dated November 10, 2005 between AXP Stock Series, Inc.,1 a company organized under the laws of Minnesota ("Target Corporation"), on behalf of one of its series, RiverSource Stock Fund ("Target Fund") (formerly AXP Stock Fund), and AXP Growth Series, Inc.,2 a company organized under the laws of Minnesota ("Acquiring Corporation"), on behalf of one of its series, RiverSource Disciplined Equity Fund ("Acquiring Fund") (formerly AXP Quantitative Large Cap Equity Fund). The Agreement describes a transaction (the "Transaction") to occur as of the date of this letter (the "Closing Date"), pursuant to which Acquiring Fund will acquire substantially all of the assets of Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of Target Fund following which the Acquiring Fund Shares received by Target Fund will be distributed by Target Fund to its shareholders in liquidation and termination of Target Fund. This opinion as to certain U.S. federal income tax consequences of the Transaction is furnished to you pursuant to Sections 7(d) and 8(d) of the Agreement. Capitalized terms not defined herein are used herein as defined in the Agreement. Target Fund is a series of Target Corporation, which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. Shares of Target Fund are redeemable at net asset value at each shareholder's option. Target Fund has elected to be a regulated investment company for federal income tax purposes under Section 851 of the Internal Revenue Code of 1986, as amended (the "Code"). Acquiring Fund is a series of Acquiring Corporation, which is registered under the 1940 Act as an open-end management investment company. Shares of Acquiring Fund are -------- 1 AXP Stock Series, Inc. may change its name to RiverSource Stock Series, Inc. in April of 2006. 2 AXP Growth Series, Inc. expects to change its name to RiverSource Large Cap Series, Inc. in April of 2006. 9910012_1 RiverSource Stock Fund RiverSource Disciplined Equity Fund redeemable at net asset value at each shareholder's option. Acquiring Fund has elected to be a regulated investment company for federal income tax purposes under Section 851 of the Code. For purposes of this opinion, we have considered the Agreement, the Combined Prospectus/Proxy Statement dated December 16, 2005 and such other items as we have deemed necessary to render this opinion. In addition, you have provided us with letters dated as of the date hereof, representing as to certain facts, occurrences and information upon which you have indicated that we may rely in rendering this opinion (whether or not contained or reflected in the documents and items referred to above). The facts you have represented as to in paragraph 5 of the letter from Acquiring Fund and paragraph 6 of the letter from Target Fund, each dated as of the date hereof, support the conclusion that, following the Transaction, Acquiring Fund will continue the historic business of Target Fund as an open-end investment company that seeks growth of capital, generally by investing in both growth and value stocks included in the S&P 500. Target Fund has accomplished this goal historically through a "master-feeder" structure in which Target Fund invested all of its assets in Equity Portfolio, a series of Growth and Income Trust, a Massachusetts business trust. Equity Portfolio (the "Master Fund"), in turn invested those assets in a portfolio of securities. Target Fund and Ameriprise Financial, Inc. have historically owned all of the interests of the Master Fund (with Target Fund historically owning more than 99% of those interests). On or before the day prior to the Closing Date, the Master Fund made one or more distributions to Ameriprise Financial, Inc. in liquidation of Ameriprise Financial, Inc.'s interest in the Master Fund. As a result of the liquidation of Ameriprise Financial, Inc.'s interest in the Master Fund, the Master Fund will be disregarded as an entity separate from its sole owner, Target Fund, in accordance with Treas. Reg. ss. 301.7701-3(f)(2) with the effect that, for federal income tax purposes, Target Fund will be deemed to have received assets from the Master Fund in liquidation of its interests therein. Accordingly, at the time of the Transaction, Target Fund will be deemed, for federal income tax purposes, to directly own the securities previously owned by the Master Fund, rather than owning interests in the Master Fund. Because Target Fund, as "feeder fund" in the above-described "master-feeder" structure, has owned more than 99% of the interests in the Master Fund for a significant period of time without reference to the Transaction, Treasury Regulations allow Target Fund to treat the business activities of the Master Fund as Target Fund's own historic business activities. Therefore, for purposes of this opinion, reference will be made directly to the business and assets of Target Fund rather than to the business and assets of the Master Fund. Various factors demonstrate the similarity between Target Fund and Acquiring Fund. The two funds have similar investment styles: Morningstar categorized both funds' investment RiverSource Stock Fund RiverSource Disciplined Equity Fund styles as "Large Blend"3 as of March 31, 2005 (the "comparison date"), a randomly selected date that reflects the funds' portfolios without reference to the Transaction. As one would expect from equity funds, each fund invested at least 95% of its net assets in stocks, less than 3% in cash, and approximately 1% in other assets. Neither fund invested in bonds. For purposes of selecting investments, Acquiring Fund has historically employed a quantitative stock selection methodology based on sophisticated statistical analysis with respect to its entire portfolio and Target Fund has historically employed a similar quantitative stock selection methodology based on sophisticated statistical analysis with respect to approximately 25% of its portfolio. Although Target Fund has historically employed a traditional, non-quantitative stock selection methodology with respect to approximately 75% of its portfolio, as described below, the funds hold stocks with similar characteristics. The similarity of the funds' investment styles is made evident and enhanced by the fact that the two managers of Acquiring Fund, Dimitris J. Bertsimas and Gina K. Mourtzinou, are two of the four managers of Target Fund. A comparison of the funds' portfolios indicates that, consistent with the funds' shared goals and strategies, the funds hold stocks with similar characteristics. First, the funds' portfolios are quite similar in terms of market capitalization. As of the comparison date, the weighted average market capitalization figure of Target Fund, $49.268 billion, was similar to that of Acquiring Fund, $43.301 billion. When compared in terms of the percentage of net assets that each fund invested in stocks of varying market capitalizations, each fund invested approximately 55% of its net assets in giant-cap stock, approximately 38% in large cap stocks, between 6% and 9% in mid-cap stock, and almost nothing in small- and micro-cap stock (Acquiring Fund invested 0.01% in small-cap stock). In particular, there was a total overlap of 97.47%, consisting of 53.78% in giant-cap stocks, 37.42% in large-cap stocks, and 6.27% in mid-cap stocks.4 Second, the funds' portfolios have a similar profile with respect to their investments across industry sectors. As of the comparison date, the funds' equity investments were compared using three broad industry sectors, which were also subdivided into twelve sub-categories. Looking solely at the three broad sectors, each fund made approximately 40% of its equity investments in each of the service sector and the manufacturing sector, and approximately 15% of its investments in the information sector. In particular, the funds shared a total overlap of --------- 3 The funds were also in the same Lipper category. Both funds were categorized by Lipper as "Large-Cap Core" funds. 4 Rather than using a fixed number of "large-cap" or "small-cap" stocks, Morningstar uses a flexible system that is not adversely affected by overall movements in the market. World equity markets are first divided into seven style zones: (1) United States, (2) Latin America, (3) Canada, (4) Europe, (5) Japan, (6) Asia excluding Japan, and (7) Australia/New Zealand. The stocks in each style zone are further subdivided into size groups. "Giant-cap" stocks are defined as those that account for the top 40% of the capitalization of each style zone, "large-cap" stocks represent the next 30%, "mid-cap" stocks represent the next 20%, "small-cap" stocks represent the next 7%, and "micro-cap" stocks represent the smallest 3%. RiverSource Stock Fund RiverSource Disciplined Equity Fund 91.47%, constituted by 40.10% in the services sector, 37.94% in the manufacturing sector, and 13.43% in the information sector. Upon further dividing these three sectors into twelve sub-categories (services: healthcare services, consumer services, business services, financial services; manufacturing: consumer goods, industrial goods, energy, utilities; and information: software, hardware, media, telecommunications;), the funds shared a total overlap of 80.83%. Both funds were also relatively diversified across these twelve sub-categories, with each fund allocating no more than 22% of its equity investments to any one sub-category. Next, the funds' portfolios share considerable similarity in terms of regional exposure. As of the comparison date, greater than 95% of each fund's stock was U.S. stock. Both funds also offer investors similar exposure to growth and income. As of the comparison date, the weighted average P/E ratios of the funds, a measure of growth potential, were relatively close (16.37 for Target Fund and 14.82 for Acquiring Fund). The dividend yields5 were also relatively close (1.61% for Target Fund and 1.93% for Acquiring Fund), although their overall yields6 were different (1.38% for Target Fund and 0.47% for Acquiring Fund). Consistent with the similarity of investment strategies, the two funds bear relatively similar risk profiles. As of the comparison date, Target Fund and Acquiring Fund correlated with the S&P 500 to a similar degree, with 1-year betas of 0.94 and 1.21, respectively.7 The specific characteristics described above (the relative figures and percentages in terms of asset allocation, market capitalization, sector diversification, regional exposure, P/E ratio, yield, and risk profile) do not constitute fixed aspects of Target Fund and Acquiring Fund's investment strategies. Rather, they reflect the fact that the funds' similar investment strategies have led them to react similarly (by choosing similar portfolios) to the market conditions in place up until the comparison date. --------- 5 Projected dividend yield for a stock is the percentage of its stock price that a company is projected to pay out as dividends. It is calculated by dividing estimated annual dividends per share (DPS) for the current fiscal year by the company's most recent month-end stock price. Morningstar calculates internal estimates for the current year DPS based on the most recently reported DPS and average historical dividend growth rates. This is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the dividend yields of all the stocks in the portfolio. 6 Yield, expressed as a percentage, represents a fund's income return on capital investment for the past 12 months. This figure refers only to interest distributions from fixed-income securities, dividends from stocks, and realized gains from currency transactions. Monies generated from the sale of securities or from options and futures transactions are considered capital gains, not income. Return of capital is also not considered income. Morningstar computes yield by dividing the sum of the fund's income distributions for the past 12 months by the previous month's net asset value (adjusted upward for any capital gains distributed over the same time period). 7 Beta is the statistical measure of the degree of variance between a security or fund and a specifically defined market, such as the S&P 500. RiverSource Stock Fund RiverSource Disciplined Equity Fund Consistent with the similarity of the funds, on the date of the Transaction, at least 33 1/3% of Target Fund's portfolio assets will not be required to be sold by virtue of the investment objectives, strategies, policies, risks or restrictions of Acquiring Fund, and Target Fund has not realigned its portfolio prior to the Transaction in order for this to be true. Acquiring Fund has no plan or intention to change any of its investment objectives, strategies, policies, risks or restrictions after the Transaction. After the Transaction, Acquiring Fund will invest all assets acquired from Target Fund in a manner consistent with the funds' shared investment strategies, as described above and reflected by the aforementioned portfolio data. Based on the foregoing representations and assumptions and our review of the documents and items referred to above, we are of the opinion that generally, subject to the final paragraphs hereof, for U.S. federal income tax purposes: (i) The Transaction will constitute a reorganization within the meaning of Section 368(a) of the Code, and Acquiring Fund and Target Fund each will be a "party to a reorganization" within the meaning of Section 368(b) of the Code; (ii) Under Section 1032 of the Code, no gain or loss will be recognized by Acquiring Fund upon the receipt of the assets of Target Fund in exchange for Acquiring Fund Shares and the assumption by Acquiring Fund of the liabilities of Target Fund; (iii) Under Section 362(b) of the Code, the basis in the hands of Acquiring Fund of the assets of Target Fund transferred to Acquiring Fund in the Transaction will be the same as the basis of such assets in the hands of Target Fund immediately prior to the transfer; (iv) Under Section 1223(2) of the Code, the holding periods of the assets of Target Fund in the hands of Acquiring Fund will include the periods during which such assets were held by Target Fund; (v) Under Section 361 of the Code, no gain or loss will be recognized by Target Fund upon the transfer of Target Fund's assets to Acquiring Fund in exchange for Acquiring Fund Shares and the assumption by Acquiring Fund of the liabilities of Target Fund, or upon the distribution of Acquiring Fund Shares by Target Fund to its shareholders in liquidation; (vi) Under Section 354 of the Code, no gain or loss will be recognized by Target Fund shareholders upon the exchange of their Target Fund shares for Acquiring Fund Shares; RiverSource Stock Fund RiverSource Disciplined Equity Fund (vii) Under Section 358 of the Code, the aggregate basis of Acquiring Fund Shares a Target Fund shareholder receives in connection with the Transaction will be the same as the aggregate basis of his or her Target Fund shares exchanged therefor; (viii) Under Section 1223(1) of the Code, a Target Fund shareholder's holding period for his or her Acquiring Fund Shares will be determined by including the period for which he or she held the Target Fund shares exchanged therefor, provided that he or she held such Target Fund shares as capital assets; and (ix) Acquiring Fund will succeed to and take into account the items of Target Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the Regulations thereunder. We express no view with respect to the effect of the reorganization on any transferred asset as to which any unrealized gain or loss is required to be recognized at the end of a taxable year (or on the termination or transfer thereof) under federal income tax principles. We note that, as described above, prior to the Transaction, Target Fund will, for federal income tax purposes, be deemed to have received assets from a partnership (the Master Fund) in which it has invested all of its assets, and through which it has historically conducted its business, in complete liquidation of its interests therein. That deemed liquidation will result in Target Fund's tax basis in its interest in that partnership being substituted for the tax basis of the assets owned by the partnership at the time of the liquidation, allocated among those assets as provided in Section 732(c) of the Code. It is this basis that will "carry over" to Acquiring Fund as described in (iii) above. In connection with this opinion, we call your attention to Revenue Ruling 87-76, 1987-2 C.B. 84, published by the Internal Revenue Service (the "IRS"). In that ruling, the IRS held that the so-called "continuity of business enterprise" requirement necessary for tax-free reorganization treatment was not met in the case of an acquisition of an investment company which invested in corporate stocks and bonds by an investment company which invested in municipal bonds. Specifically, the IRS based its ruling on its conclusion that the business of investing in corporate stocks and bonds is not the same line of business as investing in municipal bonds. We believe that the IRS's conclusion in this ruling has always been questionable. In addition, a series of private letter rulings issued in July 2005 suggests that the IRS's position on this issue is evolving: the IRS relied upon historic business representations to conclude that the reorganization satisfied the continuity of business enterprise requirement. However, even if the IRS's 1987 revenue ruling were a correct statement of law, the facts of this Transaction are distinguishable from those in the ruling. RiverSource Stock Fund RiverSource Disciplined Equity Fund We believe that Acquiring Fund and Target Fund are both engaged in the same line of business: each is an open-end management investment company that seeks growth of capital, generally by investing in both growth and value stocks included in the S&P 500. The funds' portfolios are substantially similar in terms of asset allocation, market capitalization, sector diversification, regional exposure and risk profile. After the Transaction, Acquiring Fund will continue that line of business for the benefit of the stockholders of both Target and Acquiring Funds. Although Acquiring Fund will dispose of securities formerly held by Target Fund, these dispositions will be fully consistent with the shared historic investment policies of both Funds and all proceeds generated by such dispositions will be reinvested in a manner fully consistent with such policies. In these circumstances, we are of the opinion that Acquiring Fund will have continued the historic business of Target Fund for the benefit of, among others, the historic stockholders of Target Fund, and that the continuity of business enterprise doctrine should, as a result, be fulfilled. Because Revenue Ruling 87-76 is the only ruling on which taxpayers can rely (i.e., the only ruling that is not a private letter ruling) dealing specifically with the application of the "continuity of business enterprise" requirement to a reorganization involving investment companies, however, our opinion cannot be free from doubt. No ruling has been or will be obtained from the IRS as to the subject matter of this opinion and there can be no assurance that the IRS or a court of law will concur with the opinion set forth above. [Rest of page intentionally left blank.] RiverSource Stock Fund RiverSource Disciplined Equity Fund Our opinion is based on the Internal Revenue Code of 1986, as amended, Treasury Regulations, Internal Revenue Service rulings, judicial decisions, and other applicable authority, all as in effect on the date of this opinion. The legal authorities on which this opinion is based may be changed at any time. Any such changes may be retroactively applied and could modify the opinions expressed above. Very truly yours, /s/ Ropes & Gray LLP ----------------------- Ropes & Gray LLP