-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SfW3GwPRPm5QOza8j4Oys9YqnT1uDRG0wz7udsCevGzWaPcpacqGOym00k8H67bH J2C4Xd8S0uLg7qUB+i77cA== 0000820027-06-000533.txt : 20060403 0000820027-06-000533.hdr.sgml : 20060403 20060403134426 ACCESSION NUMBER: 0000820027-06-000533 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060131 FILED AS OF DATE: 20060403 DATE AS OF CHANGE: 20060403 EFFECTIVENESS DATE: 20060403 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP GROWTH SERIES INC/MN CENTRAL INDEX KEY: 0000049702 IRS NUMBER: 410962638 STATE OF INCORPORATION: MN FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02111 FILM NUMBER: 06732535 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP GROWTH FUND INC DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS GROWTH FUND INC DATE OF NAME CHANGE: 19920703 0000049702 S000003287 RiverSource Disciplined Equity Fund C000008741 RiverSource Disciplined Equity Fund Class B AQEBX C000008742 RiverSource Disciplined Equity Fund Class C C000008743 RiverSource Disciplined Equity Fund Class Y C000008744 RiverSource Disciplined Equity Fund Class A AQEAX C000008745 RiverSource Disciplined Equity Fund Class I ALEIX 0000049702 S000003288 RiverSource Growth Fund C000008746 RiverSource Growth Fund Class A INIDX C000008747 RiverSource Growth Fund Class B IGRBX C000008748 RiverSource Growth Fund Class C AXGCX C000008749 RiverSource Growth Fund Class I AGWIX C000008750 RiverSource Growth Fund Class Y IGRYX 0000049702 S000003289 RiverSource Large Cap Equity Fund C000008751 RiverSource Large Cap Equity Fund Class I ALRIX C000008752 RiverSource Large Cap Equity Fund Class A ALEAX C000008753 RiverSource Large Cap Equity Fund Class B ALEBX C000008754 RiverSource Large Cap Equity Fund Class C ARQCX C000008755 RiverSource Large Cap Equity Fund Class Y ALEYX 0000049702 S000003290 RiverSource Large Cap Value Fund C000008756 RiverSource Large Cap Value Fund Class C C000008757 RiverSource Large Cap Value Fund Class Y C000008758 RiverSource Large Cap Value Fund Class A ALVAX C000008759 RiverSource Large Cap Value Fund Class B ALVBX C000008760 RiverSource Large Cap Value Fund Class I ALCIX N-CSRS 1 growth-ncsrs.txt AXP GROWTH SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-2111 ------------ AXP GROWTH SERIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 7/31 -------------- Date of reporting period: 1/31 -------------- Semiannual Report [RiverSource(SM) Investments Logo] RiverSource(SM) DISCIPLINED EQUITY FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED JAN. 31, 2006 > RIVERSOURCE DISCIPLINED EQUITY FUND (FORMERLY AXP(R) QUANTITATIVE LARGE CAP EQUITY FUND) SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM CAPITAL GROWTH. TABLE OF CONTENTS Fund Snapshot............................................3 Performance Summary......................................4 Questions & Answers with Portfolio Management............6 Investments in Securities...............................10 Financial Statements....................................14 Notes to Financial Statements...........................17 Fund Expenses Example...................................29 Approval of Investment Management Services Agreement....31 Proxy Voting............................................35 Results of Meeting of Shareholders......................36 - ------------------------------------------------------------------------------ 2 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT FUND SNAPSHOT AT JAN. 31, 2006 - ------------------------------------------------------------------------------ PORTFOLIO MANAGERS < - ------------------------------------------------------------------------------ PORTFOLIO MANAGERS SINCE YEARS IN INDUSTRY Dimitris J. Bertsimas 4/03 12 Gina K. Mourtzinou 4/03 8 - ------------------------------------------------------------------------------ FUND OBJECTIVE < - ------------------------------------------------------------------------------ This Fund seeks to provide shareholders with long-term capital growth. Inception dates by class A: 4/24/03 B: 4/24/03 C: 4/24/03 I: 7/15/04 Y: 4/24/03 Ticker symbols by class A: AQEAX B: AQEBX C: -- I: ALEIX Y: -- Total net assets $198.4 million Number of holdings 182 - ------------------------------------------------------------------------------ STYLE MATRIX < - ------------------------------------------------------------------------------ [photo] Shading within the style matrix indicates areas in which the Fund generally invests. - ------------------------------------------------------------------------------ SECTOR COMPOSITION* < - ------------------------------------------------------------------------------ Percentage of portfolio assets [PIE CHART] Financials 20.8% Health Care 17.1% Energy 15.6% Information Technology 13.9% Consumer Staples 8.4% Consumer Discretionary 8.0% Telecommunication Services 6.2% Industrials 4.8% Utilities 3.1% Materials 1.3% Short-Term Securities 0.8% * 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. - ------------------------------------------------------------------------------ TOP TEN HOLDINGS < - ------------------------------------------------------------------------------ Percentage of portfolio assets Exxon Mobil (Oil & Gas) 5.0% iShares MSCI EAFE Index Fund (Diversified Financial Services) 3.5 Johnson & Johnson (Pharmaceuticals) 3.2 Citigroup (Diversified Financial Services) 3.1 ConocoPhillips (Oil & Gas) 3.1 Hewlett-Packard (Computers & Peripherals) 3.0 AT&T (Diversified Telecommunication Services) 3.0 Merck & Co (Pharmaceuticals) 2.5 Verizon Communications (Diversified Telecommunication Services) 2.0 Fannie Mae (Thrifts & Mortgage Finance) 2.0 For further detail about these holdings, please refer to the section entitled "Investments in Securities." The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. Fund holdings are subject to change. - ------------------------------------------------------------------------------ 3 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT PERFORMANCE SUMMARY PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2006 [Bar Chart] RiverSource Disciplined Equity Fund Class A (excluding sales charge) +7.05% S&P 500 Index(1) (unmanaged) +4.68% Lipper Large-Cap Core Funds Index(2) +6.01% The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.riversource.com/funds. (1) The Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (2) The Lipper Large-Cap Core Funds Index includes the 30 largest large-cap core funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. See "Fund Management and Compensation" for more information. 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. - ------------------------------------------------------------------------------ 4 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT PERFORMANCE SUMMARY - ------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL TOTAL RETURNS < - ------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS Y (INCEPTION DATES) (4/24/03) (4/24/03) (4/24/03) (7/15/04) (4/24/03) AFTER AFTER NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) AT JAN. 31, 2006 6 months* +7.05% +0.89% +6.71% +1.71% +6.79% +5.79% +7.28% +7.24% 1 year +13.85% +7.31% +12.84% +7.84% +12.93% +11.93% +14.24% +14.04% Since inception +16.09% +13.64% +15.16% +14.02% +15.19% +15.19% +14.99% +16.31% AT DEC. 31, 2005 6 months* +6.36% +0.24% +5.85% +0.85% +5.93% +4.93% +6.59% +6.39% 1 year +6.20% +0.08% +5.36% +0.36% +5.44% +4.44% +6.76% +6.39% Since inception +14.66% +12.16% +13.75% +12.54% +13.79% +13.79% +12.46% +14.88%
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to eligible investors only, currently limited to affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. * Not annualized. - ------------------------------------------------------------------------------ 5 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, Portfolio Managers Dimitris Bertsimas and Gina Mourtzinou discuss the RiverSource Disciplined Equity Fund's positioning and results for the six months ended Jan. 31, 2006. At Jan. 31, 2006, approximately 71% of the Fund's shares were owned in aggregate by RiverSource Portfolio Builder Funds, a group of six asset allocation funds managed by RiverSource Investments, LLC (RiverSource). As a result of asset allocation decisions by RiverSource, it is possible RiverSource Disciplined Equity Fund may experience relatively large purchases or redemptions from RiverSource Portfolio Builder Funds (see page 22, 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 Disciplined Equity Fund may experience increased expenses as it buys and sells securities to manage transactions for RiverSource Portfolio Builder Funds. For more information on the Fund's expenses, see the discussions beginning on pages 20 and 29. Q: How did the Fund perform for the period? A: RiverSource Disciplined Equity Fund's Class A shares (excluding sales charge) gained 7.05%, for the six months ended Jan. 31, 2006. The Standard & Poor's 500 Index (S&P 500 Index), gained 4.68%. The Fund outperformed the Lipper Large-Cap Core Funds Index, representing the Fund's peer group, which returned 6.01%, as well, for the same period. Q: Which factors significantly affected the Fund's performance? A: The Fund's outperformance resulted from the performance of the three quantitative investment models -- momentum, value and quality -- we employ in selecting stocks for the Fund's portfolio. Under the Fund's investment process, the three models choose the stocks for the portfolio. We then weight the models and determine the exposure to sectors and industries. Over the six-month period, the momentum model was the strongest performer. The value model was also positive, while the quality model underperformed the S&P 500 Index. We believe that the style diversification provided by the three quantitative models continued to be a significant investment advantage during the period. Our risk modeling also contributed to the Fund's strong performance relative to the S&P 500 Index and Lipper peer group. Our risk models limit the size of individual holdings, as well as sector and industry allocations, relative to the S&P 500 Index. For example, the portfolio's weightings by sector and industry can never be more than 6% overweighted or underweighted relative to the S&P 500 Index. We also apply additional risk controls that impose constraints on market capitalization, price, quality, turnover, transaction costs, and other variables. - ------------------------------------------------------------------------------ 6 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT QUESTIONS & ANSWERS > BECAUSE OF OUR INVESTMENT PROCESS, MOST OF THE FUND'S EXCESS RETURN RESULTED FROM STOCK SELECTION. During the period, the Fund had greater-than-S&P 500 Index positions in energy, health care and telecommunication services. Energy was the biggest contributor to return, while telecommunication services detracted from performance. The Fund's smaller position in financials also hurt performance. Because of our investment process, most of the Fund's excess return resulted from stock selection. Among individual holdings, the Fund's investment in iShares MSCI EAFE Index Fund, an exchange-traded fund based on the MSCI EAFE Index of stocks from developed international markets, contributed most to the Fund's return. The Fund's position in the iShares was established based on a separate asset allocation model. The next largest contributor was Altria Group, a food and tobacco stock, followed by computer maker Hewlett-Packard; drug manufacturer Merck; integrated oil giant Exxon Mobil; and UnitedHealth Group, which provides managed health care services. We increased the Fund's holding of Hewlett-Packard during the period but decreased the position in Altria Group. Stocks that detracted from the Fund's return included Johnson & Johnson, a diversified health care company; automaker General Motors; Sprint/Nextel, a cellular phone services company; and semiconductor maker Intel. Based on average weightings in the portfolio over the six months, the Fund's largest holdings were Exxon Mobil, Altria Group, iShares MSCI EAFE Index Fund, Johnson & Johnson, and Chevron, a major integrated energy company. - ------------------------------------------------------------------------------ 7 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT QUESTIONS & ANSWERS Q: What changes did you make to the portfolio during the period? A: The principal change was the Fund's exposure to international equities through its holding of iShares MSCI EAFE Index Fund. As our models became less positive toward developed and emerging market foreign securities, we stopped purchasing additional iShares in order to decrease the portfolio's international allocation from a peak of approximately 5% of total assets to approximately 3.5% at the end of January. The Fund received significant inflows of cash during the period, in part because of an increased allocation to the Fund by RiverSource Portfolio Builder Funds, a series of asset allocation funds. We managed the cash inflows by purchasing S&P 500 Index futures on a daily basis and rebalancing the portfolio at the end of each month. Our goal has been to manage cash flow and trading in order to limit transaction costs and turnover. Overall portfolio turnover was 28% for the six months. As a result of stock selection during the period, the portfolio's sector allocations changed slightly, most notably in the information technology and financials sectors. While both of these sectors remained underweighted relative to the S&P 500 Index, their weightings moved closer to the S&P 500 Index's weightings. At the end of the period, the Fund had significant exposures to the energy, health care, and telecommunication services sectors and more modest exposures to the industrial, information technology and financial sectors. Q: How are you positioning the Fund going forward? A: We continue to hold a positive view of the U.S. equity market. We think conditions may be especially favorable for large-cap stocks, which carry lower valuations on average than stocks of smaller companies. In addition, large-caps tend to appeal to investors seeking lower risk investments during - ------------------------------------------------------------------------------ 8 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT QUESTIONS & ANSWERS what may be the last stage of the current economic recovery and a period when the risks of a hard landing for the economy have become more elevated. For our part, we intend to continue seeking optimal returns for the Fund through the style diversification offered by our three quantitative investment models. We are equally convinced of the merit of our multifaceted, disciplined approach to controlling risk in the portfolio. We believe this combination of style diversification and rigorous risk control will allow us to maintain the high quality of the Fund's portfolio in whatever market conditions lie ahead. - ------------------------------------------------------------------------------ 9 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT INVESTMENTS IN SECURITIES RiverSource Disciplined Equity Fund JAN. 31, 2006 (UNAUDITED) (Percentages represent value of investments compared to net assets) - ------------------------------------------------------------------------------ COMMON STOCKS (99.0%) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) AEROSPACE & DEFENSE (2.4%) Boeing 38,260 $2,613,541 Goodrich 6,573 258,779 United Technologies 32,630 1,904,613 --------------- Total 4,776,933 - ------------------------------------------------------------------------------ AIR FREIGHT & LOGISTICS (0.4%) FedEx 8,070 816,281 - ------------------------------------------------------------------------------ AUTO COMPONENTS (0.3%) Johnson Controls 7,699 533,079 - ------------------------------------------------------------------------------ AUTOMOBILES (1.1%) Ford Motor 98,266 843,122 General Motors 28,470 684,988 Harley-Davidson 11,018 589,794 --------------- Total 2,117,904 - ------------------------------------------------------------------------------ BEVERAGES (2.0%) Brown-Forman Cl B 2,988 211,909 Coca-Cola 85,894 3,554,293 PepsiCo 5,225 298,766 --------------- Total 4,064,968 - ------------------------------------------------------------------------------ BIOTECHNOLOGY (1.0%) Gilead Sciences 25,921(b) 1,577,811 MedImmune 10,963(b) 374,058 --------------- Total 1,951,869 - ------------------------------------------------------------------------------ CAPITAL MARKETS (1.8%) Charles Schwab 22,493 332,671 E*TRADE Financial 9,303(b) 221,318 Franklin Resources 11,019 1,085,372 Goldman Sachs Group 1,439 203,259 Janus Capital Group 9,162 191,394 Lehman Brothers Holdings 3,121 438,344 Morgan Stanley 17,106 1,051,164 --------------- Total 3,523,522 - ------------------------------------------------------------------------------ CHEMICALS (0.2%) Dow Chemical 4,380 185,274 Monsanto 3,058 258,737 --------------- Total 444,011 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) COMMERCIAL BANKS (1.3%) Comerica 6,969 $386,570 First Horizon Natl 4,440 168,143 KeyCorp 5,983 211,738 Natl City 27,108 926,552 PNC Financial Services Group 12,871 834,813 --------------- Total 2,527,816 - ------------------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT (3.7%) ADC Telecommunications 7,647(b) 193,928 Corning 86,279(b) 2,100,894 Motorola 112,224 2,548,607 QUALCOMM 37,596 1,803,104 Scientific-Atlanta 7,828 334,725 Tellabs 27,521(b) 351,994 --------------- Total 7,333,252 - ------------------------------------------------------------------------------ COMPUTERS & PERIPHERALS (3.4%) Apple Computer 9,819(b) 741,433 Hewlett-Packard 191,956 5,985,188 Lexmark Intl Cl A 1,816(b) 88,203 --------------- Total 6,814,824 - ------------------------------------------------------------------------------ CONSTRUCTION MATERIALS (0.2%) Vulcan Materials 5,317 382,186 - ------------------------------------------------------------------------------ DISTRIBUTORS (0.2%) Genuine Parts 9,185 390,638 - ------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES (7.0%) CIT Group 7,305 389,649 Citigroup 133,727 6,229,004 iShares MSCI EAFE Index Fund 110,400 6,936,431 Moody's 5,731 362,887 --------------- Total 13,917,971 - ------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES (6.2%) AT&T 226,587 5,879,932 BellSouth 84,339 2,426,433 Verizon Communications 127,795 4,045,990 --------------- Total 12,352,355 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 10 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) ELECTRIC UTILITIES (2.4%) American Electric Power 8,425 $314,421 CenterPoint Energy 32,966 421,305 Edison Intl 14,893 652,611 Exelon 13,911 798,770 FirstEnergy 9,454 473,645 PG&E 19,341 721,613 PPL 5,805 174,905 TECO Energy 9,536 162,875 TXU 17,292 875,667 Xcel Energy 9,660 187,597 --------------- Total 4,783,409 - ------------------------------------------------------------------------------ ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%) Agilent Technologies 5,977(b) 202,680 Jabil Circuit 8,306(b) 335,562 --------------- Total 538,242 - ------------------------------------------------------------------------------ ENERGY EQUIPMENT & SERVICES (2.1%) Baker Hughes 15,402 1,192,731 Halliburton 19,439 1,546,373 Natl Oilwell Varco 9,499(b) 722,589 Transocean 7,689(b) 623,962 --------------- Total 4,085,655 - ------------------------------------------------------------------------------ FOOD & STAPLES RETAILING (3.8%) Albertson's 22,143 556,896 CVS 37,032 1,028,008 Kroger 42,969(b) 790,630 Safeway 38,729 907,808 Wal-Mart Stores 82,290 3,794,392 Whole Foods Market 6,182 456,664 --------------- Total 7,534,398 - ------------------------------------------------------------------------------ FOOD PRODUCTS (0.7%) Archer-Daniels-Midland 28,840 908,460 Sara Lee 22,535 411,940 --------------- Total 1,320,400 - ------------------------------------------------------------------------------ HEALTH CARE EQUIPMENT & SUPPLIES (0.8%) Bausch & Lomb 1,943 131,250 Becton Dickinson & Co 3,982 258,034 Biomet 7,676 290,230 Medtronic 10,087 569,612 Millipore 5,675(b) 390,326 --------------- Total 1,639,452 - ------------------------------------------------------------------------------ HEALTH CARE PROVIDERS & SERVICES (6.2%) Aetna 12,936 1,252,205 AmerisourceBergen 16,144 704,524 Cardinal Health 8,218 592,025 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) HEALTH CARE PROVIDERS & SERVICES (CONT.) Caremark Rx 14,262(b) $703,117 CIGNA 13,220 1,607,552 Coventry Health Care 6,325(b) 376,780 Express Scripts 10,080(b) 920,203 HCA 14,538 713,525 McKesson 16,650 882,450 Medco Health Solutions 11,037(b) 597,102 UnitedHealth Group 38,015 2,258,850 WellPoint 22,472(b) 1,725,850 --------------- Total 12,334,183 - ------------------------------------------------------------------------------ HOTELS, RESTAURANTS & LEISURE (0.4%) Darden Restaurants 4,418 179,636 Harrah's Entertainment 2,087 153,603 Wendy's Intl 7,874 464,172 --------------- Total 797,411 - ------------------------------------------------------------------------------ HOUSEHOLD DURABLES (1.9%) Centex 9,592 684,773 DR Horton 27,008 1,007,939 KB HOME 5,316 405,079 Lennar Cl A 5,304 331,818 Pulte Homes 22,630 902,937 Whirlpool 4,854 391,621 --------------- Total 3,724,167 - ------------------------------------------------------------------------------ HOUSEHOLD PRODUCTS (0.4%) Kimberly-Clark 14,493 827,840 - ------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES (0.9%) 3M 25,593 1,861,891 - ------------------------------------------------------------------------------ INSURANCE (6.0%) AFLAC 8,226 386,211 Allstate 19,119 995,144 Ambac Financial Group 9,802 752,892 Aon 17,528 599,808 Chubb 1,748 164,924 Hartford Financial Services Group 4,277 351,698 Jefferson-Pilot 5,027 293,225 Lincoln Natl 12,317 671,646 Loews 13,758 1,357,777 Marsh & McLennan Companies 19,712 599,048 MBIA 8,146 501,468 MetLife 16,512 828,242 Prudential Financial 25,288 1,905,197 St Paul Travelers Companies 34,245 1,554,037 Torchmark 6,667 374,019 UnumProvident 24,876 505,729 --------------- Total 11,841,065 - ------------------------------------------------------------------------------ See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 11 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) IT SERVICES (0.5%) Convergys 11,645(b) $200,294 Electronic Data Systems 19,674 495,588 Paychex 4,960 180,296 Sabre Holdings Cl A 6,183 151,484 --------------- Total 1,027,662 - ------------------------------------------------------------------------------ LEISURE EQUIPMENT & PRODUCTS (0.4%) Eastman Kodak 23,093 579,634 Mattel 8,419 138,914 --------------- Total 718,548 - ------------------------------------------------------------------------------ MACHINERY (0.6%) Cummins 1,973 191,973 Ingersoll-Rand Cl A 4,337(c) 170,314 ITT Inds 5,164 529,310 PACCAR 4,329 301,298 --------------- Total 1,192,895 - ------------------------------------------------------------------------------ METALS & MINING (0.9%) Freeport-McMoRan Copper & Gold Cl B 4,207 270,300 Nucor 4,197 353,513 Phelps Dodge 5,567 893,504 United States Steel 3,343 199,744 --------------- Total 1,717,061 - ------------------------------------------------------------------------------ MULTILINE RETAIL (0.8%) Dollar General 16,148 272,901 Federated Dept Stores 3,967 264,321 JC Penney 9,599(d) 535,624 Nordstrom 12,934 539,607 --------------- Total 1,612,453 - ------------------------------------------------------------------------------ MULTI-UTILITIES & UNREGULATED POWER (0.6%) CMS Energy 22,482(b) 325,315 Public Service Enterprise Group 7,066 491,934 Sempra Energy 9,658 464,067 --------------- Total 1,281,316 - ------------------------------------------------------------------------------ OIL & GAS (13.4%) Burlington Resources 15,435 1,408,598 Chevron 65,004 3,859,938 ConocoPhillips 94,542 6,116,867 Devon Energy 13,324 908,830 EOG Resources 16,342 1,381,553 Exxon Mobil 157,947 9,911,175 Marathon Oil 18,721 1,439,083 Occidental Petroleum 8,384 819,201 Sunoco 9,037 860,322 --------------- Total 26,705,567 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) PHARMACEUTICALS (9.0%) Abbott Laboratories 14,096 $608,242 Allergan 7,600 884,640 Bristol-Myers Squibb 100,463 2,289,552 Johnson & Johnson 110,234 6,342,865 King Pharmaceuticals 22,651(b) 424,706 Merck & Co 141,143 4,869,434 Pfizer 98,330 2,525,114 --------------- Total 17,944,553 - ------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUST (0.6%) Equity Office Properties Trust 12,584 400,424 Equity Residential 6,283 266,462 Public Storage 2,520 182,876 Simon Property Group 4,180 346,271 --------------- Total 1,196,033 - ------------------------------------------------------------------------------ ROAD & RAIL (0.5%) Burlington Northern Santa Fe 11,727 939,567 - ------------------------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (2.8%) Advanced Micro Devices 10,646(b) 445,642 Broadcom Cl A 18,274(b) 1,246,287 Intel 72,162 1,534,886 LSI Logic 33,041(b) 302,325 Micron Technology 14,209(b) 208,588 Natl Semiconductor 25,729 725,815 Texas Instruments 36,797 1,075,576 --------------- Total 5,539,119 - ------------------------------------------------------------------------------ SOFTWARE (3.2%) Autodesk 9,357 379,801 BMC Software 8,420(b) 186,082 Compuware 28,997(b) 238,935 Microsoft 123,936 3,488,798 Oracle 156,495(b) 1,967,142 --------------- Total 6,260,758 - ------------------------------------------------------------------------------ SPECIALTY RETAIL (2.2%) Best Buy 10,244(d) 518,961 Home Depot 72,125 2,924,669 Office Depot 15,688(b,d) 520,057 Tiffany & Co 9,568 360,714 --------------- Total 4,324,401 - ------------------------------------------------------------------------------ TEXTILES, APPAREL & LUXURY GOODS (0.9%) Coach 11,279(b) 405,480 Jones Apparel Group 5,556 173,792 Liz Claiborne 4,765 165,441 Nike Cl B 8,026 649,704 VF 5,646 313,240 --------------- Total 1,707,657 - ------------------------------------------------------------------------------ See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 12 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) THRIFTS & MORTGAGE FINANCE (4.1%) Fannie Mae 67,564 $3,914,659 Freddie Mac 28,865 1,958,779 MGIC Investment 7,845 517,848 Washington Mutual 42,948 1,817,559 --------------- Total 8,208,845 - ------------------------------------------------------------------------------ TOBACCO (1.4%) Altria Group 39,242 2,838,766 - ------------------------------------------------------------------------------ TOTAL COMMON STOCKS (Cost: $183,442,380) $196,450,923 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SHORT-TERM SECURITIES (0.8%) - ------------------------------------------------------------------------------ ISSUER EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY COMMERCIAL PAPER Kitty Hawk Funding 02-02-06 4.32% $1,500,000(e) $1,499,640 - ------------------------------------------------------------------------------ TOTAL SHORT-TERM SECURITIES (Cost: $1,499,820) $1,499,640 - ------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $184,942,200)(f) $197,950,563 ============================================================================== - ------------------------------------------------------------------------------ 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 Jan. 31, 2006, the value of foreign securities represented 0.1% of net assets. (d) Partially pledged as initial margin deposit on the following open stock index futures contracts (see Note 5 to the financial statements): TYPE OF SECURITY CONTRACTS ------------------------------------------------------------------ PURCHASE CONTRACTS S&P 500 Index, March 2006 5 (e) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Jan. 31, 2006, the value of these securities amounted to $1,499,640 or 0.8% of net assets. (f) At Jan. 31, 2006, the cost of securities for federal income tax purposes was approximately $184,942,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $15,789,000 Unrealized depreciation (2,780,000) ------------------------------------------------------------------ Net unrealized appreciation $13,009,000 ------------------------------------------------------------------ The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.riversource.com/funds. See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 13 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES RiverSource Disciplined Equity Fund
JAN. 31, 2006 (UNAUDITED) - ------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------- Investments in securities, at value (Note 1) (identified cost $184,942,200) $197,950,563 Cash in bank on demand deposit 201,185 Capital shares receivable 32,184 Dividends and accrued interest receivable 252,361 - ------------------------------------------------------------------------------------------------------- Total assets 198,436,293 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- LIABILITIES - ------------------------------------------------------------------------------------------------------- Capital shares payable 5,787 Payable for investment securities purchased 5,629 Accrued investment management services fee 3,269 Accrued distribution fee 654 Accrued transfer agency fee 209 Accrued administrative services fee 327 Other accrued expenses 17,372 - ------------------------------------------------------------------------------------------------------- Total liabilities 33,247 - ------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $198,403,046 ======================================================================================================= - ------------------------------------------------------------------------------------------------------- REPRESENTED BY - ------------------------------------------------------------------------------------------------------- Capital stock -- $.01 par value (Note 1) $ 287,134 Additional paid-in capital 182,788,743 Undistributed net investment income 233,476 Accumulated net realized gain (loss) 2,082,750 Unrealized appreciation (depreciation) on investments (Note 5) 13,010,943 - ------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $198,403,046 ======================================================================================================= Net assets applicable to outstanding shares: Class A $ 44,686,720 Class B $ 12,308,502 Class C $ 322,982 Class I $141,021,871 Class Y $ 62,971 Net asset value per share of outstanding capital stock: Class A shares 6,486,299 $ 6.89 Class B shares 1,804,381 $ 6.82 Class C shares 47,382 $ 6.82 Class I shares 20,366,246 $ 6.92 Class Y shares 9,115 $ 6.91 - ------------------------------------------------------------------------------------------------------- See accompanying notes to financial statements.
- ------------------------------------------------------------------------------ 14 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT STATEMENT OF OPERATIONS RiverSource Disciplined Equity Fund
SIX MONTHS ENDED JAN. 31, 2006 (UNAUDITED) - ------------------------------------------------------------------------------------------------------ INVESTMENT INCOME - ------------------------------------------------------------------------------------------------------ Income: Dividends $ 1,543,108 Interest 108,647 - ------------------------------------------------------------------------------------------------------ Total income 1,651,755 - ------------------------------------------------------------------------------------------------------ Expenses (Note 2): Investment management services fee 464,218 Distribution fee Class A 44,266 Class B 51,687 Class C 1,221 Transfer agency fee 40,614 Incremental transfer agency fee Class A 3,187 Class B 1,861 Class C 55 Service fee -- Class Y 20 Administrative services fees and expenses 41,333 Compensation of board members 4,934 Custodian fees 13,950 Printing and postage 17,716 Registration fees 22,686 Audit fees 10,250 Other 6,134 - ------------------------------------------------------------------------------------------------------ Total expenses 724,132 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (73) - ------------------------------------------------------------------------------------------------------ 724,059 Earnings credits on cash balances (Note 2) (1,847) - ------------------------------------------------------------------------------------------------------ Total net expenses 722,212 Investment income (loss) -- net 929,543 - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) -- NET - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) on: Security transactions (Note 3) 4,185,467 Futures contracts (329,668) - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments 3,855,799 Net change in unrealized appreciation (depreciation) on investments 6,867,270 - ------------------------------------------------------------------------------------------------------ Net gain (loss) on investments 10,723,069 - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $11,652,612 ====================================================================================================== See accompanying notes to financial statements.
- ------------------------------------------------------------------------------ 15 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS RiverSource Disciplined Equity Fund
JAN. 31, 2006 JULY 31, 2005 SIX MONTHS ENDED YEAR ENDED (UNAUDITED) - ------------------------------------------------------------------------------------------------------ OPERATIONS AND DISTRIBUTIONS - ------------------------------------------------------------------------------------------------------ Investment income (loss) -- net $ 929,543 $ 658,382 Net realized gain (loss) on investments 3,855,799 3,796,315 Net change in unrealized appreciation (depreciation) on investments 6,867,270 5,439,579 - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 11,652,612 9,894,276 - ------------------------------------------------------------------------------------------------------ Distributions to shareholders from: Net investment income Class A (264,091) (62,837) Class B (13,902) -- Class C (589) -- Class I (921,057) (142,494) Class Y (248) (172) Net realized gain Class A (1,335,345) (327,285) Class B (383,292) (102,880) Class C (9,963) (3,213) Class I (3,370,162) (723,932) Class Y (1,166) (727) - ------------------------------------------------------------------------------------------------------ Total distributions (6,299,815) (1,363,540) - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS (NOTE 4) - ------------------------------------------------------------------------------------------------------ Proceeds from sales Class A shares (Note 2) 17,444,697 21,609,484 Class B shares 4,078,360 6,978,820 Class C shares 154,121 77,713 Class I shares 51,823,195 66,292,986 Class Y shares 26,000 7,000 Reinvestment of distributions at net asset value Class A shares 1,586,675 346,177 Class B shares 393,227 100,334 Class C shares 9,719 2,894 Class I shares 4,290,735 866,109 Class Y shares 861 505 Payments for redemptions Class A shares (3,517,615) (9,642,178) Class B shares (Note 2) (1,777,876) (1,046,545) Class C shares (Note 2) (37,732) (48,696) Class I shares (799,233) (150,008) - ------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from capital share transactions 73,675,134 85,394,595 - ------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets 79,027,931 93,925,331 Net assets at beginning of period 119,375,115 25,449,784 - ------------------------------------------------------------------------------------------------------ Net assets at end of period $198,403,046 $119,375,115 ====================================================================================================== Undistributed net investment income $ 233,476 $ 503,820 - ------------------------------------------------------------------------------------------------------ See accompanying notes to financial statements.
- ------------------------------------------------------------------------------ 16 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS RiverSource Disciplined Equity Fund (formerly AXP Quantitative Large Cap Equity Fund) (Unaudited as to Jan. 31, 2006) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board. The Fund invests primarily in equity securities of companies listed on U.S. exchanges with market capitalizations greater than $5 billion at the time of purchase. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. The Fund offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. At Jan. 31, 2006, Ameriprise Financial, Inc. (Ameriprise Financial) and the RiverSource Portfolio Builder Funds owned 100% of Class I shares, which represents 71.08% of the Fund's net assets. At Jan. 31, 2006, Ameriprise Financial and the RiverSource Portfolio Builder Funds owned approximately 71% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Directors of the funds, Ameriprise Financial utilizes Fair Value Pricing (FVP). FVP determinations are made in good - ------------------------------------------------------------------------------ 17 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair net asset value. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. - ------------------------------------------------------------------------------ 18 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT FOREIGN CURRENCY TRANSLATIONS AND FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with 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. 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. - ------------------------------------------------------------------------------ 19 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT 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. Prior to Oct. 1, 2005, investment management services were provided by Ameriprise Financial. The management fee is a percentage of the Fund's average daily net assets that declines from 0.60% to 0.48% annually as the Fund's assets increase. On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. Effective March 1, 2006, the management fee percentage of the Fund's average daily net assets will decline from 0.60% to 0.375% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment increased the fee by $24,710 for the six months ended Jan. 31, 2006. Under the current Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.06% to 0.03% annually as the Fund's assets increase. Prior to Oct. 1, 2005, the fee percentage of the Fund's average daily net assets declined from 0.05% to 0.02% annually as the Fund's assets increased. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the Board. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. Under a separate Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: o Class A $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. - ------------------------------------------------------------------------------ 20 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. 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. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $71,958 for Class A, $3,385 for Class B and $20 for Class C for the six months ended Jan. 31, 2006. For the six months ended Jan. 31, 2006, the Investment Manager and its affiliates waived certain fees and expenses to 1.24% for Class A. Of these waived fees and expenses, the transfer agency fees waived for Class A were $73. Beginning Oct. 1, 2005, an agreement to waive certain fees and expenses was effective until March 10, 2006, such that net expenses, before giving effect to any performance incentive adjustment, will not exceed 1.25% for Class A, 2.04% for Class B, 2.06% for Class C, 0.93% for Class I and 1.06% for Class Y of the Fund's average daily net assets. Effective as of March 11, 2006, a new agreement to waive certain fees and expenses is effective until July 31, 2006, such that net expenses before giving effect to any performance incentive adjustment, will not exceed 1.00% for Class A, 1.78% for Class B, 1.77% for Class C, 0.64% for Class I and 0.84% for Class Y of the Fund's average daily net assets. During the six months Jan. 31, 2006, the Fund's custodian and transfer agency fees were reduced by $1,847 as a result of earnings credits from overnight cash balances. The Fund also pays custodian fees to Ameriprise Trust Company, an affiliate of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $106,542,457 and $40,299,802, respectively, for the six months ended Jan. 31, 2006. Realized gains and losses are determined on an identified cost basis. - ------------------------------------------------------------------------------ 21 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
SIX MONTHS ENDED JAN. 31, 2006 CLASS A CLASS B CLASS C CLASS I CLASS Y - ------------------------------------------------------------------------------------------------------------- Sold 2,581,716 611,910 23,119 7,691,347 3,868 Issued for reinvested distributions 238,239 59,580 1,473 641,365 129 Redeemed (522,993) (269,166) (5,729) (118,550) -- - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) 2,296,962 402,324 18,863 8,214,162 3,997 - ------------------------------------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2005 CLASS A CLASS B CLASS C CLASS I CLASS Y - ------------------------------------------------------------------------------------------------------------- Sold 3,401,658 1,109,408 12,216 10,493,500 1,160 Issued for reinvested distributions 54,345 15,850 457 135,541 79 Redeemed (1,531,238) (165,421) (7,726) (24,014) -- - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) 1,924,765 959,837 4,947 10,605,027 1,239 - -------------------------------------------------------------------------------------------------------------
5. STOCK INDEX FUTURES CONTRACTS At Jan. 31, 2006, investments in securities included securities valued at $250,025 that were pledged as collateral to cover initial margin deposits on 5 open purchase contracts. The notional market value of the open purchase contracts at Jan. 31, 2006 was $1,604,500 with a net unrealized gain of $2,580. See "Summary of significant accounting policies" and "Notes to investments in securities." 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. 20, 2005. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with The Bank of New York. The Fund had no borrowings outstanding during the six months ended Jan. 31, 2006. 7. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS 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 - ------------------------------------------------------------------------------ 22 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT 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. 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 or arbitration 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 or arbitration 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. 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. - ------------------------------------------------------------------------------ 23 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT 8. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. CLASS A - ----------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -----------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004 2003(b) Net asset value, beginning of period $6.70 $5.95 $5.44 $5.00 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .03 .04 .02 .01 Net gains (losses) (both realized and unrealized) .43 .90 .63 .43 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations .46 .94 .65 .44 - ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.03) (.02) -- Distributions from realized gains (.23) (.16) (.12) -- - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.27) (.19) (.14) -- - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.89 $6.70 $5.95 $5.44 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $45 $28 $13 $8 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 1.24%(d) 1.25%(e) 1.13%(e) 1.22%(d),(e) - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.04%(d) .84% .65% .81%(d) - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 28% 64% 64% 17% - ----------------------------------------------------------------------------------------------------------------------------- Total return(f) 7.05%(g) 15.95% 11.99% 8.80%(g) - -----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 1.35%, 1.91% and 7.39% for the periods ended July 31, 2005, 2004 and 2003, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 24 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT CLASS B - ------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004 2003(b) Net asset value, beginning of period $6.62 $5.90 $5.43 $5.00 - ------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .01 .02 (.02) -- Net gains (losses) (both realized and unrealized) .43 .86 .61 .43 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .44 .88 .59 .43 - ------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.01) -- -- -- Distributions from realized gains (.23) (.16) (.12) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.24) (.16) (.12) -- - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.82 $6.62 $5.90 $5.43 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $12 $9 $3 $1 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 2.01%(d) 2.04%(e) 1.95%(e) 2.01%(d),(e) - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .27%(d) .06% (.16%) (.08%)(d) - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 28% 64% 64% 17% - ------------------------------------------------------------------------------------------------------------------------------- Total return(f) 6.71%(g) 15.03% 10.95% 8.60%(g) - -------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 2.13%, 2.73% and 8.18% for the periods ended July 31, 2005, 2004 and 2003, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 25 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT CLASS C - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) - ------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004 2003(b) Net asset value, beginning of period $6.62 $5.90 $5.43 $5.00 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .02 .01 (.02) -- Net gains (losses) (both realized and unrealized) .42 .87 .61 .43 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .44 .88 .59 .43 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.01) -- -- -- Distributions from realized gains (.23) (.16) (.12) -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.24) (.16) (.12) -- - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $6.82 $6.62 $5.90 $5.43 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $-- $-- $-- $-- - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(c) 2.02%(d) 2.06%(e) 1.95%(e) 2.01%(d),(e) - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets .27%(d) .02% (.17%) (.05%)(d) - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 28% 64% 64% 17% - ------------------------------------------------------------------------------------------------------------------------------ Total return(f) 6.79%(g) 15.03% 10.96% 8.60%(g) - ------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 2.13%, 2.73% and 8.20% for the periods ended July 31, 2005, 2004 and 2003, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 26 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT CLASS I - ------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) - ------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004(b) Net asset value, beginning of period $6.73 $5.96 $5.99 - ------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04 .04 .02 Net gains (losses) (both realized and unrealized) .44 .92 (.05) - ------------------------------------------------------------------------------------------------------------------ Total from investment operations .48 .96 (.03) - ------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.06) (.03) -- Distributions from realized gains (.23) (.16) -- - ------------------------------------------------------------------------------------------------------------------ Total distributions (.29) (.19) -- - ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $6.92 $6.73 $5.96 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $141 $82 $9 - ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(c) .79%(d) .91% .93%(d),(e) - ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 1.46%(d) 1.19% 5.35%(d) - ------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 28% 64% 64% - ------------------------------------------------------------------------------------------------------------------ Total return(f) 7.28%(g) 16.29% (.50%)(g) - ------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date is July 15, 2004. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) 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 1.27% for the period ended July 31, 2004. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 27 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT CLASS Y - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) - ------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004 2003(b) Net asset value, beginning of period $6.71 $5.95 $5.45 $5.00 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .03 .05 .03 .01 Net gains (losses) (both realized and unrealized) .45 .91 .61 .44 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .48 .96 .64 .45 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.05) (.04) (.02) -- Distributions from realized gains (.23) (.16) (.12) -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.28) (.20) (.14) -- - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $6.91 $6.71 $5.95 $5.45 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $-- $-- $-- $-- - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(c) 1.05%(d) 1.06%(e) .98%(e) 1.01%(d),(e) - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 1.19%(d) 1.03% .78% .90%(d) - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 28% 64% 64% 17% - ------------------------------------------------------------------------------------------------------------------------------ Total return(f) 7.24%(g) 16.25% 11.87% 9.00%(g) - ------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 Y would have been 1.18%, 1.76% and 7.20% for the periods ended July 31, 2005, 2004 and 2003, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 28 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT FUND EXPENSES EXAMPLE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Jan. 31, 2006. 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. - ------------------------------------------------------------------------------ 29 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED AUG. 1, 2005 JAN. 31, 2006 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $1,070.50 $6.54(c) 1.24% Hypothetical (5% return before expenses) $1,000 $1,019.16 $6.38(c) 1.24% Class B Actual(b) $1,000 $1,067.10 $10.59(c) 2.01% Hypothetical (5% return before expenses) $1,000 $1,015.24 $10.32(c) 2.01% Class C Actual(b) $1,000 $1,067.90 $10.64(c) 2.02% Hypothetical (5% return before expenses) $1,000 $1,015.19 $10.37(c) 2.02% Class I Actual(b) $1,000 $1,072.80 $4.17(c) .79% Hypothetical (5% return before expenses) $1,000 $1,021.45 $4.07(c) .79% Class Y Actual(b) $1,000 $1,072.40 $5.54(c) 1.05% Hypothetical (5% return before expenses) $1,000 $1,020.13 $5.40(c) 1.05%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 186/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Jan. 31, 2006: +7.05% for Class A, +6.71% for Class B, +6.79% for Class C, +7.28% for Class I and +7.24% for Class Y. (c) Effective as of March 11, 2006, the Investment Manager and its affiliates have agreed to waive certain fees and expenses until July 31, 2006, unless sooner terminated at the discretion of the Board, such that net expenses will not exceed 1.00% for Class A; 1.78% for Class B, 1.77% for Class C; 0.64% for Class I and 0.84% for Class Y of the Fund's average daily net assets. If the revised fee schedule under the cap/fee waiver agreement had been in place for the entire six-month period ended Jan. 31, 2006, the actual expenses paid would have been $5.28 for Class A, $9.38 for Class B, $9.33 for Class C, $3.38 for Class I and $4.44 for Class Y; the hypothetical expenses paid would have been $5.15 for Class A, $9.15 for Class B, $9.09 for Class C, $3.30 for Class I and $4.33 for Class Y. - ------------------------------------------------------------------------------ 30 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial, formerly American Express Financial Corporation), serves as the investment manager to the Fund. Under an investment management services agreement (the IMS Agreement), the investment manager provides investment advice and other services to the Fund. Throughout the year, the Fund's Board of Directors (the Board) and the Board's Investment Review and Contracts Committees monitor these services. Ameriprise Financial had served as investment manager to the Fund until Sept. 29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise Financial transferred its rights, title, and interest and its burdens and obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary. Each year, the Board determines whether to continue the IMS Agreement by evaluating the quality and level of services received and the costs associated with those services. To assist the Board in making this determination, the investment manager prepares detailed reports for the Board and its Contracts Committee in March and April and provides data prepared by independent organizations. The Board gives considerable weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the IMS Agreement. BACKGROUND This past year, prior to the Board's annual review process, on Feb. 1, 2005, American Express Company, the former parent of Ameriprise Financial, announced its intention to pursue a spin-off of Ameriprise Financial by distributing shares of the common stock of Ameriprise Financial to shareholders of American Express Company. Following this announcement, the Board determined to proceed with its annual review process and, after thorough review of the reports and data provided, at a meeting held in person on April 14, 2005, the Board, including all of its independent members, determined that the quality and level of advisory services provided pursuant to the IMS Agreement were satisfactory and that fees were fair and reasonable. However, in light of the announced plans of the spin-off, the Board approved continuation of the IMS Agreement with Ameriprise Financial for only an interim period ending on the later of (i) the effective date of the spin-off; or (ii) the approval of a new IMS Agreement with Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in no event for a period longer than one year. During the course of the six-month period following the April 2005 meeting, the Board evaluated whether to approve new investment management services agreements for each of the funds within the Ameriprise Financial fund complex (together, the Funds) with post-spin Ameriprise Financial (or RiverSource). Independent counsel, Schulte Roth & Zabel LLP (Schulte), assisted the Boards in fulfilling their statutory and other responsibilities associated with the spin-off and the resulting consideration of new contracts, including the new IMS Agreement. The Board and its committees were provided with a wealth of written and oral information in this regard. Furthermore, in connection with the Board's considerations as to whether post-spin Ameriprise Financial, as an entity independent from American Express Company, would be capable of continuing to provide a high quality of services to the Funds, - ------------------------------------------------------------------------------ 31 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT the Board's independent members retained their own financial adviser, Credit Suisse First Boston LLC (CSFB), to assist them in analyzing the capital adequacy of post-spin Ameriprise Financial. (The costs of independent counsel and CSFB and of additional meetings of the Boards were borne by Ameriprise Financial as part of the commitment of the American Express Company to ensure a complete and thorough review of the proposed spin-off and its effect on the services provided by Ameriprise Financial and its subsidiaries.) At a meeting of the Board held on Sept. 8, 2005, the Board, including all of its independent members, approved, and recommended that shareholders approve, a proposed new IMS Agreement with RiverSource (the New IMS Agreement). At a meeting of the Fund's shareholders held on Feb. 15, 2006, shareholders approved the New IMS Agreement. The following section, "Board Considerations Related to the New IMS Agreement," provides a detailed discussion of the Board's considerations and determinations respecting the New IMS Agreement. BOARD CONSIDERATIONS RELATED TO THE NEW IMS AGREEMENT In carrying out its legal responsibilities associated with the consideration of the New IMS Agreement, the Board evaluated the following factors: Nature, Extent and Quality of Services to be Provided by Post-Spin Ameriprise Financial (and Its Subsidiaries) The Board recognized that only a few months had passed since its April 2005 conclusion that the nature, extent and quality of services provided by Ameriprise Financial were satisfactory and consistent with those that would be expected for a fund family of the size of the Funds and its determination to renew the IMS Agreement for the interim period. However, the Board also recognized the need to supplement this assessment with an evaluation of whether the spin-off or other factors would result in changes to the advisory services being provided under the current IMS Agreement. The Board focused its evaluation on the following factors potentially impacting the nature, extent and quality of advisory services to be provided by Ameriprise Financial: (i) Ameriprise Financial's projected capital structure and capital adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its ability to retain and attract personnel; and (iv) its ability to successfully re-brand its products and services. Based on extensive presentations and reports by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed capital structure (which includes certain indemnification commitments made by American Express Company) should enable RiverSource to continue to provide a high quality and level of advisory services to the Fund. In making this determination, the Board took into account representations by management of Ameriprise Financial that projected capital levels would allow Ameriprise Financial and RiverSource to meet legal and compliance responsibilities, build their distribution network, pursue technological upgrades, make capital commitments necessary to retain and attract key personnel devoted to legal and compliance responsibilities, portfolio management and distribution, and pursue smaller asset management acquisitions to help grow the asset management business. The Board accorded significant weight to CSFB's confirmation as to the reasonableness of the proposed capital structure. The Board also considered the fact that there were no expected departures of key personnel involved in the portfolio management, operations and marketing of the Funds as a result of the announcement of the spin-off. - ------------------------------------------------------------------------------ 32 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT The Board concluded that, based on all of the materials and information provided, post-spin Ameriprise Financial (including RiverSource) would be in a position to continue to provide a high quality and level of advisory services to the Fund. INVESTMENT PERFORMANCE The Board next focused on investment performance. The Board reviewed reports documenting the Fund's performance over one-, three- and/or five-year periods, as well as the entire period during which its current portfolio manager has managed the Fund, and compared to relevant Lipper and market indices. The Board took into account its determination in April 2005 that investment performance in 2004 exceeded the median. The Board also considered that it had been receiving monthly performance reports for the Fund and that there had been no significant deviations from April's overall performance data. COST OF SERVICES PROVIDED The Board evaluated comparative fees and the costs of services under the current IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise Financial (including RiverSource and other subsidiaries) to institutional clients. The Board studied RiverSource's effort (i.e., its "pricing philosophy") to set substantially all Funds' total expense ratios at or below the median expense ratio of comparable mutual funds (as compiled by Lipper). The Board observed that the proposed advisory fee changes are designed to work in tandem with proposed changes to administrative services fees. It also noted that RiverSource has agreed to voluntarily impose expense caps or waivers to achieve this pricing objective whenever the expense ratio exceeded the median expense ratio by more than three basis points (unless the higher ratio was due to the impact of the performance fee adjustment). The Board considered that advisory fees under the New IMS Agreement would stay the same. The Board also took into account the effect of the proposed performance incentive adjustment on the advisory fee. In this regard, the Board recalled its past determinations regarding the appropriateness of (i) the use of the relevant index for the performance comparison; (ii) the methodology for determining when the Board may change an index used to calculate the performance incentive adjustment; (iii) the periods used for averaging the Fund's assets and computing investment performance; and (iv) the length of the period over which performance is computed. The Board next considered the expected profitability to Ameriprise Financial and RiverSource derived from their relationship with the Fund, recalling the April 2005 determination that the profitability level was appropriate. The Board noted that projected profitability of Ameriprise Financial would allow it to operate effectively and, at the same time, reinvest in RiverSource and its other asset management businesses. The Board also considered that the proposed changes in advisory fees and the mergers of certain other Funds would result in revenue gains to Ameriprise Financial, but that these increases would not materially alter profit margins due to expected increases in costs associated with the spin-off, particularly re-branding and separation. CSFB also reported that Ameriprise Financial's projected level of return on equity was generally reasonable in light of the returns on equity of its industry competitors. In evaluating profitability, the Board also considered the benefits Ameriprise Financial obtains through the use of commission dollars paid on portfolio transactions for the Fund and from other business relationships that result from managing the Fund. The Board also considered - ------------------------------------------------------------------------------ 33 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT the fees charged by Ameriprise Financial (and its subsidiaries) to institutional clients as well as the fees paid to, and charged by, subadvisers, noting the differences in services provided in each case. In light of these considerations, the Board concluded that projected profitability levels were appropriate. ECONOMIES OF SCALE The Board also considered the "breakpoints" in fees that would be triggered as Fund net asset levels grew and the extent to which shareholders would benefit from such growth. The Board observed that the revised fee schedules under the proposed New IMS Agreement would continue to provide breakpoints similar to those in place pursuant to the current IMS Agreement. Accordingly, the Board concluded that the proposed New IMS Agreement provides adequate opportunity for shareholders to realize benefits as Fund assets grow. OTHER CONSIDERATIONS In addition, the Board accorded weight to the fact that, under the New IMS Agreement, RiverSource Investments is held to a higher standard of care than under the current IMS Agreement. The Board also noted Ameriprise Financial's commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. Furthermore, the Board recognized that it was not limited to considering management's proposed New IMS Agreement. In this regard, the Board evaluated the circumstances under which it would consider the retention of an investment adviser different from RiverSource Investments. The Board concluded, based on its consultation with independent counsel, that pursuing the retention of a different adviser was not necessary, primarily because, in its best judgment, Ameriprise Financial continues to be basically the same organization (from a functional and managerial standpoint), as it was prior to the spin-off. The Board reasoned that shareholders purchased shares of the Fund with an expectation that the current investment advisory organization would be servicing the Fund. - ------------------------------------------------------------------------------ 34 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT PROXY VOTING The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website www.riversource.com/funds; or by searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283; by looking at the website www.riversource.com/funds; or by searching the website of the SEC at www.sec.gov. - ------------------------------------------------------------------------------ 35 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE DISCIPLINED EQUITY FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. 1. ELECTION OF BOARD MEMBERS KATHLEEN BLATZ Affirmative 137,687,051.18 Withhold 3,777,037.12 Abstain 0.00 TOTAL 141,464,088.30 ARNE H. CARLSON Affirmative 137,080,136.14 Withhold 4,383,952.16 Abstain 0.00 TOTAL 141,464,088.30 PATRICIA M. FLYNN Affirmative 137,754,717.40 Withhold 3,709,370.90 Abstain 0.00 TOTAL 141,464,088.30 ANNE P. JONES Affirmative 137,495,442.17 Withhold 3,968,646.13 Abstain 0.00 TOTAL 141,464,088.30 JEFFREY LAIKIND Affirmative 137,487,753.60 Withhold 3,976,334.70 Abstain 0.00 TOTAL 141,464,088.30 - ------------------------------------------------------------------------------ 36 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT STEPHEN R. LEWIS, JR. Affirmative 137,741,665.65 Withhold 3,722,422.65 Abstain 0.00 TOTAL 141,464,088.30 CATHERINE JAMES PAGLIA Affirmative 137,692,414.22 Withhold 3,771,674.08 Abstain 0.00 TOTAL 141,464,088.30 VIKKI L. PRYOR Affirmative 137,692,414.22 Withhold 3,771,674.08 Abstain 0.00 TOTAL 141,464,088.30 ALAN K. SIMPSON Affirmative 137,240,274.05 Withhold 4,223,814.25 Abstain 0.00 TOTAL 141,464,088.30 ALISON TAUNTON-RIGBY Affirmative 137,754,717.40 Withhold 3,709,370.90 Abstain 0.00 TOTAL 141,464,088.30 WILLIAM F. TRUSCOTT Affirmative 137,636,780.35 Withhold 3,827,307.95 Abstain 0.00 TOTAL 141,464,088.30 - ------------------------------------------------------------------------------ 37 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT 2. AMEND THE ARTICLES OF INCORPORATION TO PERMIT THE BOARD TO ESTABLISH THE MINIMUM ACCOUNT VALUE AND TO CHANGE THE NAME OF THE CORPORATION Affirmative 136,497,402.85 Against 2,176,718.11 Abstain 2,789,967.34 Broker Non-votes 0.00 TOTAL 141,464,088.30 3. APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC Affirmative 137,258,733.84 Against 1,860,526.22 Abstain 2,344,828.24 Broker Non-votes 0.00 TOTAL 141,464,088.30 4. APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES A. DIVERSIFICATION Affirmative 137,669,982.82 Against 1,266,516.25 Abstain 2,527,589.23 Broker Non-votes 0.00 TOTAL 141,464,088.30 B. LENDING Affirmative 136,003,311.77 Against 2,081,141.59 Abstain 3,379,634.94 Broker Non-votes 0.00 TOTAL 141,464,088.30 C. BORROWING Affirmative 136,626,424.17 Against 1,964,692.59 Abstain 2,872,971.54 Broker Non-votes 0.00 TOTAL 141,464,088.30 - ------------------------------------------------------------------------------ 38 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT THIS PAGE LEFT BLANK INTENTIONALLY - ------------------------------------------------------------------------------ 39 -- RIVERSOURCE DISCIPLINED EQUITY FUND -- 2006 SEMIANNUAL REPORT [RIVERSOURCE INVESTMENTS LOGO] RIVERSOURCE INVESTMENTS 200 AMERIPRISE FINANCIAL CENTER MINNEAPOLIS, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. RiverSource Funds are managed by RiverSource Investments, LLC and distributed by Ameriprise Financial Services, Inc., Member NASD. Both companies are part of Ameriprise Financial, Inc. Semiannual Report [RIVERSOURCE INVESTMENTS LOGO] RIVERSOURCE(SM) GROWTH FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED JAN. 31, 2006 > RIVERSOURCE GROWTH FUND (FORMERLY AXP(R) GROWTH FUND) SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM CAPITAL GROWTH. TABLE OF CONTENTS Fund Snapshot..............................3 Performance Summary........................4 Questions & Answers with Portfolio Management..............6 Investments in Securities..................9 Financial Statements......................13 Notes to Financial Statements.............16 Fund Expenses Example.....................29 Approval of Investment Management Services Agreement....................31 Proxy Voting..............................34 Results of Meeting of Shareholders........35 [DALBAR LOGO] American Express(R) Funds'* reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. * As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the name of the American Express Funds. - ------------------------------------------------------------------------------ 2 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ FUND SNAPSHOT AT JAN. 31, 2006 < - ------------------------------------------------------------------------------ PORTFOLIO MANAGER PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY Nick Thakore 4/02 12 - ------------------------------------------------------------------------------ FUND OBJECTIVE < - ------------------------------------------------------------------------------ For investors seeking long-term capital growth. Inception dates by class A: 3/1/72 B: 3/20/95 C: 6/26/00 I: 3/4/04 Y: 3/20/95 Ticker symbols by class A: INIDX B: IGRBX C: AXGCX I: AGWIX Y: IGRYX Total net assets $3.533 billion Number of holdings 139 - ------------------------------------------------------------------------------ STYLE MATRIX < - ------------------------------------------------------------------------------ [photo] Shading within the style matrix indicates areas in which the Fund generally invests. - ------------------------------------------------------------------------------ SECTOR COMPOSITION* < - ------------------------------------------------------------------------------ Percentage of portfolio assets [PIE CHART] Health Care 20.9% Information Technology 18.1% Telecommunication Services 17.2% Consumer Discretionary 14.2% Consumer Staples 9.2% Energy 6.2% Short-Term Securities** 4.6% Financials 4.2% Industrials 4.1% Materials 1.3% * 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. ** Of the 4.6%, 1.3% is due to security lending activity and 3.3% is the Portfolio's cash equivalent position. - ------------------------------------------------------------------------------ TOP TEN HOLDINGS < - ------------------------------------------------------------------------------ Percentage of portfolio assets Sprint Nextel (Diversified Telecommunication Services) 8.8% NTL (Media) 5.5 Cisco Systems (Communications Equipment) 4.0 Pfizer (Pharmaceuticals) 3.9 Google Cl A (Internet Software and Services) 2.9 Vodafone Group (Wireless Telecommunication Services) 2.7 Procter & Gamble (Household Products) 2.2 Exxon Mobil (Oil & Gas) 2.2 Nokia ADR (Communications Equipment) 1.8 Orascom Telecom Holding GDR (Wireless Telecommunication Services) 1.8 For further detail about these holdings, please refer to the section entitled "Investments in Securities." The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. Fund holdings are subject to change. - ------------------------------------------------------------------------------ 3 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT PERFORMANCE SUMMARY PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2006 [BAR CHART] RiverSource Growth Fund Class A (excluding sales charge) +3.70% Russell 1000 Growth Index(1) (unmanaged) +3.91% Lipper Large-Cap Growth Funds Index(2) +6.58% The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.riversource.com/funds. (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, but excludes brokerage commissions or other fees. (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. 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. - ------------------------------------------------------------------------------ 4 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT PERFORMANCE SUMMARY - -------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < - --------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS Y (INCEPTION DATES) (3/1/72) (3/20/95) (6/26/00) (3/4/04) (3/20/95) AFTER AFTER NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) AT JAN. 31, 2006 6 months* +3.70% -2.26% +3.31% -1.69% +3.31% +2.31% +3.94% +3.80% 1 year +12.69% +6.21% +11.87% +6.87% +11.87% +10.87% +13.26% +12.94% 3 years +13.96% +11.73% +13.07% +12.01% +13.07% +13.07% N/A +14.16% 5 years -6.58% -7.68% -7.30% -7.67% -7.31% -7.31% N/A -6.41% 10 years +4.38% +3.76% +3.58% +3.58% N/A N/A N/A +4.54% Since inception +11.98% +11.98% +6.06% +6.06% -10.34% -10.34% +8.75% +7.03% AT DEC. 31, 2005 6 months* +4.53% -1.48% +4.11% -0.89% +4.11% +3.11% +4.76% +4.63% 1 year +8.42% +2.19% +7.55% +2.55% +7.55% +6.55% +8.90% +8.62% 3 years +12.41% +10.21% +11.53% +10.45% +11.53% +11.53% N/A +12.61% 5 years -5.83% -6.93% -6.56% -6.94% -6.57% -6.57% N/A -5.66% 10 years +4.42% +3.80% +3.61% +3.61% N/A N/A N/A +4.57% Since inception +11.95% +11.95% +5.92% +5.92% -10.80% -10.80% +7.98% +6.89%
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to eligible investors only, currently limited to affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. * Not annualized. - ------------------------------------------------------------------------------ 5 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Nick Thakore discusses the Fund's positioning and results for the first six months of the 2006 fiscal year. Q: How did RiverSource Growth Fund perform for the six-month period ended Jan. 31, 2006? A: RiverSource Growth Fund's Class A shares rose 3.70%, excluding sales charge, for the six-month period ended Jan. 31, 2006. The Fund's benchmark, the Russell 1000(R) Growth Index (Russell Index), advanced 3.91%. The Fund's peer group as represented by the Lipper Large-Cap Growth Funds Index (Lipper Index) returned 6.58% for the same period. Q: What factors influenced performance during the period? A: The stock market advanced strongly during the six-month period and the Fund participated in the rally. The Fund's slight performance lag relative to the Russell Index is attributable to modest underperformance from a number of individual stocks. Overall, the Fund's positioning in the telecommunications services, consumer discretionary and consumer staples sectors proved disadvantageous, while positioning in technology and health care was beneficial. Although the Fund's performance was close to that of the Russell Index, performance relative to its peers, as measured by the Lipper Index, was not as favorable. Our analysis of this underperformance suggests that the Fund was underweight compared to the Lipper Index in a number of strong performing stocks where our peers seemed to be overweight. In our view, these stocks offer very strong growth opportunities, but we believe these companies' valuations are too high relative to that growth outlook. Significant individual detractors relative to the Russell Index included Sprint Nextel, Spectrum Brands and Dell. Sprint Nextel lagged the market as investors seemed to have concern about near-term fundamentals. We still believe Sprint Nextel is an outstanding growth story with an attractive valuation and thus, the portfolio maintained a large position. Spectrum Brands, a maker of batteries, fertilizers and other consumer products, had disappointing earnings, partly due to higher raw material costs that the company could not pass on to its customers. We still hold the stock, but have generally not added to it as its price went down. Computer hardware company Dell had a small negative effect on return because the market has become increasingly concerned about the company's growth rate compared to what it had been in the past. We share some of these concerns and have reduced the portfolio weighting in Dell. - ------------------------------------------------------------------------------ 6 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT QUESTIONS & ANSWERS > CHANGES TO THE PORTFOLIO DURING THE PERIOD STEMMED PRIMARILY FROM OUR BELIEF THAT CONSUMERS FACE GREATER HEADWIND THAN IN RECENT YEARS, WHILE THE OUTLOOK FOR CORPORATE CAPITAL SPENDING IS MORE FAVORABLE. On the positive side, Google was the largest contributor to performance. Google has delivered tremendous earnings growth since its initial public offering in 2004. We believe it is still a great growth story with a reasonable valuation, although early in 2006 we anticipated some weakness in its short-term earnings. We reduced the portfolio's Google holdings in January before the company announced its fourth quarter 2005 earnings which fell short of analyst expectations and precipitated a sharp decline in the stock's price. Cell phone maker Nokia was also a major contributor, advancing on both improving margins and its recovery of global market share. We believe Nokia continues to have strong fundamentals, good earnings growth potential and an attractive valuation. A third significant contributor, Orascom Telecom, an emerging markets wireless firm, has benefited from strong growth rates, solid fundamentals and attractive valuations. Orascom Telecom fits our telecommunications theme which focuses on three different groups: established U.S. carriers, rural carriers and emerging markets carriers. Q: What changes did you make during the six-month period? A: Changes to the portfolio during the period stemmed primarily from our belief that consumers face greater headwind than in recent years, while the outlook for corporate capital spending is more favorable. Therefore, we increased emphasis on stocks that will benefit from capital spending and reduced focus on those that are dependent on consumers. Thus the portfolio has a smaller-than-benchmark position in retail, but we increased the portfolio weighting in stocks such as Cisco Systems, a communications technology company that we believe can benefit from increased corporate capital spending. Another theme is our expectation that earnings growth will decelerate in 2006, so we increased the portfolio's emphasis on telecommunications services, health care and consumer staples. These sectors are typically not dependent on cyclical growth so we think the companies can deliver strong earnings regardless of economic conditions. Stocks in these sectors have underperformed, but in a - ------------------------------------------------------------------------------ 7 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT QUESTIONS & ANSWERS > IN GENERAL, WE BELIEVE THE FUND HOLDS STOCKS THAT, AS A GROUP, ARE LIKELY TO GROW EARNINGS FASTER THAN THE MARKET. slowing growth environment, we anticipate that investors are willing to pay more for them. In terms of individual stocks, we added to Pfizer because the company received a favorable patent ruling on its cholesterol-lowering drug Lipitor, which had been a risk for the stock. We consider Pfizer's valuation attractive and think there is an opportunity for the company to return to growth. We also increased holdings of Vodafone Group. This is a more mature telecommunications story, but one with good long-term growth and, after recent declines, a very attractive valuation. We added selectively to General Electric on price weakness of its stock because we see a favorable outlook for 2006 growth. Also, we added to News Corp. on its recent decline given its solid fundamentals and promising growth outlook. We modestly reduced weightings in technology stocks Dell (discussed above) and Intel and also sold our holdings of Telewest Global. Telewest Global had been a play on the U.K. cable market, but now that the company has agreed to merge with NTL, the U.K.'s largest cable operator and broadband and communications services provider, and given how much the stock price has already risen, we didn't see as much future opportunity in Telewest Global. Q: How have you positioned the Fund for current market conditions? A: In general, we believe the Fund holds stocks that, as a group, are likely to grow earnings faster than the market. At the same time, we don't think we are overpaying for that growth potential. We also believe that the stocks in the portfolio generally won't have to depend on macro-economic growth to fuel their earnings growth. We are confident about the stocks and the positioning of the portfolio, given our expectations for slow economic growth and decelerating earnings in 2006. - ------------------------------------------------------------------------------ 8 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT INVESTMENTS IN SECURITIES RiverSource Growth Fund JAN. 31, 2006 (UNAUDITED) (Percentages represent value of investments compared to net assets) - ------------------------------------------------------------------------------ COMMON STOCKS (95.4%) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) AEROSPACE & DEFENSE (1.7%) Boeing 204,804 $13,990,161 General Dynamics 91,791 10,680,801 Goodrich 72,802 2,866,215 Honeywell Intl 346,590 13,315,988 Lockheed Martin 273,766 18,520,269 --------------- Total 59,373,434 - ------------------------------------------------------------------------------ BEVERAGES (1.9%) Coca-Cola 343,046 14,195,243 PepsiCo 920,571 52,638,250 --------------- Total 66,833,493 - ------------------------------------------------------------------------------ BIOTECHNOLOGY (3.3%) Amgen 829,296(b) 60,447,385 Biogen Idec 465,167(b) 20,816,223 Genentech 318,228(b,d) 27,342,150 Gilead Sciences 144,464(b) 8,793,524 --------------- Total 117,399,282 - ------------------------------------------------------------------------------ CHEMICALS (0.3%) Bayer 241,920(c) 10,103,296 - ------------------------------------------------------------------------------ COMMERCIAL BANKS (0.1%) ICICI Bank ADR 104,796(c) 3,292,690 - ------------------------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES (0.4%) Cendant 858,738 14,375,274 - ------------------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT (5.8%) Cisco Systems 7,568,095(b) 140,539,524 Nokia ADR 3,469,335(c) 63,766,377 --------------- Total 204,305,901 - ------------------------------------------------------------------------------ COMPUTERS & PERIPHERALS (2.2%) Dell 1,649,469(b) 48,345,937 EMC 1,104,811(b) 14,804,467 Hewlett-Packard 478,283 14,912,864 --------------- Total 78,063,268 - ------------------------------------------------------------------------------ CONSUMER FINANCE (0.4%) American Express 69,141 3,626,445 Capital One Financial 49,677 4,138,094 SLM 123,466 6,909,158 --------------- Total 14,673,697 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) DIVERSIFIED TELECOMMUNICATION SERVICES (9.9%) ALLTEL 152,005 $9,124,860 Philippine Long Distance Telephone ADR 202,647(c) 7,252,736 Qwest Communications Intl 907,300(b) 5,461,946 Sprint Nextel 13,708,698 313,792,097 Verizon Communications 346,736 10,977,662 --------------- Total 346,609,301 - ------------------------------------------------------------------------------ ENERGY EQUIPMENT & SERVICES (1.4%) Halliburton 439,873 34,991,898 Schlumberger 75,432 9,613,808 Transocean 63,036(b) 5,115,371 --------------- Total 49,721,077 - ------------------------------------------------------------------------------ FOOD & STAPLES RETAILING (1.6%) Safeway 1,517,552 35,571,419 Wal-Mart Stores 474,065 21,859,137 --------------- Total 57,430,556 - ------------------------------------------------------------------------------ FOOD PRODUCTS (1.0%) Cadbury Schweppes 923,360(c) 9,066,446 General Mills 133,640 6,496,240 Kellogg 501,190 21,501,051 --------------- Total 37,063,737 - ------------------------------------------------------------------------------ HEALTH CARE EQUIPMENT & SUPPLIES (3.6%) Alcon 54,916(c) 7,024,855 Baxter Intl 1,389,215 51,192,573 Boston Scientific 409,711(b) 8,960,380 Guidant 724,125 53,295,599 PerkinElmer 310,707 7,065,477 --------------- Total 127,538,884 - ------------------------------------------------------------------------------ HEALTH CARE PROVIDERS & SERVICES (4.9%) Cardinal Health 753,672 54,294,532 HCA 745,406 36,584,526 HealthSouth 1,479,993(b) 7,111,366 McKesson 122,988 6,518,364 Medco Health Solutions 329,353(b) 17,817,997 UnitedHealth Group 883,507 52,497,986 --------------- Total 174,824,771 - ------------------------------------------------------------------------------ See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 9 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) HOTELS, RESTAURANTS & LEISURE (0.5%) Kerzner Intl 149,103(b,c) $9,727,480 McDonald's 183,091 6,410,016 --------------- Total 16,137,496 - ------------------------------------------------------------------------------ HOUSEHOLD DURABLES (0.7%) Harman Intl Inds 70,977(d) 7,807,470 Sony 376,300(c) 18,285,678 --------------- Total 26,093,148 - ------------------------------------------------------------------------------ HOUSEHOLD PRODUCTS (3.1%) Procter & Gamble 1,313,531 77,800,441 Spectrum Brands 1,675,161(b) 31,677,295 --------------- Total 109,477,736 - ------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES (1.7%) General Electric 1,049,686 34,377,217 Tyco Intl 975,507(c) 25,411,957 --------------- Total 59,789,174 - ------------------------------------------------------------------------------ INSURANCE (2.8%) ACE 388,636(c) 21,277,821 American Intl Group 758,143 49,628,041 Arch Capital Group 162,803(b,c) 8,846,715 Aspen Insurance Holdings 572,510(c) 13,270,782 Chubb 35,323 3,332,725 Hartford Financial Services Group 39,980 3,287,555 --------------- Total 99,643,639 - ------------------------------------------------------------------------------ INTERNET & CATALOG RETAIL (0.2%) eBay 159,739(b) 6,884,751 - ------------------------------------------------------------------------------ INTERNET SOFTWARE & SERVICES (2.9%) Google Cl A 234,737(b,g) 101,699,805 - ------------------------------------------------------------------------------ IT SERVICES (0.5%) First Data 395,981 17,858,743 - ------------------------------------------------------------------------------ MACHINERY (0.3%) Caterpillar 175,608 11,923,783 - ------------------------------------------------------------------------------ MEDIA (11.6%) Comcast Cl A 2,020,827(b) 56,219,407 Comcast Special Cl A 303,106(b) 8,402,098 Liberty Global Cl A 1,938,288(b) 41,479,363 Liberty Global Series C 847,954(b) 17,145,630 News Corp Cl A 1,512,712 23,840,341 NTL 3,060,574(b,d) 193,581,307 Time Warner 657,567 11,527,150 Viacom Cl B 92,496(b) 3,836,734 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) MEDIA (CONT.) Vivendi Universal ADR 1,526,466(c) $47,793,650 WorldSpace Cl A 314,100(b,d) 3,989,070 --------------- Total 407,814,750 - ------------------------------------------------------------------------------ METALS & MINING (1.0%) Coeur d'Alene Mines 2,941,986(b,d) 15,239,487 Newmont Mining 353,501 21,846,362 --------------- Total 37,085,849 - ------------------------------------------------------------------------------ MULTILINE RETAIL (0.5%) Federated Dept Stores 93,317 6,217,712 JC Penney 216,884 12,102,127 --------------- Total 18,319,839 - ------------------------------------------------------------------------------ OIL & GAS (4.8%) Anadarko Petroleum 140,211 15,117,550 Chevron 143,733 8,534,866 ConocoPhillips 138,038 8,931,059 Devon Energy 195,062 13,305,179 Exxon Mobil 1,233,540 77,404,634 Kinder Morgan Management LLC --(b) 15 Marathon Oil 192,200 14,774,414 Ultra Petroleum 199,616(b) 13,731,585 Valero Energy 288,450 18,007,933 --------------- Total 169,807,235 - ------------------------------------------------------------------------------ PHARMACEUTICALS (9.2%) AstraZeneca 435,254(c) 21,074,526 Bristol-Myers Squibb 389,900 8,885,821 GlaxoSmithKline ADR 137,394(c) 7,040,069 Johnson & Johnson 610,751 35,142,612 Merck & Co 205,227 7,080,332 Novartis ADR 452,348(c) 24,951,516 Pfizer 5,342,714 137,200,895 Roche Holding 139,866(c) 22,103,686 Schering-Plough 736,490 14,103,784 Teva Pharmaceutical Inds ADR 610,280(c) 26,016,236 Wyeth 361,791 16,732,834 --------------- Total 320,332,311 - ------------------------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (3.2%) Analog Devices 376,957 14,991,580 Freescale Semiconductor Cl A 824,276(b) 20,738,784 Freescale Semiconductor Cl B 302,062(b) 7,627,066 Integrated Device Technology 720,467(b) 10,007,287 See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 10 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONT.) Intel 1,577,274 $33,548,618 Linear Technology 94,221 3,505,963 MEMC Electronic Materials 156,531(b) 4,473,656 PMC-Sierra 361,209(b) 3,417,037 Texas Instruments 482,466(d) 14,102,481 --------------- Total 112,412,472 - ------------------------------------------------------------------------------ SOFTWARE (3.5%) Adobe Systems 335,985 13,345,324 Compuware 833,799(b) 6,870,504 Mercury Interactive 316,451(b) 10,996,672 Microsoft 2,199,328 61,911,083 Oracle 1,813,106(b) 22,790,742 Symantec 489,354(b) 8,994,327 --------------- Total 124,908,652 - ------------------------------------------------------------------------------ SPECIALTY RETAIL (0.1%) Best Buy 80,110 4,058,373 - ------------------------------------------------------------------------------ TEXTILES, APPAREL & LUXURY GOODS (0.7%) Nike Cl B 317,810 25,726,720 - ------------------------------------------------------------------------------ THRIFTS & MORTGAGE FINANCE (0.9%) Countrywide Financial 330,677 11,057,839 Fannie Mae 256,835 14,881,020 Freddie Mac 63,554 4,312,774 --------------- Total 30,251,633 - ------------------------------------------------------------------------------ TOBACCO (1.6%) Altria Group 766,745 55,466,333 - ------------------------------------------------------------------------------ WIRELESS TELECOMMUNICATION SERVICES (7.2%) Centennial Communications 227,996 2,150,002 Hutchison Telecommunications Intl ADR 893,529(b,c) 22,382,901 Motient 358,775(b,d) 7,480,459 NeuStar Cl A 1,094,709(b) 31,757,508 O2 5,270,162(c) 18,749,120 Orascom Telecom Holding GDR 946,342(c,d) 62,647,840 Partner Communications ADR 101,263(c) 807,066 Vodafone Group 46,075,542(c) 96,711,783 Vodafone Group ADR 555,154(c) 11,719,301 --------------- Total 254,405,980 - ------------------------------------------------------------------------------ TOTAL COMMON STOCKS (Cost: $3,168,898,445) $3,371,707,083 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ OPTIONS PURCHASED (0.3%) - ------------------------------------------------------------------------------ ISSUER CONTRACTS EXERCISE EXPIRATION VALUE(a) PRICE DATE CALLS Sprint Nextel 45,575 $22.50 Aug. 2006 $10,026,500 - ------------------------------------------------------------------------------ PUTS Google Cl A 406 430.00 Feb. 2006 945,980 - ------------------------------------------------------------------------------ TOTAL OPTIONS PURCHASED (Cost: $13,502,671) $10,972,480 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SHORT-TERM SECURITIES (4.6%)(e) - ------------------------------------------------------------------------------ ISSUER EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY COMMERCIAL PAPER Alpine Securitization 02-01-06 4.48% $4,100,000(f) $4,099,490 Chariot Funding LLC 02-13-06 4.36 25,000,000(f) 24,960,729 02-22-06 4.46 30,000,000(f) 29,918,416 CIESCO LLC 03-07-06 4.49 30,000,000(f) 29,869,626 Falcon Asset Securitization 02-21-06 4.43 13,800,000(f) 13,764,419 Goldman Sachs Group 02-06-06 4.48 15,000,000 14,988,800 Kitty Hawk Funding 02-03-06 4.30 10,000,000(f) 9,996,417 Nieuw Amsterdam 03-01-06 4.50 16,000,000(f) 15,942,258 Park Granada LLC 02-21-06 4.40 19,700,000(f) 19,649,551 - ------------------------------------------------------------------------------ TOTAL SHORT-TERM SECURITIES (Cost: $163,209,819) $163,189,706 - ------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $3,345,610,935)(h) $3,545,869,269 ============================================================================== See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 11 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ NOTES TO INVESTMENTS IN SECURITIES - ------------------------------------------------------------------------------ (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At Jan. 31, 2006, the value of foreign securities represented 15.8% of net assets. (d) At Jan. 31, 2006, security was partially or fully on loan. See Note 6 to the financial statements. (e) Cash collateral received from security lending activity is invested in short-term securities and represents 1.3% of net assets. See Note 6 to the financial statements. 3.3% of net assets is the Fund's cash equivalent position. (f) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Jan. 31, 2006, the value of these securities amounted to $148,200,906 or 4.2% of net assets. (g) At Jan. 31, 2006, securities valued at $100,167,400 were held to cover open call options written as follows (see Note 7 to the financial statements): ISSUER CONTRACTS EXERCISE EXPIRATION VALUE(a) PRICE DATE ---------------------------------------------------------------------- Google Cl A 2,312 $460 Feb. 2006 $3,676,080 (h) At Jan. 31, 2006, the cost of securities for federal income tax purposes was approximately $3,345,611,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $283,866,000 Unrealized depreciation (83,608,000) ---------------------------------------------------------------------- Net unrealized appreciation $200,258,000 ---------------------------------------------------------------------- The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.riversource.com/funds. - ------------------------------------------------------------------------------ 12 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES RiverSource Growth Fund
JAN. 31, 2006 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------------- Investments in securities, at value (Note 1)* (identified cost $3,345,610,935) $3,545,869,269 Cash in bank on demand deposit 9,993,584 Foreign currency holdings (identified cost $18,385) (Note 1) 18,418 Capital shares receivable 710,373 Dividends and accrued interest receivable 1,428,608 Receivable for investment securities sold 126,813,175 Unrealized appreciation on foreign currency contracts held, at value (Note 5) 19,802 - ------------------------------------------------------------------------------------------------------------- Total assets 3,684,853,229 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- LIABILITIES - ------------------------------------------------------------------------------------------------------------- Capital shares payable 229,102 Payable for investment securities purchased 103,018,344 Payable upon return of securities loaned (Note 6) 44,574,000 Accrued investment management services fee 55,204 Accrued distribution fee 33,468 Accrued service fee 796 Accrued transfer agency fee 7,881 Accrued administrative services fee 4,920 Other accrued expenses 242,289 Options contracts written, at value (premiums received $7,215,049) (Note 7) 3,676,080 - ------------------------------------------------------------------------------------------------------------- Total liabilities 151,842,084 - ------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $3,533,011,145 ============================================================================================================= - ------------------------------------------------------------------------------------------------------------- REPRESENTED BY - ------------------------------------------------------------------------------------------------------------- Capital stock -- $.01 par value (Note 1) $ 1,218,546 Additional paid-in capital 4,020,980,838 Undistributed net investment income 1,532,992 Accumulated net realized gain (loss) (Note 9) (694,515,464) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 5) 203,794,233 - ------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $3,533,011,145 ============================================================================================================= Net assets applicable to outstanding shares: Class A $2,443,136,052 Class B $ 585,137,281 Class C $ 18,993,994 Class I $ 196,329,600 Class Y $ 289,414,218 Net asset value per share of outstanding capital stock: Class A shares 83,149,104 $ 29.38 Class B shares 21,777,433 $ 26.87 Class C shares 706,836 $ 26.87 Class I shares 6,537,580 $ 30.03 Class Y shares 9,683,669 $ 29.89 - ------------------------------------------------------------------------------------------------------------- * Including securities on loan, at value (Note 6) $ 42,845,574 - ------------------------------------------------------------------------------------------------------------- See accompanying notes to financial statements.
- ------------------------------------------------------------------------------ 13 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT STATEMENT OF OPERATIONS RiverSource Growth Fund
PERIOD FROM AUG. 1, 2005 TO PERIOD FROM TOTAL DEC. 5, 2005 DEC. 6, 2005 TO AUG. 1, 2005 TO (UNAUDITED) JAN. 31, 2006 JAN. 31, 2006 (NOTE 1) (UNAUDITED) (UNAUDITED) - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------------------------------------------------------- Income: Dividends $ 14,193,685 $ 5,796,273 $ 19,989,958 Interest 1,247,678 1,094,920 2,342,598 Fee income from securities lending (Note 6) 63,368 20,930 84,298 Less foreign taxes withheld (197,993) (38,528) (236,521) - -------------------------------------------------------------------------------------------------------------------------------- Total income 15,306,738 6,873,595 22,180,333 - -------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 6,845,457 3,148,269 9,993,726 Distribution fee Class A 1,921,807 942,004 2,863,811 Class B 1,879,387 900,519 2,779,906 Class C 56,959 28,899 85,858 Transfer agency fee 2,065,763 935,814 3,001,577 Incremental transfer agency fee Class A 149,860 69,037 218,897 Class B 88,975 39,958 128,933 Class C 2,333 1,126 3,459 Service fee -- Class Y 101,751 45,579 147,330 Administrative services fees and expenses 553,402 290,715 844,117 Compensation of board members 14,850 2,433 17,283 Custodian fees 103,625 40,100 143,725 Printing and postage 215,775 87,900 303,675 Registration fees 50,115 37,800 87,915 Audit fees 16,600 5,400 22,000 Other 61,063 16,267 77,330 - -------------------------------------------------------------------------------------------------------------------------------- Total expenses 14,127,722 6,591,820 20,719,542 Earnings credits on cash balances (Note 2) (44,884) (27,252) (72,136) - -------------------------------------------------------------------------------------------------------------------------------- Total net expenses 14,082,838 6,564,568 20,647,406 - -------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 1,223,900 309,027 1,532,927 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET - -------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on: Security transactions (Note 3) 124,446,635 119,102,118 243,548,753 Foreign currency transactions (24,009) (47,460) (71,469) - -------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 124,422,626 119,054,658 243,477,284 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (71,020,375) (51,220,324) (122,240,699) - -------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 53,402,251 67,834,334 121,236,585 - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 54,626,151 $ 68,143,361 $ 122,769,512 ================================================================================================================================ See accompanying notes to financial statements.
- ------------------------------------------------------------------------------ 14 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS RiverSource Growth Fund
JAN. 31, 2006 JULY 31, 2005 SIX MONTHS ENDED YEAR ENDED (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------- OPERATIONS AND DISTRIBUTIONS - ---------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net $ 1,532,927 $ 1,207,349 Net realized gain (loss) on investments 243,477,284 289,309,123 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (122,240,699) 243,570,687 - ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 122,769,512 534,087,159 - ---------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (766,401) -- Class I (240,149) -- Class Y (164,444) -- - ---------------------------------------------------------------------------------------------------------------- Total distributions (1,170,994) -- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) - ---------------------------------------------------------------------------------------------------------------- Proceeds from sales Class A shares (Note 2) 487,013,376 245,400,269 Class B shares 112,365,079 84,469,961 Class C shares 5,591,366 4,411,692 Class I shares 43,711,622 115,544,634 Class Y shares 24,808,702 47,375,409 Reinvestment of distributions at net asset value Class A shares 748,306 -- Class I shares 240,141 -- Class Y shares 164,444 -- Payments for redemptions Class A shares (231,851,700) (623,373,452) Class B shares (Note 2) (122,421,990) (200,303,603) Class C shares (Note 2) (2,209,582) (4,584,216) Class I shares (1,405,819) (1,248,614) Class Y shares (50,401,574) (152,214,350) - ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 266,352,371 (484,522,270) - ---------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 387,950,889 49,564,889 Net assets at beginning of period 3,145,060,256 3,095,495,367 - ---------------------------------------------------------------------------------------------------------------- Net assets at end of period $3,533,011,145 $3,145,060,256 ================================================================================================================ Undistributed net investment income $ 1,532,992 $ 1,171,059 - ---------------------------------------------------------------------------------------------------------------- See accompanying notes to financial statements.
- ------------------------------------------------------------------------------ 15 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS RiverSource Growth Fund (formerly AXP Growth Fund) (Unaudited as to Jan. 31, 2006) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board. The Fund invests primarily in common stocks of U.S. and foreign companies that appear to offer growth opportunities. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. The Fund offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. At Jan. 31, 2006, Ameriprise Financial, Inc. (Ameriprise Financial) and the RiverSource Portfolio Builder Funds owned 100% of Class I shares, which represents 5.56% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Prior to Dec. 6, 2005, the Fund invested all of its assets in Growth Portfolio (the Portfolio). The Fund recorded its daily share of the Portfolio's income, expenses and realized and unrealized gains and losses. - ------------------------------------------------------------------------------ 16 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT Effective at the close of business on Dec. 5, 2005, the Portfolio was liquidated and the Fund exchanged its interest in the Portfolio for its proportionate share (99.99%) of the Portfolio's assets and liabilities. Within the statement of operations for the period from Aug. 1, 2005 to Dec. 5, 2005, income and expense amounts include allocations from the Portfolio in the following amounts: Dividends $14,193,685 Interest Income $1,247,678 Fee income from securities lending $63,368 Foreign taxes withheld $(197,993) Investment management services fee $6,845,457 Compensation of board members $9,983 Custodian fees $103,173 Audit fees $12,025 Other $36,351 Earnings credits on cash balances $(714) All realized and unrealized gains (losses) presented for the period from Aug. 1, 2005 to Dec. 5, 2005 were as a result of allocations from the Portfolio. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Directors of the funds, Ameriprise Financial utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair net asset value. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. - ------------------------------------------------------------------------------ 17 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. 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. At Jan. 31, 2006, foreign currency holdings were entirely comprised of European monetary units. - ------------------------------------------------------------------------------ 18 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts 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. 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. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. - ------------------------------------------------------------------------------ 19 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT 2. EXPENSES AND SALES CHARGES Effective Dec. 6, 2005, the Fund entered into an Investment Management Services Agreement with RiverSource Investments, LLC (the Investment Manager) to determine which securities will be purchased, held or sold. Prior to the withdrawal of the Fund's assets from the Portfolio, Growth Trust (the Trust), on behalf of the Portfolio, had an Investment Management Services Agreement with Ameriprise Financial. Prior to Dec. 6, 2005, the investment management fee was assessed at the Portfolio level. The management fee is a percentage of the Fund's average daily net assets that declines from 0.60% to 0.48% annually as the Fund's assets increase. On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. Effective March 1, 2006, the management fee percentage of the Fund's average daily net assets will decline from 0.60% to 0.375% 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. For the period from Aug. 1, 2005 to Dec. 5, 2005, the adjustment increased the fee by $432,349 and for the period from Dec. 6, 2005 to Jan. 31, 2006, the adjustment increased the fee by $53,915. Under the current Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.06% to 0.03% annually as the Fund's assets increase. Prior to Oct. 1, 2005, the fee percentage of the Fund's average daily net assets declined from 0.05% to 0.02% annually as the Fund's assets increased. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the Board. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. Under a separate Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: o Class A $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. - ------------------------------------------------------------------------------ 20 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. 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. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $1,989,873 for Class A, $296,940 for Class B and $1,523 for Class C for the six months ended Jan. 31, 2006. During the period from Aug. 1, 2005 to Dec. 5, 2005, the Portfolio's custodian fees were reduced by $44,884 as a result of earnings credits from overnight cash balances. During the period from Dec. 6, 2005 to Jan. 31, 2006, the Fund's custodian and transfer agency fees were reduced by $27,252 as a result of earnings credits from overnight cash balances. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $1,543,392,466 and $1,352,146,154, respectively, for the period from Aug. 1, 2005 to Dec. 5, 2005 and $1,024,278,115 and $910,743,384, respectively, for the period from Dec. 6, 2005 to Jan. 31, 2006. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
SIX MONTHS ENDED JAN. 31, 2006 CLASS A CLASS B CLASS C CLASS I CLASS Y - --------------------------------------------------------------------------------------------------------- Sold 17,143,440 4,309,383 215,332 1,504,626 854,786 Issued for reinvested distributions 25,726 -- -- 8,083 5,559 Redeemed (8,151,530) (4,754,594) (84,942) (47,636) (1,734,377) - --------------------------------------------------------------------------------------------------------- Net increase (decrease) 9,017,636 (445,211) 130,390 1,465,073 (874,032) - --------------------------------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2005 CLASS A CLASS B CLASS C CLASS I CLASS Y - --------------------------------------------------------------------------------------------------------- Sold 9,267,227 3,475,136 181,331 4,366,146 1,841,710 Issued for reinvested distributions -- -- -- -- -- Redeemed (24,353,716) (8,484,021) (194,446) (44,571) (5,823,100) - --------------------------------------------------------------------------------------------------------- Net increase (decrease) (15,086,489) (5,008,885) (13,115) 4,321,575 (3,981,390) - ---------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------ 21 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT 5. FORWARD FOREIGN CURRENCY CONTRACTS At Jan. 31, 2006, the Fund has forward foreign currency exchange contracts that obligate it to deliver currencies at specified future dates. The unrealized appreciation and/or depreciation on these contracts is included in the accompanying financial statements. See "Summary of significant accounting policies." The terms of the open contracts are as follows:
EXCHANGE DATE CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION - ------------------------------------------------------------------------------------------------- Feb. 1, 2006 1,767,112 999,272 $10,392 $-- U.S. Dollar British Pound Feb. 2, 2006 1,771,517 1,001,196 9,410 -- U.S. Dollar British Pound - ------------------------------------------------------------------------------------------------- Total $19,802 $-- - -------------------------------------------------------------------------------------------------
6. LENDING OF PORTFOLIO SECURITIES At Jan. 31, 2006, securities valued at $42,845,574 were on loan to brokers. For collateral, the Fund received $44,574,000 in cash. Cash collateral received is invested in short-term securities, which are included in the short-term section of the "Investments in securities." Income from securities lending amounted to $84,298 for six months ended Jan. 31, 2006. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 7. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows:
- ------------------------------------------------------------------------------------------- SIX MONTHS ENDED JAN. 31, 2006 CALLS CONTRACTS PREMIUMS - ------------------------------------------------------------------------------------------- Balance July 31, 2005 -- $ -- Opened 2,312 7,215,049 Closed -- -- - ------------------------------------------------------------------------------------------- Balance Jan. 31, 2006 2,312 $7,215,049 - ------------------------------------------------------------------------------------------- See "Summary of significant accounting policies."
8. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 20, 2005. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with The Bank of New York. The Fund had no borrowings outstanding during the six months ended Jan. 31, 2006. - ------------------------------------------------------------------------------ 22 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT 9. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $913,031,953 at July 31, 2005, that if not offset by capital gains will expire as follows: 2010 2011 $544,257,626 $368,774,327 It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. 10. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS 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. 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. - ------------------------------------------------------------------------------ 23 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal or arbitration 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 or arbitration 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. 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. 11. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. CLASS A - --------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(f) 2005 2004 2003 2002 Net asset value, beginning of period $28.34 $23.73 $22.80 $20.88 $29.68 - --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .03 .04 .02 -- (.04) Net gains (losses) (both realized and unrealized) 1.02 4.57 .91 1.92 (8.74) - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.05 4.61 .93 1.92 (8.78) - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.01) -- -- -- -- Distributions from realized gains -- -- -- -- (.02) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.01) -- -- -- (.02) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $29.38 $28.34 $23.73 $22.80 $20.88 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $2,443 $2,101 $2,117 $2,263 $2,213 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.15%(c) 1.19% 1.03% 1.21% .99% - --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .19%(c) .16% .07% --% (.15%) - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 72% 136% 171% 205% 225% - --------------------------------------------------------------------------------------------------------------------------------- Total return(d) 3.70%(e) 19.43% 4.08% 9.20% (29.59%) - ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 24 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT CLASS B - --------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(f) 2005 2004 2003 2002 Net asset value, beginning of period $26.01 $21.95 $21.25 $19.61 $28.11 - --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.08) (.16) (.16) (.17) (.25) Net gains (losses) (both realized and unrealized) .94 4.22 .86 1.81 (8.23) - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .86 4.06 .70 1.64 (8.48) - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Distributions from realized gains -- -- -- -- (.02) Net asset value, end of period $26.87 $26.01 $21.95 $21.25 $19.61 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $585 $578 $598 $775 $845 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.93%(c) 1.97% 1.81% 1.99% 1.77% - --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets (.59%)(c) (.62%) (.71%) (.77%) (.93%) - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 72% 136% 171% 205% 225% - --------------------------------------------------------------------------------------------------------------------------------- Total return(d) 3.31%(e) 18.50% 3.29% 8.36% (30.18%) - ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 25 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT CLASS C - --------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(d) 2005 2004 2003 2002 Net asset value, beginning of period $26.01 $21.95 $21.25 $19.62 $28.12 - --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.08) (.16) (.16) (.17) (.21) Net gains (losses) (both realized and unrealized) .94 4.22 .86 1.80 (8.27) - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .86 4.06 .70 1.63 (8.48) - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Distributions from realized gains -- -- -- -- (.02) Net asset value, end of period $26.87 $26.01 $21.95 $21.25 $19.62 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $19 $15 $13 $12 $7 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.92%(c) 1.97% 1.81% 2.01% 1.80% - --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets (.58%)(c) (.62%) (.71%) (.81%) (.96%) - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 72% 136% 171% 205% 225% - --------------------------------------------------------------------------------------------------------------------------------- Total return(d) 3.31%(e) 18.50% 3.29% 8.31% (30.17%) - ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 26 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT CLASS I - --------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(g) 2005 2004(b) Net asset value, beginning of period $28.93 $24.10 $25.61 - --------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10 .12 .09 Net gains (losses) (both realized and unrealized) 1.04 4.71 (1.60) - --------------------------------------------------------------------------------------------------------------- Total from investment operations 1.14 4.83 (1.51) - --------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) -- -- Net asset value, end of period $30.03 $28.93 $24.10 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $196 $147 $18 - --------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .69%(d) .75% .57%(d) - --------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .65%(d) .55% .43%(d) - --------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 72% 136% 171% - --------------------------------------------------------------------------------------------------------------- Total return(e) 3.94%(f) 20.04% (5.90%)(f) - ---------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date is March 4, 2004. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 27 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT CLASS Y - --------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(f) 2005 2004 2003 2002 Net asset value, beginning of period $28.81 $24.07 $23.09 $21.11 $29.96 - --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06 .09 .07 .04 -- Net gains (losses) (both realized and unrealized) 1.04 4.65 .91 1.94 (8.83) - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.10 4.74 .98 1.98 (8.83) - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) -- -- -- -- Distributions from realized gains -- -- -- -- (.02) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.02) -- -- -- (.02) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $29.89 $28.81 $24.07 $23.09 $21.11 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $289 $304 $350 $398 $481 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .97%(c) 1.02% .86% 1.03% .82% - --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .37%(c) .34% .25% .18% .02% - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 72% 136% 171% 205% 225% - --------------------------------------------------------------------------------------------------------------------------------- Total return(d) 3.80%(e) 19.69% 4.24% 9.38% (29.48%) - ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Jan. 31, 2006 (Unaudited). - ------------------------------------------------------------------------------ 28 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT FUND EXPENSES EXAMPLE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Jan. 31, 2006. 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. - ------------------------------------------------------------------------------ 29 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED AUG. 1, 2005 JAN. 31, 2006 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $1,037.00 $5.97 1.15% Hypothetical (5% return before expenses) $1,000 $1,019.62 $5.92 1.15% Class B Actual(b) $1,000 $1,033.10 $10.00 1.93% Hypothetical (5% return before expenses) $1,000 $1,015.64 $9.91 1.93% Class C Actual(b) $1,000 $1,033.10 $9.95 1.92% Hypothetical (5% return before expenses) $1,000 $1,015.70 $9.86 1.92% Class I Actual(b) $1,000 $1,039.40 $3.59 .69% Hypothetical (5% return before expenses) $1,000 $1,021.96 $3.55 .69% Class Y Actual(b) $1,000 $1,038.00 $5.04 .97% Hypothetical (5% return before expenses) $1,000 $1,020.54 $4.99 .97%
(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 186/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Jan. 31, 2006: +3.70% for Class A, +3.31% for Class B, +3.31% for Class C, +3.94% for Class I and +3.80% for Class Y. - ------------------------------------------------------------------------------ 30 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial, formerly American Express Financial Corporation), serves as the investment manager to the Fund. Under an investment management services agreement (the IMS Agreement), the investment manager provides investment advice and other services to the Fund. Throughout the year, the Fund's Board of Directors (the Board) and the Board's Investment Review and Contracts Committees monitor these services. Ameriprise Financial had served as investment manager to the Fund until Sept. 29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise Financial transferred its rights, title, and interest and its burdens and obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary. Each year, the Board determines whether to continue the IMS Agreement by evaluating the quality and level of services received and the costs associated with those services. To assist the Board in making this determination, the investment manager prepares detailed reports for the Board and its Contracts Committee in March and April and provides data prepared by independent organizations. The Board gives considerable weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the IMS Agreement. BACKGROUND This past year, prior to the Board's annual review process, on Feb. 1, 2005, American Express Company, the former parent of Ameriprise Financial, announced its intention to pursue a spin-off of Ameriprise Financial by distributing shares of the common stock of Ameriprise Financial to shareholders of American Express Company. Following this announcement, the Board determined to proceed with its annual review process and, after thorough review of the reports and data provided, at a meeting held in person on April 14, 2005, the Board, including all of its independent members, determined that the quality and level of advisory services provided pursuant to the IMS Agreement were satisfactory and that fees were fair and reasonable. However, in light of the announced plans of the spin-off, the Board approved continuation of the IMS Agreement with Ameriprise Financial for only an interim period ending on the later of (i) the effective date of the spin-off; or (ii) the approval of a new IMS Agreement with Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in no event for a period longer than one year. During the course of the six-month period following the April 2005 meeting, the Board evaluated whether to approve new investment management services agreements for each of the funds within the Ameriprise Financial fund complex (together, the Funds) with post-spin Ameriprise Financial (or RiverSource). Independent counsel, Schulte Roth & Zabel LLP (Schulte), assisted the Boards in fulfilling their statutory and other responsibilities associated with the spin-off and the resulting consideration of new contracts, including the new IMS Agreement. The Board and its committees were provided with a wealth of written and oral information in this regard. Furthermore, in connection with the Board's considerations as to whether post-spin Ameriprise Financial, as an entity independent from American Express Company, would be capable of continuing to provide a high quality of services to the Funds, - ------------------------------------------------------------------------------ 31 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT the Board's independent members retained their own financial adviser, Credit Suisse First Boston LLC (CSFB), to assist them in analyzing the capital adequacy of post-spin Ameriprise Financial. (The costs of independent counsel and CSFB and of additional meetings of the Boards were borne by Ameriprise Financial as part of the commitment of the American Express Company to ensure a complete and thorough review of the proposed spin-off and its effect on the services provided by Ameriprise Financial and its subsidiaries.) At a meeting of the Board held on Sept. 8, 2005, the Board, including all of its independent members, approved, and recommended that shareholders approve, a proposed new IMS Agreement with RiverSource (the New IMS Agreement). At a meeting of the Fund's shareholders held on Feb. 15, 2006, shareholders approved the New IMS Agreement. The following section, "Board Considerations Related to the New IMS Agreement," provides a detailed discussion of the Board's considerations and determinations respecting the New IMS Agreement. BOARD CONSIDERATIONS RELATED TO THE NEW IMS AGREEMENT In carrying out its legal responsibilities associated with the consideration of the New IMS Agreement, the Board evaluated the following factors: Nature, Extent and Quality of Services to be Provided by Post-Spin Ameriprise Financial (and Its Subsidiaries) The Board recognized that only a few months had passed since its April 2005 conclusion that the nature, extent and quality of services provided by Ameriprise Financial were satisfactory and consistent with those that would be expected for a fund family of the size of the Funds and its determination to renew the IMS Agreement for the interim period. However, the Board also recognized the need to supplement this assessment with an evaluation of whether the spin-off or other factors would result in changes to the advisory services being provided under the current IMS Agreement. The Board focused its evaluation on the following factors potentially impacting the nature, extent and quality of advisory services to be provided by Ameriprise Financial: (i) Ameriprise Financial's projected capital structure and capital adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its ability to retain and attract personnel; and (iv) its ability to successfully re-brand its products and services. Based on extensive presentations and reports by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed capital structure (which includes certain indemnification commitments made by American Express Company) should enable RiverSource to continue to provide a high quality and level of advisory services to the Fund. In making this determination, the Board took into account representations by management of Ameriprise Financial that projected capital levels would allow Ameriprise Financial and RiverSource to meet legal and compliance responsibilities, build their distribution network, pursue technological upgrades, make capital commitments necessary to retain and attract key personnel devoted to legal and compliance responsibilities, portfolio management and distribution, and pursue smaller asset management acquisitions to help grow the asset management business. The Board accorded significant weight to CSFB's confirmation as to the reasonableness of the proposed capital structure. The Board also considered the fact that there were no expected departures of key personnel involved in the portfolio management, operations and marketing of the Funds as a result of the announcement of the spin-off. - ------------------------------------------------------------------------------ 32 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT The Board concluded that, based on all of the materials and information provided, post-spin Ameriprise Financial (including RiverSource) would be in a position to continue to provide a high quality and level of advisory services to the Fund. Investment Performance The Board next focused on investment performance. The Board reviewed reports documenting the Fund's performance over one-, three- and/or five-year periods, as well as the entire period during which its current portfolio manager has managed the Fund, and compared to relevant Lipper and market indices. The Board took into account its determination in April 2005 that investment performance in 2004 exceeded the median. The Board also considered that it had been receiving monthly performance reports for the Fund and that there had been no significant deviations from April's overall performance data. Cost of Services Provided The Board evaluated comparative fees and the costs of services under the current IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise Financial (including RiverSource and other subsidiaries) to institutional clients. The Board studied RiverSource's effort (i.e., its "pricing philosophy") to set substantially all Funds' total expense ratios at or below the median expense ratio of comparable mutual funds (as compiled by Lipper). The Board observed that the proposed advisory fee changes are designed to work in tandem with proposed changes to administrative services fees. It also noted that RiverSource has agreed to voluntarily impose expense caps or waivers to achieve this pricing objective whenever the expense ratio exceeded the median expense ratio by more than three basis points (unless the higher ratio was due to the impact of the performance fee adjustment). The Board considered that advisory fees under the New IMS Agreement would stay the same. The Board also took into account the effect of the proposed performance incentive adjustment on the advisory fee. In this regard, the Board recalled its past determinations regarding the appropriateness of (i) the use of the relevant index for the performance comparison; (ii) the methodology for determining when the Board may change an index used to calculate the performance incentive adjustment; (iii) the periods used for averaging the Fund's assets and computing investment performance; and (iv) the length of the period over which performance is computed. The Board next considered the expected profitability to Ameriprise Financial and RiverSource derived from their relationship with the Fund, recalling the April 2005 determination that the profitability level was appropriate. The Board noted that projected profitability of Ameriprise Financial would allow it to operate effectively and, at the same time, reinvest in RiverSource and its other asset management businesses. The Board also considered that the proposed changes in advisory fees and the mergers of certain other Funds would result in revenue gains to Ameriprise Financial, but that these increases would not materially alter profit margins due to expected increases in costs associated with the spin-off, particularly re-branding and separation. CSFB also reported that Ameriprise Financial's projected level of return on equity was generally reasonable in light of the returns on equity of its industry competitors. In evaluating profitability, the Board also considered the benefits Ameriprise Financial obtains through the use of commission dollars paid on portfolio transactions for the Fund and from other business relationships that result from managing the Fund. The Board also considered - ------------------------------------------------------------------------------ 33 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT the fees charged by Ameriprise Financial (and its subsidiaries) to institutional clients as well as the fees paid to, and charged by, subadvisers, noting the differences in services provided in each case. In light of these considerations, the Board concluded that projected profitability levels were appropriate. Economies of Scale The Board also considered the "breakpoints" in fees that would be triggered as Fund net asset levels grew and the extent to which shareholders would benefit from such growth. The Board observed that the revised fee schedules under the proposed New IMS Agreement would continue to provide breakpoints similar to those in place pursuant to the current IMS Agreement. Accordingly, the Board concluded that the proposed New IMS Agreement provides adequate opportunity for shareholders to realize benefits as Fund assets grow. Other Considerations In addition, the Board accorded weight to the fact that, under the New IMS Agreement, RiverSource Investments is held to a higher standard of care than under the current IMS Agreement. The Board also noted Ameriprise Financial's commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. Furthermore, the Board recognized that it was not limited to considering management's proposed New IMS Agreement. In this regard, the Board evaluated the circumstances under which it would consider the retention of an investment adviser different from RiverSource Investments. The Board concluded, based on its consultation with independent counsel, that pursuing the retention of a different adviser was not necessary, primarily because, in its best judgment, Ameriprise Financial continues to be basically the same organization (from a functional and managerial standpoint), as it was prior to the spin-off. The Board reasoned that shareholders purchased shares of the Fund with an expectation that the current investment advisory organization would be servicing the Fund. PROXY VOTING The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website www.riversource.com/funds; or by searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283; by looking at the website www.riversource.com/funds; or by searching the website of the SEC at www.sec.gov. - ------------------------------------------------------------------------------ 34 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE GROWTH FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. 1. ELECTION OF BOARD MEMBERS KATHLEEN BLATZ Affirmative 2,143,098,460.70 Withhold 76,188,225.76 Abstain 0.00 TOTAL 2,219,286,686.46 ARNE H. CARLSON Affirmative 2,138,590,820.76 Withhold 80,695,865.70 Abstain 0.00 TOTAL 2,219,286,686.46 PATRICIA M. FLYNN Affirmative 2,146,080,363.69 Withhold 73,206,322.77 Abstain 0.00 TOTAL 2,219,286,686.46 ANNE P. JONES Affirmative 2,139,389,255.96 Withhold 79,897,430.50 Abstain 0.00 TOTAL 2,219,286,686.46 JEFFREY LAIKIND Affirmative 2,141,953,366.29 Withhold 77,333,320.17 Abstain 0.00 TOTAL 2,219,286,686.46 - ------------------------------------------------------------------------------ 35 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT STEPHEN R. LEWIS, JR. Affirmative 2,145,348,318.47 Withhold 73,938,367.99 Abstain 0.00 TOTAL 2,219,286,686.46 CATHERINE JAMES PAGLIA Affirmative 2,145,316,875.36 Withhold 73,969,811.10 Abstain 0.00 TOTAL 2,219,286,686.46 VIKKI L. PRYOR Affirmative 2,145,476,244.84 Withhold 73,810,441.62 Abstain 0.00 TOTAL 2,219,286,686.46 ALAN K. SIMPSON Affirmative 2,133,391,453.70 Withhold 85,895,232.76 Abstain 0.00 TOTAL 2,219,286,686.46 ALISON TAUNTON-RIGBY Affirmative 2,145,341,649.29 Withhold 73,945,037.17 Abstain 0.00 TOTAL 2,219,286,686.46 WILLIAM F. TRUSCOTT Affirmative 2,145,374,858.54 Withhold 73,911,827.92 Abstain 0.00 TOTAL 2,219,286,686.46 - ------------------------------------------------------------------------------ 36 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT 2. AMEND THE ARTICLES OF INCORPORATION TO PERMIT THE BOARD TO ESTABLISH THE MINIMUM ACCOUNT VALUE AND TO CHANGE THE NAME OF THE CORPORATION Affirmative 2,087,545,601.35 Against 86,691,378.94 Abstain 44,696,610.03 Broker Non-votes 353,096.14 TOTAL 2,219,286,686.46 3. APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC Affirmative 2,104,849,719.56 Against 66,958,482.92 Abstain 47,125,387.84 Broker Non-votes 353,096.14 TOTAL 2,219,286,686.46 4. APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES A. DIVERSIFICATION Affirmative 2,104,109,336.41 Against 69,517,405.91 Abstain 45,306,848.00 Broker Non-votes 353,096.14 TOTAL 2,219,286,686.46 B. TEN PERCENT LIMITATION IN SINGLE ISSUER Affirmative 2,097,032,700.39 Against 74,003,226.36 Abstain 47,897,663.57 Broker Non-votes 353,096.14 TOTAL 2,219,286,686.46 C. LENDING Affirmative 2,083,343,069.88 Against 88,786,913.24 Abstain 46,803,607.20 Broker Non-votes 353,096.14 TOTAL 2,219,286,686.46 - ------------------------------------------------------------------------------ 37 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT D. BORROWING Affirmative 2,088,616,198.84 Against 85,633,074.22 Abstain 44,684,317.26 Broker Non-votes 353,096.14 TOTAL 2,219,286,686.46 - ------------------------------------------------------------------------------ 38 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT THIS PAGE LEFT BLANK INTENTIONALLY - ------------------------------------------------------------------------------ 39 -- RIVERSOURCE GROWTH FUND -- 2006 SEMIANNUAL REPORT [RIVERSOURCE INVESTMENTS LOGO] RIVERSOURCE INVESTMENTS 200 AMERIPRISE FINANCIAL CENTER MINNEAPOLIS, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. RiverSource Funds are managed by RiverSource Investments, LLC and distributed by Ameriprise Financial Services, Inc., Member NASD. Both companies are part of Ameriprise Financial, Inc. Semiannual Report [RIVERSOURCE(SM) INVESTMENTS LOGO] RIVERSOURCE(SM) LARGE CAP EQUITY FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED JAN. 31, 2006 > RIVERSOURCE LARGE CAP EQUITY FUND (FORMERLY AXP(R) LARGE CAP EQUITY FUND) SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM GROWTH OF CAPITAL. TABLE OF CONTENTS Fund Snapshot..............................3 Performance Summary........................4 Questions & Answers with Portfolio Management................6 Investments in Securities..................9 Financial Statements......................16 Notes to Financial Statements.............19 Fund Expenses Example.....................32 Approval of Investment Management Services Agreement......................34 Proxy Voting..............................37 Results of Meeting of Shareholders........38 [Dalbar Logo] American Express(R) Funds'* reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. * As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the name of the American Express Funds. - ------------------------------------------------------------------------------ 2 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ FUND SNAPSHOT AT JAN. 31, 2006 - ------------------------------------------------------------------ PORTFOLIO MANAGERS < - ------------------------------------------------------------------ PORTFOLIO MANAGERS SINCE YEARS IN INDUSTRY Robert Ewing, CFA 1/05 16 Nick Thakore 1/05 11 - ------------------------------------------------------------------ FUND OBJECTIVE < - ------------------------------------------------------------------ The Fund seeks to provide shareholders with long-term growth of capital. Inception dates by class A: 3/28/02 B: 3/28/02 C: 3/28/02 I: 3/4/04 Y: 3/28/02 Ticker symbols by class A: ALEAX B: ALEBX C: ARQCX I: ALRIX Y: ALEYX Total net assets $1.415 billion Number of holdings 371 - ------------------------------------------------------------------ STYLE MATRIX < - ------------------------------------------------------------------ [photo] Shading within the style matrix indicates areas in which the Fund generally invests. - ------------------------------------------------------------------ SECTOR COMPOSITION* < - ------------------------------------------------------------------ Percentage of portfolio assets [Pie Graph] Financials 18.1% Information Technology 14.3% Health Care 13.8% Consumer Discretionary 11.5% Energy 10.2% Telecommunication Services 9.1% Consumer Staples 8.3% Industrials 8.0% Materials 2.5% Utilities 2.3% Short-Term Securities** 1.9% * 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. ** Of the 1.9%, 0.3% is due to security lending activity and 1.6% is the Fund's cash equivalent position. - ------------------------------------------------------------------ TOP TEN HOLDINGS < - ------------------------------------------------------------------ Percentage of portfolio assets Sprint Nextel (Diversified Telecommunication Services) 4.2% Exxon Mobil (Oil & Gas) 3.4 Pfizer (Pharmaceuticals) 2.9 NTL (Media) 2.4 Bank of America (Commercial Banks) 2.2 American Intl Group (Insurance) 2.2 General Electric (Industrial Conglomerates) 2.1 Cisco Systems (Communications Equipment) 1.9 Altria Group (Tobacco) 1.8 Citigroup (Diversified Financial Services) 1.6 For further detail about these holdings, please refer to the section entitled "Investments in Securities." The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. Fund holdings are subject to change. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 3 - ------------------------------------------------------------------------------ PERFORMANCE SUMMARY [Bar Graph] PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2006 RiverSource Large Cap Equity Fund Class A (excluding sales charge) +3.44% Russell 1000(R) Index(1) (unmanaged) +5.04% S&P 500 Index(2) (unmanaged) +4.68% Lipper Large-Cap Core Funds Index(3) +6.01% The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.riversource.com/funds. (1) The Russell 1000(R) Index, an unmanaged index, measures the performance of the 1,000 largest companies in the Russell 3000(R) Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (2) The Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (3) The Lipper Large-Cap Core Funds Index includes the 30 largest large-cap core funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. 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. - ------------------------------------------------------------------------------ 4 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ PERFORMANCE SUMMARY - ------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < - -------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS Y (INCEPTION DATES) (3/28/02) (3/28/02) (3/28/02) (3/4/04) (3/28/02) AFTER AFTER NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) AT JAN. 31, 2006 6 months* +3.44% -2.51% +3.11% -1.89% +3.10% +2.10% +3.77% +3.66% 1 year +9.47% +3.18% +8.81% +3.81% +8.79% +7.79% +10.20% +9.91% 3 years +13.95% +11.72% +13.05% +11.99% +13.02% +13.02% N/A +14.13% Since inception +3.61% +2.03% +2.81% +2.08% +2.86% +2.86% +6.23% +3.81% AT DEC. 31, 2005 6 months* +4.11% -1.87% +3.59% -1.41% +3.58% +2.58% +4.24% +4.14% 1 year +5.76% -0.31% +5.05% +0.05% +5.04% +4.04% +6.30% +6.21% 3 years +12.50% +10.30% +11.59% +10.51% +11.56% +11.56% N/A +12.68% Since inception +3.13% +1.52% +2.30% +1.55% +2.35% +2.35% +5.24% +3.34% (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to eligible investors only, currently limited to affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. * Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 5 - ------------------------------------------------------------------------------ QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT RiverSource Large Cap Equity Fund's Class A shares advanced 3.44%, excluding sales charge, for the six months ended Jan. 31, 2006. The Fund underperformed its benchmarks, the Russell 1000(R) Index (Russell Index) and the Standard & Poor's 500 Index (S&P 500 Index), which increased 5.04% and 4.68%, respectively. The Fund's peer group, the Lipper Large-Cap Core Funds Index, gained 6.01% during the same time frame. Q: What factors most significantly affected performance for the period? A: Although RiverSource Large Cap Equity Fund advanced during the period, it did not keep pace with the strong market rally. Underperformance relative to the S&P 500 Index resulted from a combination of stock selection and sector allocations. The Fund's positioning in the telecommunications services, consumer staples and industrials sectors had the most significant negative impact on performance, while positioning in the technology, health care and materials sectors was advantageous. In the telecommunications sector, stock selection was a modest negative, but the Fund's overweight position relative to the S&P 500 Index was the primary challenge as the sector lagged the index. Significant individual contributors to performance included Google, Nokia, MEMC Electronic Materials and Guidant. Google has delivered tremendous earnings growth since its initial public offering in 2004. We believe it is still a great growth story with a reasonable valuation, although early in 2006 we anticipated some weakness in short-term earnings. We reduced the portfolio's Google holdings in January before the company announced its fourth quarter 2005 earnings which fell short of analyst expectations and precipitated a sharp decline in the stock's price. Cell phone maker Nokia was also a major contributor, advancing on both improving margins and its recovery of global market share. We believe Nokia continues to have strong fundamentals, good earnings growth potential and an attractive valuation. MEMC Electronic Materials supplies wafers to semiconductor device manufacturers. Because of a tight supply/demand balance for polisilicon, a component of the wafers, we anticipated that the company's earnings growth would be strong and was not reflected in the stock price. Medical instruments company Guidant saw its stock price rise in a bidding war for the company. We owned the stock going into the six-month period and stuck with it during periods of uncertainty. Guidant has agreed to be acquired by Boston Scientific. Individual detractors during the period included not holding Goldman Sachs, which delivered superior earnings growth - ------------------------------------------------------------------------------ 6 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ QUESTIONS & ANSWERS > AT THIS TIME WE SEE VERY LITTLE VALUATION DIFFERENCE BETWEEN TRADITIONAL VALUE AND GROWTH STOCKS, SO WE DON'T HAVE TO PAY TOO MUCH TO EXPOSE THE PORTFOLIO TO GROWTH. during the period. In general, the Fund's positioning among brokerage stocks was disadvantageous. In addition, the Fund's performance was hampered by not owning communications technology stock Qualcomm, which advanced strongly during the period. Although we consider Qualcomm to be a good growth story, we believe its valuation is too high relative to that growth outlook. A lower-than-S&P 500 Index weighting in Burlington Northern, a transportation stock, was also a significant detractor. Burlington Northern benefited from its ability to raise prices as the economic expansion increased demand for railway services. Q: What changes did you make to the portfolio and how is it currently positioned? A: Overall positioning of the portfolio did not change significantly during the period. However, we made changes to some individual stocks. For example, we substantially increased the Fund's holdings of Verizon Communications. Like other wireline telephone companies, Verizon's stock price has been beaten down. However, the company's wireless component has done well and, in our view, has been ignored by the market. We also increased exposure to software developer Adobe Systems which is involved in a merger with Macromedia. In our opinion, Adobe offers a favorable growth outlook based on upcoming product cycles. We reduced the Fund's holdings of commercial services company Cendant because we saw some signs that earnings growth was likely to be disappointing. We also reduced holdings of Spectrum Brands and Telewest Global. Spectrum Brands, a maker of batteries, fertilizers and other consumer products, has had disappointing earnings, partly due to higher raw material costs that the company could not pass on to its customers. Telewest Global had been a play on the U.K. cable market, but now that the company has agreed to merge with NTL, the U.K.'s largest broadband and communication services provider, and given how much the stock price has already risen, we don't see as much future opportunity in Telewest Global. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 7 - ------------------------------------------------------------------------------ QUESTIONS & ANSWERS > WE BELIEVE 2006 IS LIKELY TO BE A TRANSITION YEAR, MOVING FROM A PERIOD OF THE FEDERAL RESERVE RAISING SHORT-TERM INTEREST RATES TO EITHER A PERIOD OF STABILITY OR THE FED POSSIBLY CUTTING SHORT-TERM RATES. We reduced the Fund's position in pharmaceutical firm Johnson & Johnson because its bid for Guidant was unsuccessful and we think without that company, Johnson & Johnson's future growth will be challenged. We also saw better opportunities in Pfizer. Pfizer received a favorable patent ruling on its cholesterol-lowering drug Lipitor. The patent issues had been a risk for the stock. We consider Pfizer's valuation attractive and think there is an opportunity for the company to return to growth. Q: How do you plan to manage the Fund in coming months? A: We have focused on a number of key themes within the portfolio. First we are looking for companies that are less dependent on the economy. With the U.S. fairly far along in the economic cycle, it appears likely that economic and earnings growth could decelerate in 2006. In such an environment, we think it makes sense to be more cautious and to focus on stocks that control their own destiny no matter the state of the economy. Secondly, it seems to us that there are more opportunities in large-cap stocks than there have been in a long time. Compared to small- and mid-cap stocks, large stocks appear inexpensive in terms of the normal relationships between these groups. At this time we see very little valuation difference between traditional value and growth stocks, so we don't have to pay too much to expose the portfolio to growth. For that reason, the portfolio has a bit more emphasis on growth than it typically would but remains solidly in the core space. We believe 2006 is likely to be a transition year, moving from a period of the Federal Reserve raising short-term interest rates to either a period of stability or the Fed possibly cutting short-term rates. If that's the case, 2006 would be a year for even greater attentiveness and caution. - ------------------------------------------------------------------------------ 8 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ INVESTMENTS IN SECURITIES RiverSource Large Cap Equity Fund JAN. 31, 2006 (UNAUDITED) (Percentages represent value of investments compared to net assets) - ------------------------------------------------------------------------------ COMMON STOCKS (97.9%) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) AEROSPACE & DEFENSE (3.1%) Boeing 114,873 $7,846,975 Empresa Brasileira de Aeronautica ADR 30,560(c) 1,242,264 General Dynamics 25,020 2,911,327 Goodrich 105,819 4,166,094 Honeywell Intl 235,514 9,048,448 Lockheed Martin 123,883 8,380,685 Northrop Grumman 72,373 4,496,534 United Technologies 105,663 6,167,549 ------------- Total 44,259,876 - ------------------------------------------------------------------------------ AIR FREIGHT & LOGISTICS (0.1%) United Parcel Service Cl B 19,414 1,454,303 - ------------------------------------------------------------------------------ AUTO COMPONENTS (0.1%) Cooper Tire & Rubber 2,936 44,011 Dana 6,520 31,752 Delphi 22,461 7,244 Goodyear Tire & Rubber 7,257(b) 113,499 Johnson Controls 7,925 548,727 Visteon 5,370(b) 28,193 ------------- Total 773,426 - ------------------------------------------------------------------------------ AUTOMOBILES (0.2%) Ford Motor 76,744 658,464 General Motors 51,577(d) 1,240,942 Harley-Davidson 11,851 634,384 ------------- Total 2,533,790 - ------------------------------------------------------------------------------ BEVERAGES (1.4%) Coca-Cola 106,918 4,424,267 PepsiCo 276,868 15,831,312 ------------- Total 20,255,579 - ------------------------------------------------------------------------------ BIOTECHNOLOGY (1.7%) Amgen 168,440(b) 12,277,591 Biogen Idec 118,967(b) 5,323,773 Genentech 50,531(b) 4,341,624 Gilead Sciences 35,433(b) 2,156,807 ------------- Total 24,099,795 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) BUILDING PRODUCTS (0.2%) American Standard Companies 24,767 $891,612 Masco 64,716 1,918,829 ------------- Total 2,810,441 - ------------------------------------------------------------------------------ CAPITAL MARKETS (2.4%) Bank of New York 157,241 5,001,836 Charles Schwab 68,541 1,013,721 Franklin Resources 34,868 3,434,498 Investors Financial Services 23,421 1,099,382 Legg Mason 2,402 311,539 Lehman Brothers Holdings 54,695 7,681,913 Merrill Lynch & Co 50,445 3,786,906 Morgan Stanley 157,816 9,697,793 State Street 41,784 2,526,261 ------------- Total 34,553,849 - ------------------------------------------------------------------------------ CHEMICALS (1.1%) Air Products & Chemicals 9,266 571,620 Bayer 32,329(c) 1,350,155 Dow Chemical 137,141 5,801,064 Eastman Chemical 21,900 1,055,799 Ecolab 9,188 329,022 EI du Pont de Nemours & Co 39,913 1,562,594 Engelhard 4,998 201,419 Hercules 4,787(b) 56,056 Intl Flavors & Fragrances 3,827 126,138 Lyondell Chemical 46,670 1,120,547 Monsanto 10,846 917,680 PPG Inds 7,044 419,118 Praxair 12,640 665,875 Rohm & Haas 7,914 402,823 RPM Intl 27,513 519,996 Sigma-Aldrich 2,923 189,644 ------------- Total 15,289,550 - ------------------------------------------------------------------------------ COMMERCIAL BANKS (4.8%) Bank of America 705,932 31,223,373 Commerce Bancorp 67,035(d) 2,241,650 ICICI Bank ADR 21,640(c) 679,929 PNC Financial Services Group 92,624 6,007,593 US Bancorp 143,773 4,300,250 See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 9 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) COMMERCIAL BANKS (CONT.) Wachovia 148,803 $8,158,868 Wells Fargo & Co 240,560 15,001,322 ------------- Total 67,612,985 - ------------------------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES (0.6%) Allied Waste Inds 11,005(b) 100,035 Apollo Group Cl A 6,698(b) 372,878 Avery Dennison 16,621 992,939 Cendant 293,107 4,906,612 Cintas 6,179 263,225 Monster Worldwide 4,750(b) 202,635 Pitney Bowes 9,811 419,322 Robert Half Intl 6,711 245,153 RR Donnelley & Sons 8,909 290,433 Waste Management 24,511 774,057 ------------- Total 8,567,289 - ------------------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT (3.1%) CBS Cl B 76,113 1,988,833 Cisco Systems 1,462,211(b) 27,153,258 Corning 67,453(b) 1,642,481 Nokia ADR 615,246(c) 11,308,221 Scientific-Atlanta 44,201 1,890,035 ------------- Total 43,982,828 - ------------------------------------------------------------------------------ COMPUTERS & PERIPHERALS (2.9%) Dell 421,479(b) 12,353,549 EMC 431,278(b) 5,779,125 Hewlett-Packard 372,244 11,606,568 Intl Business Machines 139,562 11,346,391 ------------- Total 41,085,633 - ------------------------------------------------------------------------------ CONSTRUCTION & ENGINEERING (--%) Fluor 3,479 305,978 - ------------------------------------------------------------------------------ CONSTRUCTION MATERIALS (--%) Vulcan Materials 4,116 295,858 - ------------------------------------------------------------------------------ CONSUMER FINANCE (1.2%) American Express 137,909 7,233,327 Capital One Financial 91,374 7,611,454 SLM 48,479 2,712,885 ------------- Total 17,557,666 - ------------------------------------------------------------------------------ CONTAINERS & PACKAGING (0.3%) Ball 4,593 186,017 Bemis 4,606 140,575 Pactiv 6,209(b) 138,088 Sealed Air 3,373(b) 186,426 Temple-Inland 62,712 2,941,192 ------------- Total 3,592,298 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) DISTRIBUTORS (--%) Genuine Parts 7,183 $305,493 - ------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES (2.6%) Citigroup 497,549 23,175,832 Consumer Discretionary Select Sector SPDR Fund 7,605 252,714 Industrial Select Sector SPDR Fund 23,072 727,922 iShares Dow Jones US Healthcare Sector Index Fund 1 64 JPMorgan Chase & Co 306,926 12,200,309 Materials Select Sector SPDR Trust 22,939 728,084 ------------- Total 37,084,925 - ------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES (6.5%) ALLTEL 45,816 2,750,334 AT&T 263,129 6,828,198 BellSouth 198,621 5,714,326 Chunghwa Telecom ADR 71,264(c) 1,326,936 Citizens Communications 39,408 483,536 Philippine Long Distance Telephone ADR 27,081(c) 969,229 Qwest Communications Intl 271,993(b) 1,637,398 Sprint Nextel 2,603,562 59,595,534 Telewest Global 33,653(b,c) 784,115 Verizon Communications 380,604 12,049,923 ------------- Total 92,139,529 - ------------------------------------------------------------------------------ ELECTRIC UTILITIES (1.6%) Allegheny Energy 6,495(b) 225,961 Ameren 8,427 427,755 American Electric Power 16,335 609,622 CenterPoint Energy 12,135 155,085 Cinergy 8,671 376,755 Consolidated Edison 10,162 477,716 DTE Energy 7,560 319,032 Edison Intl 13,514 592,183 Entergy 44,895 3,120,651 Exelon 101,256 5,814,119 FirstEnergy 14,062 704,506 FPL Group 30,369 1,269,121 PG&E 15,282 570,171 Pinnacle West Capital 4,195 178,749 PPL 61,397 1,849,892 Progress Energy 10,425 454,739 Southern 107,317 3,734,632 See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 10 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) ELECTRIC UTILITIES (CONT.) TECO Energy 8,916 $152,285 TXU 18,922 958,210 Xcel Energy 66,455 1,290,556 ------------- Total 23,281,740 - ------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT (0.2%) American Power Conversion 7,583 179,717 Cooper Inds Cl A 4,080 333,132 Emerson Electric 17,319 1,341,357 Rockwell Automation 7,643 504,973 ------------- Total 2,359,179 - ------------------------------------------------------------------------------ ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%) Flextronics Intl 129,141(b,c) 1,350,815 - ------------------------------------------------------------------------------ ENERGY EQUIPMENT & SERVICES (1.9%) Baker Hughes 13,915 1,077,578 BJ Services 13,691 554,349 Cooper Cameron 32,284(b) 1,562,223 Halliburton 124,780 9,926,248 Nabors Inds 6,191(b,c) 503,019 Natl Oilwell Varco 6,729(b) 511,875 Noble 5,448 438,237 Rowan Companies 4,334 194,293 Schlumberger 42,820 5,457,409 TODCO Cl A 5,745 256,227 Transocean 53,396(b) 4,333,085 Weatherford Intl 61,293(b) 2,744,701 ------------- Total 27,559,244 - ------------------------------------------------------------------------------ FOOD & STAPLES RETAILING (1.4%) CVS 55,298 1,535,072 Safeway 348,991 8,180,349 Wal-Mart Stores 230,151 10,612,263 ------------- Total 20,327,684 - ------------------------------------------------------------------------------ FOOD PRODUCTS (1.3%) Cadbury Schweppes 296,568(c) 2,911,993 Campbell Soup 65,997 1,975,290 General Mills 52,625 2,558,101 Kellogg 240,939 10,336,283 ------------- Total 17,781,667 - ------------------------------------------------------------------------------ GAS UTILITIES (0.1%) KeySpan 7,330 263,294 Nicor 1,843 75,379 NiSource 11,703 240,263 ONEOK 49,021 1,385,332 Peoples Energy 1,717 63,907 ------------- Total 2,028,175 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) HEALTH CARE EQUIPMENT & SUPPLIES (2.0%) Alcon 7,339(c) $938,805 Baxter Intl 330,294 12,171,334 Boston Scientific 138,610(b) 3,031,401 Guidant 124,172 9,139,059 Hospira 17,131(b) 766,612 PerkinElmer 94,987 2,160,004 ------------- Total 28,207,215 - ------------------------------------------------------------------------------ HEALTH CARE PROVIDERS & SERVICES (3.0%) Cardinal Health 166,448 11,990,914 Caremark Rx 7,961(b) 392,477 HCA 153,512 7,534,369 HealthSouth 332,755(b) 1,598,888 IMS Health 11,332 278,767 Magellan Health Services 38,468(b) 1,403,313 McKesson 16,436 871,108 Medco Health Solutions 86,812(b) 4,696,529 UnitedHealth Group 191,004 11,349,458 Universal Health Services Cl B 12,957 615,587 WellPoint 27,893(b) 2,142,182 ------------- Total 42,873,592 - ------------------------------------------------------------------------------ HOTELS, RESTAURANTS & LEISURE (0.6%) Carnival Unit 22,239 1,151,091 Harrah's Entertainment 10,413 766,397 Kerzner Intl 19,926(b,c) 1,299,972 Marriott Intl Cl A 19,193 1,279,022 McDonald's 105,215 3,683,577 Orient-Express Hotels Cl A 7,780(c) 251,138 ------------- Total 8,431,197 - ------------------------------------------------------------------------------ HOUSEHOLD DURABLES (0.4%) Centex 5,374 383,650 DR Horton 10,964 409,176 Fortune Brands 6,360 476,746 Harman Intl Inds 9,497 1,044,670 KB HOME 3,490 265,938 Leggett & Platt 7,902 194,547 Maytag 3,315 57,084 Pulte Homes 9,627 384,117 Snap-On 2,297 92,179 Sony 51,299(c) 2,492,791 Stanley Works 3,145 154,231 Whirlpool 2,803 226,146 ------------- Total 6,181,275 - ------------------------------------------------------------------------------ See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 11 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) HOUSEHOLD PRODUCTS (2.4%) Colgate-Palmolive 74,139 $4,069,490 Procter & Gamble 378,813 22,437,094 Spectrum Brands 389,873(b) 7,372,498 ------------- Total 33,879,082 - ------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES (2.7%) General Electric 884,438 28,965,344 Tyco Intl 349,159(c) 9,095,592 ------------- Total 38,060,936 - ------------------------------------------------------------------------------ INSURANCE (4.3%) ACE 163,659(c) 8,960,330 American Intl Group 466,201 30,517,517 Aon 101,136 3,460,874 Arch Capital Group 39,498(b,c) 2,146,321 Aspen Insurance Holdings 195,366(c) 4,528,584 Chubb 39,613 3,737,487 Endurance Specialty Holdings 22,567(c) 743,131 Hartford Financial Services Group 49,755 4,091,354 Max Re Capital 67,551(c) 1,790,777 Prudential Financial 15,900 1,197,906 ------------- Total 61,174,281 - ------------------------------------------------------------------------------ INTERNET & CATALOG RETAIL (0.2%) eBay 68,089(b) 2,934,636 - ------------------------------------------------------------------------------ INTERNET SOFTWARE & SERVICES (1.1%) Google Cl A 31,332(b,g) 13,574,589 Yahoo! 54,433(b) 1,869,229 ------------- Total 15,443,818 - ------------------------------------------------------------------------------ IT SERVICES (0.9%) Accenture Cl A 15,280(c) 481,778 Affiliated Computer Services Cl A 59,304(b) 3,712,430 Automatic Data Processing 36,364 1,597,834 Cognizant Technology Solutions Cl A 5,970(b) 312,649 Computer Sciences 16,298(b) 826,309 First Data 110,786 4,996,448 Ness Technologies 16,270(b,c) 188,407 Patni Computer Systems ADR 14,658(b,c) 339,333 Paychex 7,668 278,732 ------------- Total 12,733,920 - ------------------------------------------------------------------------------ LEISURE EQUIPMENT & PRODUCTS (--%) Mattel 25,751 424,892 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) MACHINERY (1.0%) Caterpillar 83,318 $5,657,291 Cummins 1,801 175,237 Danaher 11,496 651,133 Deere & Co 26,643 1,911,902 Dover 8,805 404,414 Eaton 6,343 419,907 Illinois Tool Works 22,134 1,865,675 Ingersoll-Rand Cl A 37,973(c) 1,491,200 ITT Inds 6,566 673,015 Navistar Intl 2,830(b) 76,976 PACCAR 7,243 504,113 Pall 5,404 155,635 ------------- Total 13,986,498 - ------------------------------------------------------------------------------ MEDIA (7.6%) Clear Channel Communications 57,198 1,674,185 Clear Channel Outdoor Holdings Cl A 22,763(b) 454,122 Comcast Cl A 387,667(b) 10,784,896 Comcast Special Cl A 161,374(b) 4,473,287 EchoStar Communications Cl A 14,773(b) 407,735 Liberty Global Cl A 294,728(b) 6,307,179 Liberty Global Series C 149,020(b) 3,013,184 Liberty Media Cl A 543,528(b) 4,543,894 News Corp Cl A 670,018 10,559,484 NTL 539,433(b) 34,119,138 Time Warner 507,212 8,891,426 Viacom Cl B 132,628(b) 5,501,409 Vivendi Universal ADR 391,083(c) 12,244,809 Walt Disney 118,735 3,005,183 WorldSpace Cl A 42,090(b) 534,543 ------------- Total 106,514,474 - ------------------------------------------------------------------------------ METALS & MINING (0.8%) Alcan 37,441(c) 1,826,746 Alcoa 54,004 1,701,126 Allegheny Technologies 3,525 182,771 Coeur d'Alene Mines 392,816(b) 2,034,787 Freeport-McMoRan Copper & Gold Cl B 7,135 458,424 Newmont Mining 65,305 4,035,849 Nucor 5,999 505,296 ------------- Total 10,744,999 - ------------------------------------------------------------------------------ See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 12 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) MULTILINE RETAIL (1.1%) Dollar General 15,020 $253,838 Federated Dept Stores 44,481 2,963,769 JC Penney 91,293 5,094,149 Kohl's 56,084(b) 2,489,569 Target 95,509 5,229,118 ------------- Total 16,030,443 - ------------------------------------------------------------------------------ MULTI-UTILITIES & UNREGULATED POWER (0.5%) AES 26,912(b) 458,580 Calpine 19,940(b) 4,427 CMS Energy 9,085(b) 131,460 Constellation Energy Group 7,328 427,003 Dominion Resources 57,831 4,367,975 Duke Energy 38,987 1,105,281 Dynegy Cl A 15,714(b) 86,427 Public Service Enterprise Group 9,719 676,637 Sempra Energy 9,775 469,689 ------------- Total 7,727,479 - ------------------------------------------------------------------------------ OFFICE ELECTRONICS (0.1%) Xerox 65,591(b) 938,607 - ------------------------------------------------------------------------------ OIL & GAS (8.3%) Amerada Hess 11,258 1,742,738 Anadarko Petroleum 73,776 7,954,528 Apache 13,922 1,051,529 Ashland 2,775 182,928 BP ADR 42,958(c) 3,106,293 Burlington Resources 15,812 1,443,003 Chevron 244,907 14,542,578 ConocoPhillips 229,947 14,877,571 Devon Energy 76,277 5,202,854 El Paso 26,657 358,803 EOG Resources 10,222 864,168 Exxon Mobil 774,751 48,615,625 Kerr-McGee 4,737 522,917 Kinder Morgan 4,338 417,533 Marathon Oil 40,535 3,115,925 Newfield Exploration 27,849(b) 1,459,288 Occidental Petroleum 16,787 1,640,258 Royal Dutch Shell ADR Series A 21,936(c) 1,494,061 Sunoco 5,383 512,462 Ultra Petroleum 26,654(b) 1,833,529 Valero Energy 59,733 3,729,131 Williams Companies 23,257 554,447 XTO Energy 14,886 730,605 ------------- Total 115,952,774 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) PAPER & FOREST PRODUCTS (0.4%) Bowater 29,058 $794,446 Intl Paper 64,631 2,108,910 Louisiana-Pacific 4,628 136,295 MeadWestvaco 7,946 212,079 Weyerhaeuser 34,521 2,408,184 ------------- Total 5,659,914 - ------------------------------------------------------------------------------ PHARMACEUTICALS (7.1%) Abbott Laboratories 9,700 418,555 AstraZeneca 58,165(c) 2,816,286 Bristol-Myers Squibb 203,132 4,629,378 Eli Lilly & Co 53,275 3,016,431 GlaxoSmithKline ADR 42,576(c) 2,181,594 Johnson & Johnson 141,531 8,143,694 Merck & Co 140,328 4,841,316 Novartis ADR 126,886(c) 6,999,032 Pfizer 1,607,502 41,280,651 Roche Holding 32,211(c) 5,090,457 Schering-Plough 368,508 7,056,928 Teva Pharmaceutical Inds ADR 104,889(c) 4,471,418 Wyeth 189,310 8,755,588 ------------- Total 99,701,328 - ------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUST (0.3%) Apartment Investment & Management Cl A 16,792 713,996 Equity Office Properties Trust 44,889 1,428,368 HomeBanc 168,737 1,405,579 ------------- Total 3,547,943 - ------------------------------------------------------------------------------ ROAD & RAIL (0.1%) Norfolk Southern 22,923 1,142,482 - ------------------------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (2.6%) Analog Devices 93,163 3,705,093 Applied Materials 98,355 1,873,663 Atmel 16,608(b) 65,602 Broadcom Cl A 18,153(b) 1,238,035 Credence Systems 32,139(b) 281,216 Cypress Semiconductor 75,969(b) 1,286,155 Freescale Semiconductor Cl A 174,623(b) 4,393,515 Freescale Semiconductor Cl B 87,473(b) 2,208,693 Infineon Technologies ADR 29,900(b,c) 281,957 Integrated Device Technology 114,983(b) 1,597,114 Intel 486,530 10,348,492 Linear Technology 47,717 1,775,550 Maxim Integrated Products 9,251 379,661 MEMC Electronic Materials 83,201(b) 2,377,885 - ------------------------------------------------------------------------------ See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 13 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONT.) PMC-Sierra 48,521(b) $459,009 Texas Instruments 170,578 4,985,994 ------------- Total 37,257,634 - ------------------------------------------------------------------------------ SOFTWARE (3.4%) Adobe Systems 143,663 5,706,294 Cadence Design Systems 118,855(b) 2,098,979 Computer Associates Intl 62,019 1,693,119 Compuware 226,944(b) 1,870,019 Mercury Interactive 69,905(b) 2,429,199 Microsoft 820,628 23,100,678 Oracle 602,516(b) 7,573,626 Symantec 150,331(b) 2,763,084 TIBCO Software 143,204(b) 1,144,200 ------------- Total 48,379,198 - ------------------------------------------------------------------------------ SPECIALTY RETAIL (0.9%) AutoNation 9,188(b) 204,801 AutoZone 2,726(b) 266,467 Best Buy 42,439 2,149,960 Home Depot 134,800 5,466,139 Lowe's Companies 31,680 2,013,264 Office Depot 12,853(b) 426,077 OfficeMax 3,142 89,767 RadioShack 5,675 125,985 Sherwin-Williams 5,151 272,488 Staples 30,458 722,159 Urban Outfitters 27,452(b) 749,714 ------------- Total 12,486,821 - ------------------------------------------------------------------------------ TEXTILES, APPAREL & LUXURY GOODS (0.3%) Jones Apparel Group 5,401 168,943 Liz Claiborne 4,525 157,108 Nike Cl B 51,659 4,181,796 Reebok Intl 2,265 133,612 VF 4,139 229,632 ------------- Total 4,871,091 - ------------------------------------------------------------------------------ THRIFTS & MORTGAGE FINANCE (2.5%) Countrywide Financial 335,027 11,203,303 Fannie Mae 249,799 14,473,355 Freddie Mac 117,769 7,991,804 Washington Mutual 23,776 1,006,200 ------------- Total 34,674,662 - ------------------------------------------------------------------------------ TOBACCO (1.8%) Altria Group 347,639 25,148,205 - ------------------------------------------------------------------------------ TRADING COMPANIES & DISTRIBUTORS (--%) WW Grainger 3,569 253,149 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------ ISSUER SHARES VALUE(a) WIRELESS TELECOMMUNICATION SERVICES (2.6%) Centennial Communications 35,271 $332,606 Hutchison Telecommunications Intl ADR 136,478(b,c) 3,418,774 Motient 47,945(b,d) 999,653 NeuStar Cl A 150,434(b) 4,364,090 O2 757,644(c) 2,695,393 Orascom Telecom Holding GDR 126,714(c) 8,388,467 Partner Communications ADR 13,686(c) 109,077 Vodafone Group 6,398,230(c) 13,429,777 Vodafone Group ADR 142,647(c) 3,011,278 ------------- Total 36,749,115 - ------------------------------------------------------------------------------ TOTAL COMMON STOCKS (Cost: $1,305,110,273) $1,385,361,255 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ OPTIONS PURCHASED (--%) - ------------------------------------------------------------------------------ ISSUER CONTRACTS EXERCISE EXPIRATION VALUE(a) PRICE DATE PUTS Google Cl A 56 $430 Feb. 2006 $130,480 - ------------------------------------------------------------------------------ TOTAL OPTIONS PURCHASED (Cost: $113,760) $130,480 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SHORT-TERM SECURITIES (1.9%)(e) - ------------------------------------------------------------------------------ ISSUER EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY COMMERCIAL PAPER Alpine Securitization 02-01-06 4.48% $6,400,000(f) $6,399,204 Barton Capital 02-01-06 4.48 9,400,000(f) 9,398,830 Dexia Delaware LLC 02-06-06 4.31 10,000,000 9,992,816 Windmill Funding 02-01-06 4.48 1,200,000(f) 1,199,851 - ------------------------------------------------------------------------------ TOTAL SHORT-TERM SECURITIES (Cost: $26,994,013) $26,990,701 - ------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $1,332,218,046)(h) $1,412,482,436 ============================================================================== See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 14 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ NOTES TO INVESTMENTS IN SECURITIES - ------------------------------------------------------------------------------ (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At Jan. 31, 2006, the value of foreign securities represented 9.1% of net assets. (d) At Jan. 31, 2006, security was partially or fully on loan. See Note 6 to the financial statements. (e) Cash collateral received from security lending activity is invested in short-term securities and represents 0.3% of net assets. See Note 6 to the financial statements. 1.6% of net assets is the Fund's cash equivalent position. (f) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Jan. 31, 2006, the value of these securities amounted to $16,997,885 or 1.2% of net assets. (g) At Jan. 31, 2006, securities valued at $13,560,725 were held to cover open call options written as follows (see Note 7 to the financial statements): ISSUER CONTRACTS EXERCISE EXPIRATION VALUE(a) PRICE DATE ------------------------------------------------------------------------ Google Cl A 313 $460 Feb. 2006 $497,670 (h) At Jan. 31, 2006, the cost of securities for federal income tax purposes was approximately $1,332,218,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $111,956,000 Unrealized depreciation (31,692,000) ------------------------------------------------------------------------- Net unrealized appreciation $ 80,264,000 ------------------------------------------------------------------------- The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.riversource.com/funds. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 15 - ------------------------------------------------------------------------------ FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES RiverSource Large Cap Equity Fund
JAN. 31, 2006 (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------------------------------- Investments in securities, at value (Note 1)* (identified cost $1,332,218,046) $1,412,482,436 Cash in bank on demand deposit 1,131,286 Foreign currency holdings (identified cost $4,729) (Note 1) 4,737 Capital shares receivable 97,901 Dividends and accrued interest receivable 875,480 Receivable for investment securities sold 31,919,450 Unrealized appreciation on foreign currency contracts held, at value (Note 5) 2,408 - ---------------------------------------------------------------------------------------------------------------- Total assets 1,446,513,698 - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- LIABILITIES - ---------------------------------------------------------------------------------------------------------------- Capital shares payable 205,282 Payable for investment securities purchased 26,273,118 Unrealized depreciation on foreign currency contracts held, at value (Note 5) 804 Payable upon return of securities loaned (Note 6) 4,030,000 Accrued investment management services fee 23,114 Accrued distribution fee 17,139 Accrued service fee 1 Accrued transfer agency fee 4,999 Accrued administrative services fee 2,156 Other accrued expenses 292,231 Options contracts written, at value (premiums received $975,964) (Note 7) 497,670 - ---------------------------------------------------------------------------------------------------------------- Total liabilities 31,346,514 - ---------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $1,415,167,184 ================================================================================================================ - ---------------------------------------------------------------------------------------------------------------- REPRESENTED BY - ---------------------------------------------------------------------------------------------------------------- Capital stock -- $.01 par value (Note 1) $ 2,622,914 Additional paid-in capital 2,250,080,361 Undistributed net investment income 3,451,655 Accumulated net realized gain (loss) (Note 9) (921,731,077) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 5) 80,743,331 - ---------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $1,415,167,184 ================================================================================================================ Net assets applicable to outstanding shares: Class A $1,019,117,424 Class B $ 358,045,462 Class C $ 8,872,445 Class I $ 28,884,072 Class Y $ 247,781 Net asset value per share of outstanding capital stock: Class A shares 187,879,437 $ 5.42 Class B shares 67,414,823 $ 5.31 Class C shares 1,667,598 $ 5.32 Class I shares 5,284,307 $ 5.47 Class Y shares 45,259 $ 5.47 - ---------------------------------------------------------------------------------------------------------------- * Including securities on loan, at value (Note 6) $ 3,953,950 - ---------------------------------------------------------------------------------------------------------------- See accompanying notes to financial statements.
- ------------------------------------------------------------------------------ 16 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ STATEMENT OF OPERATIONS RiverSource Large Cap Equity Fund
SIX MONTHS ENDED JAN. 31, 2006 (UNAUDITED) - ------------------------------------------------------------------------------------------- INVESTMENT INCOME - ------------------------------------------------------------------------------------------- Income: Dividends $ 13,640,675 Interest 483,398 Fee income from securities lending (Note 6) 75,020 Less foreign taxes withheld (79,413) - ------------------------------------------------------------------------------------------- Total income 14,119,680 - ------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 4,653,265 Distribution fee Class A 1,308,139 Class B 1,927,400 Class C 45,392 Transfer agency fee 1,634,311 Incremental transfer agency fee Class A 113,166 Class B 78,544 Class C 1,709 Service fee -- Class Y 123 Administrative services fees and expenses 422,844 Compensation of board members 9,017 Custodian fees 150,450 Printing and postage 265,000 Registration fees 64,410 Audit fees 15,000 Other 30,355 - ------------------------------------------------------------------------------------------- Total expenses 10,719,125 Earnings credits on cash balances (Note 2) (44,702) - ------------------------------------------------------------------------------------------- Total net expenses 10,674,423 - ------------------------------------------------------------------------------------------- Investment income (loss) -- net 3,445,257 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET - ------------------------------------------------------------------------------------------- Net realized gain (loss) on: Security transactions (Note 3) 60,254,449 Foreign currency transactions (50,196) Options contracts written (Note 7) 5,894 - ------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 60,210,147 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (17,180,915) - ------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 43,029,232 - ------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 46,474,489 =========================================================================================== See accompanying notes to financial statements.
- ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 17 - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS RiverSource Large Cap Equity Fund
JAN. 31, 2006 JULY 31, 2005 SIX MONTHS ENDED YEAR ENDED (UNAUDITED) - ------------------------------------------------------------------------------------------------------------- OPERATIONS AND DISTRIBUTIONS - ------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net $ 3,445,257 $ 9,555,645 Net realized gain (loss) on investments 60,210,147 81,295,185 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (17,180,915) 128,747,672 - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 46,474,489 219,598,502 - ------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (3,948,834) (5,100,612) Class I (398,217) (205,016) Class Y (152) (42,646) Net realized gain Class A -- (1,579,848) Class B -- (746,323) Class C -- (14,219) Class I -- (38,374) Class Y -- (10,290) - ------------------------------------------------------------------------------------------------------------- Total distributions (4,347,203) (7,737,328) - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) - ------------------------------------------------------------------------------------------------------------- Proceeds from sales Class A shares (Note 2) 134,401,933 72,128,244 Class B shares 16,210,542 33,166,584 Class C shares 921,120 1,679,423 Class I shares 10,963,896 35,280,636 Class Y shares 47,452 569,613 Reinvestment of distributions at net asset value Class A shares 3,870,858 6,565,939 Class B shares -- 737,490 Class C shares -- 13,859 Class I shares 398,180 243,352 Class Y shares 145 52,860 Payments for redemptions Class A shares (180,354,301) (438,987,389) Class B shares (Note 2) (139,457,817) (197,466,065) Class C shares (Note 2) (1,600,311) (4,548,807) Class I shares (26,421,105) (11,054,445) Class Y shares (17,141) (8,498,540) - ------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (181,036,549) (510,117,246) - ------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (138,909,263) (298,256,072) Net assets at beginning of period 1,554,076,447 1,852,332,519 - ------------------------------------------------------------------------------------------------------------- Net assets at end of period $1,415,167,184 $1,554,076,447 ============================================================================================================= Undistributed net investment income $ 3,451,655 $ 4,353,601 - ------------------------------------------------------------------------------------------------------------- See accompanying notes to financial statements.
- ------------------------------------------------------------------------------ 18 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS RiverSource Large Cap Equity Fund (formerly AXP Large Cap Equity Fund) (Unaudited as to Jan. 31, 2006) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board. The Fund invests primarily in equity securities of companies with a market capitalization greater than $5 billion at the time of purchase. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. The Fund offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. At Jan. 31, 2006, Ameriprise Financial, Inc. (Ameriprise Financial) and the RiverSource Portfolio Builder Funds owned 100% of Class I shares, which represents 2.04% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 19 - ------------------------------------------------------------------------------ VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Directors of the funds, Ameriprise Financial utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair net asset value. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. - ------------------------------------------------------------------------------ 20 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. FOREIGN CURRENCY TRANSLATIONS AND FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. At Jan. 31, 2006, foreign currency holdings were entirely comprised of European monetary unit. The Fund may enter into forward foreign currency exchange contracts for operational purposes. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with 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. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 21 - ------------------------------------------------------------------------------ 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. Prior to Oct. 1, 2005, investment management services were provided by Ameriprise Financial. The management fee is a percentage of the Fund's average daily net assets that declines from 0.60% to 0.48% annually as the Fund's assets increase. On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. Effective March 1, 2006, the management fee percentage of the Fund's average daily net assets will decline from 0.60% to 0.375% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment increased the fee by $250,306 for the six months ended Jan. 31, 2006. Under the current Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.06% to 0.03% annually as the Fund's assets increase. Prior to Oct. 1, 2005, the fee percentage of the Fund's average daily net assets declined from 0.05% to 0.02% annually as the Fund's assets increased. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the Board. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. - ------------------------------------------------------------------------------ 22 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ Under a separate 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: o Class A $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. 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. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $451,900 for Class A, $186,476 for Class B and $605 for Class C for the six months ended Jan. 31, 2006. During the six months ended Jan. 31, 2006, the Fund's custodian and transfer agency fees were reduced by $44,702 as a result of earnings credits from overnight cash balances. The Fund also pays custodian fees to Ameriprise Trust Company, an affiliate of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $764,641,245 and $925,619,352, respectively, for the six months ended Jan. 31, 2006. Realized gains and losses are determined on an identified cost basis. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 23 - ------------------------------------------------------------------------------ 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
SIX MONTHS ENDED JAN. 31, 2006 CLASS A CLASS B CLASS C CLASS I CLASS Y - ------------------------------------------------------------------------------------------------------------ Sold 25,655,905 3,137,376 178,029 2,076,561 8,971 Issued for reinvested distributions 722,175 -- -- 73,737 27 Redeemed (34,322,693) (27,339,038) (309,730) (4,892,667) (3,181) - ------------------------------------------------------------------------------------------------------------ Net increase (decrease) (7,944,613) (24,201,662) (131,701) (2,742,369) 5,817 - ------------------------------------------------------------------------------------------------------------ YEAR ENDED JULY 31, 2005 CLASS A CLASS B CLASS C CLASS I CLASS Y - ------------------------------------------------------------------------------------------------------------ Sold 14,871,934 6,952,759 351,747 7,088,316 117,456 Issued for reinvested distributions 1,331,830 152,060 2,852 49,063 10,679 Redeemed (89,223,978) (40,853,895) (942,228) (2,204,982) (1,698,241) - ------------------------------------------------------------------------------------------------------------ Net increase (decrease) (73,020,214) (33,749,076) (587,629) 4,932,397 (1,570,106) - ------------------------------------------------------------------------------------------------------------
5. FORWARD FOREIGN CURRENCY CONTRACTS At Jan. 31, 2006, the Fund has forward foreign currency exchange contracts that obligate it to deliver currencies at specified future dates. The unrealized appreciation and/or depreciation on these contracts is included in the accompanying financial statements. See "Summary of significant accounting policies." The terms of the open contracts are as follows:
EXCHANGE DATE CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION - ------------------------------------------------------------------------------------------------------- Feb. 1, 2006 212,730 120,295 $1,251 $ -- U.S. Dollar British Pound Feb. 2, 2006 112,439 87,292 -- 675 Swiss Franc U.S. Dollar Feb. 2, 2006 9,058 15,983 -- 129 British Pound U.S. Dollar Feb. 2, 2006 217,878 123,137 1,157 -- U.S. Dollar British Pound - ------------------------------------------------------------------------------------------------------- Total $2,408 $804 - -------------------------------------------------------------------------------------------------------
6. LENDING OF PORTFOLIO SECURITIES At Jan. 31, 2006, securities valued at $3,953,950 were on loan to brokers. For collateral, the Fund received $4,030,000 in cash. Cash collateral received is invested in short-term securities, which are included in the short-term section of the "Investments in securities." Income from securities lending amounted to $75,020 for the six months ended Jan. 31, 2006. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. - ------------------------------------------------------------------------------ 24 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ 7. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows: SIX MONTHS ENDED JAN. 31, 2006 CALLS - ------------------------------------------------------------------------------ CONTRACTS PREMIUMS - ------------------------------------------------------------------------------ Balance July 31, 2005 -- $ -- Opened 316 986,157 Closed (3) (10,193) Expired -- -- - ------------------------------------------------------------------------------ Balance Jan. 31, 2006 313 $975,964 - ------------------------------------------------------------------------------ See "Summary of significant accounting policies." 8. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 20, 2005. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with The Bank of New York. The Fund had no borrowings outstanding during the six months ended Jan. 31, 2006. 9. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $953,822,923 at July 31, 2005, that if not offset by capital gains will expire as follows: 2008 2009 2010 2011 $506,643,917 $416,711,846 $20,988,174 $9,478,986 It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 25 - ------------------------------------------------------------------------------ 10. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS 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. 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 or arbitration 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 or arbitration 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. - ------------------------------------------------------------------------------ 26 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL 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. 11. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. CLASS A - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004 2003 2002(b) Net asset value, beginning of period $5.26 $4.64 $4.53 $4.11 $5.00 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .02 .04 .01 .01 -- Net gains (losses) (both realized and unrealized) .16 .61 .32 .41 (.89) - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .18 .65 .33 .42 (.89) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) (.02) -- -- -- Distributions from realized gains -- (.01) (.22) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.02) (.03) (.22) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.42 $5.26 $4.64 $4.53 $4.11 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $1,019 $1,030 $1,248 $83 $11 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 1.25%(d) 1.11%(e) 1.20%(e) 1.25%(e) 1.25%(d),(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .65%(d) .79% .36% .24% (.11%)(d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 53% 128% 99% 135% 88% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(f) 3.44%(g) 13.99% 7.19% 10.22% (17.80%)(g) - ---------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 28, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 1.16%, 1.23%, 1.84% and 5.12% for the periods ended July 31, 2005, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited).
- ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 27 - ------------------------------------------------------------------------------ CLASS B - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004 2003 2002(b) Net asset value, beginning of period $5.15 $4.56 $4.48 $4.10 $5.00 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) -- -- (.01) (.01) (.01) Net gains (losses) (both realized and unrealized) .16 .60 .31 .39 (.89) - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .16 .60 .30 .38 (.90) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Distributions from realized gains -- (.01) (.22) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.31 $5.15 $4.56 $4.48 $4.10 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $358 $472 $572 $36 $5 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 2.02%(d) 1.88%(e) 1.95%(e) 2.01%(e) 2.01%(d),(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets (.12%)(d) .02% (.46%) (.52%) (.86%)(d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 53% 128% 99% 135% 88% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(f) 3.11%(g) 13.09% 6.48% 9.27% (18.00%)(g) - ---------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 28, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 1.93%, 1.98%, 2.60% and 5.88% for the periods ended July 31, 2005, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited).
- ------------------------------------------------------------------------------ 28 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ CLASS C - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004 2003 2002(b) Net asset value, beginning of period $5.16 $4.57 $4.49 $4.10 $5.00 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) -- -- (.01) (.01) (.01) Net gains (losses) (both realized and unrealized) .16 .60 .31 .40 (.89) - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .16 .60 .30 .39 (.90) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Distributions from realized gains -- (.01) (.22) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.32 $5.16 $4.57 $4.49 $4.10 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $9 $9 $11 $2 $-- - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 2.02%(d) 1.88%(e) 1.98%(e) 2.01%(e) 2.01%(d),(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets (.12%)(d) .02% (.43%) (.53%) (.92%)(d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 53% 128% 99% 135% 88% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(f) 3.10%(g) 13.06% 6.46% 9.51% (18.00%)(g) - ---------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 28, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 1.93%, 2.01%, 2.60% and 5.88% for the periods ended July 31, 2005, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited).
- ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 29 - ------------------------------------------------------------------------------ CLASS I - ------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004(b) Net asset value, beginning of period $5.31 $4.67 $5.08 - ------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04 .05 -- Net gains (losses) (both realized and unrealized) .16 .63 (.28) - ------------------------------------------------------------------------------------------------------- Total from investment operations .20 .68 (.28) - ------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.03) -- Distributions from realized gains -- (.01) (.13) - ------------------------------------------------------------------------------------------------------- Total distributions (.04) (.04) (.13) - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.47 $5.31 $4.67 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $29 $43 $14 - ------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .75%(d) .65%(e) .71%(d),(e) - ------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.21%(d) 1.24% .74%(d) - ------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 53% 128% 99% - ------------------------------------------------------------------------------------------------------- Total return(f) 3.77%(g) 14.64% (5.65%)(g) - ------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date is March 4, 2004. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 I would have been 0.70% and 0.72% for the periods ended July 31, 2005 and 2004, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited).
- ------------------------------------------------------------------------------ 30 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ CLASS Y - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended July 31, 2006(h) 2005 2004 2003 2002(b) Net asset value, beginning of period $5.28 $4.66 $4.54 $4.11 $5.00 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04 .04 .01 .01 -- Net gains (losses) (both realized and unrealized) .15 .61 .34 .42 (.89) - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .19 .65 .35 .43 (.89) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- (.02) (.01) -- -- Distributions from realized gains -- (.01) (.22) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions -- (.03) (.23) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.47 $5.28 $4.66 $4.54 $4.11 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $-- $-- $8 $-- $-- - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 1.06%(d) .90%(e) 1.00%(e) 1.07%(e) 1.07%(d),(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .86%(d) 1.08% .50% .45% .09%(d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 53% 128% 99% 135% 88% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(f) 3.66%(g) 14.06% 7.44% 10.46% (17.80%)(g) - ---------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 28, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 Y would have been 0.95%, 1.03%, 1.66% and 4.94% for the periods ended July 31, 2005, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited).
- ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 31 - ------------------------------------------------------------------------------ FUND EXPENSES EXAMPLE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Jan. 31, 2006. ACTUAL EXPENSES The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------------ 32 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED AUG. 1, 2005 JAN. 31, 2006 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $1,034.40 $6.48 1.25% Hypothetical (5% return before expenses) $1,000 $1,019.11 $6.43 1.25% Class B Actual(b) $1,000 $1,031.10 $10.45 2.02% Hypothetical (5% return before expenses) $1,000 $1,015.19 $10.37 2.02% Class C Actual(b) $1,000 $1,031.00 $10.45 2.02% Hypothetical (5% return before expenses) $1,000 $1,015.19 $10.37 2.02% Class I Actual(b) $1,000 $1,037.70 $3.89 .75% Hypothetical (5% return before expenses) $1,000 $1,021.66 $3.86 .75% Class Y Actual(b) $1,000 $1,036.60 $5.50 1.06% Hypothetical (5% return before expenses) $1,000 $1,020.08 $5.46 1.06% (a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 186/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Jan. 31, 2006: +3.44% for Class A, +3.11% for Class B, +3.10% for Class C, +3.77% for Class I and +3.66% for Class Y.
- ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 33 - ------------------------------------------------------------------------------ APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial, formerly American Express Financial Corporation), serves as the investment manager to the Fund. Under an investment management services agreement (the IMS Agreement), the investment manager provides investment advice and other services to the Fund. Throughout the year, the Fund's Board of Directors (the Board) and the Board's Investment Review and Contracts Committees monitor these services. Ameriprise Financial had served as investment manager to the Fund until Sept. 29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise Financial transferred its rights, title, and interest and its burdens and obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary. Each year, the Board determines whether to continue the IMS Agreement by evaluating the quality and level of services received and the costs associated with those services. To assist the Board in making this determination, the investment manager prepares detailed reports for the Board and its Contracts Committee in March and April and provides data prepared by independent organizations. The Board gives considerable weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the IMS Agreement. BACKGROUND This past year, prior to the Board's annual review process, on Feb. 1, 2005, American Express Company, the former parent of Ameriprise Financial, announced its intention to pursue a spin-off of Ameriprise Financial by distributing shares of the common stock of Ameriprise Financial to shareholders of American Express Company. Following this announcement, the Board determined to proceed with its annual review process and, after thorough review of the reports and data provided, at a meeting held in person on April 14, 2005, the Board, including all of its independent members, determined that the quality and level of advisory services provided pursuant to the IMS Agreement were satisfactory and that fees were fair and reasonable. However, in light of the announced plans of the spin-off, the Board approved continuation of the IMS Agreement with Ameriprise Financial for only an interim period ending on the later of (i) the effective date of the spin-off; or (ii) the approval of a new IMS Agreement with Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in no event for a period longer than one year. During the course of the six-month period following the April 2005 meeting, the Board evaluated whether to approve new investment management services agreements for each of the funds within the Ameriprise Financial fund complex (together, the Funds) with post-spin Ameriprise Financial (or RiverSource). Independent counsel, Schulte Roth & Zabel LLP (Schulte), assisted the Boards in fulfilling their statutory and other responsibilities associated with the spin-off and the resulting consideration of new contracts, including the new IMS Agreement. The Board and its committees were provided with a wealth of written and oral information in this regard. Furthermore, in connection with the Board's considerations as to whether post-spin Ameriprise Financial, as an entity independent from American Express Company, would be capable of continuing to provide a high quality of services to the Funds, - ------------------------------------------------------------------------------ 34 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ the Board's independent members retained their own financial adviser, Credit Suisse First Boston LLC (CSFB), to assist them in analyzing the capital adequacy of post-spin Ameriprise Financial. (The costs of independent counsel and CSFB and of additional meetings of the Boards were borne by Ameriprise Financial as part of the commitment of the American Express Company to ensure a complete and thorough review of the proposed spin-off and its effect on the services provided by Ameriprise Financial and its subsidiaries.) At a meeting of the Board held on Sept. 8, 2005, the Board, including all of its independent members, approved, and recommended that shareholders approve, a proposed new IMS Agreement with RiverSource (the New IMS Agreement). At a meeting of the Fund's shareholders held on Feb. 15, 2006, shareholders approved the New IMS Agreement. The following section, "Board Considerations Related to the New IMS Agreement," provides a detailed discussion of the Board's considerations and determinations respecting the New IMS Agreement. BOARD CONSIDERATIONS RELATED TO THE NEW IMS AGREEMENT In carrying out its legal responsibilities associated with the consideration of the New IMS Agreement, the Board evaluated the following factors: Nature, Extent and Quality of Services to be Provided by Post-Spin Ameriprise Financial (and Its Subsidiaries) The Board recognized that only a few months had passed since its April 2005 conclusion that the nature, extent and quality of services provided by Ameriprise Financial were satisfactory and consistent with those that would be expected for a fund family of the size of the Funds and its determination to renew the IMS Agreement for the interim period. However, the Board also recognized the need to supplement this assessment with an evaluation of whether the spin-off or other factors would result in changes to the advisory services being provided under the current IMS Agreement. The Board focused its evaluation on the following factors potentially impacting the nature, extent and quality of advisory services to be provided by Ameriprise Financial: (i) Ameriprise Financial's projected capital structure and capital adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its ability to retain and attract personnel; and (iv) its ability to successfully re-brand its products and services. Based on extensive presentations and reports by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed capital structure (which includes certain indemnification commitments made by American Express Company) should enable RiverSource to continue to provide a high quality and level of advisory services to the Fund. In making this determination, the Board took into account representations by management of Ameriprise Financial that projected capital levels would allow Ameriprise Financial and RiverSource to meet legal and compliance responsibilities, build their distribution network, pursue technological upgrades, make capital commitments necessary to retain and attract key personnel devoted to legal and compliance responsibilities, portfolio management and distribution, and pursue smaller asset management acquisitions to help grow the asset management business. The Board accorded significant weight to CSFB's confirmation as to the reasonableness of the proposed capital structure. The Board also considered the fact that there were no expected departures of key personnel involved in the portfolio management, operations and marketing of the Funds as a result of the announcement of the spin-off. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 35 - ------------------------------------------------------------------------------ The Board concluded that, based on all of the materials and information provided, post-spin Ameriprise Financial (including RiverSource) would be in a position to continue to provide a high quality and level of advisory services to the Fund. Investment Performance The Board next focused on investment performance. The Board reviewed reports documenting the Fund's performance over one-, three- and/or five-year periods, as well as the entire period during which its current portfolio manager has managed the Fund, and compared to relevant Lipper and market indices. The Board took into account its determination in April 2005 that although investment performance in 2004 was below median, it was consistent with the management style of the Fund in light of market conditions in 2004. The Board also considered that it had been receiving monthly performance reports for the Fund and that there had been no significant deviations from April's overall performance data. Cost of Services Provided The Board evaluated comparative fees and the costs of services under the current IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise Financial (including RiverSource and other subsidiaries) to institutional clients. The Board studied RiverSource's effort (i.e., its "pricing philosophy") to set substantially all Funds' total expense ratios at or below the median expense ratio of comparable mutual funds (as compiled by Lipper). The Board observed that the proposed advisory fee changes are designed to work in tandem with proposed changes to administrative services fees. It also noted that RiverSource has agreed to voluntarily impose expense caps or waivers to achieve this pricing objective whenever the expense ratio exceeded the median expense ratio by more than three basis points (unless the higher ratio was due to the impact of the performance fee adjustment). The Board considered that advisory fees under the New IMS Agreement would stay the same. The Board also took into account the effect of the proposed performance incentive adjustment on the advisory fee. In this regard, the Board recalled its past determinations regarding the appropriateness of (i) the use of the relevant index for the performance comparison; (ii) the methodology for determining when the Board may change an index used to calculate the performance incentive adjustment; (iii) the periods used for averaging the Fund's assets and computing investment performance; and (iv) the length of the period over which performance is computed. The Board next considered the expected profitability to Ameriprise Financial and RiverSource derived from their relationship with the Fund, recalling the April 2005 determination that the profitability level was appropriate. The Board noted that projected profitability of Ameriprise Financial would allow it to operate effectively and, at the same time, reinvest in RiverSource and its other asset management businesses. The Board also considered that the proposed changes in advisory fees and the mergers of certain other Funds would result in revenue gains to Ameriprise Financial, but that these increases would not materially alter profit margins due to expected increases in costs associated with the spin-off, particularly re-branding and separation. CSFB also reported that Ameriprise Financial's projected level of return on equity was generally reasonable in light of the returns on equity of its industry competitors. In evaluating profitability, the Board also considered the benefits Ameriprise Financial obtains through the use of commission dollars paid on portfolio transactions for the Fund and from other business relationships that result from managing the Fund. The Board also considered - ------------------------------------------------------------------------------ 36 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ the fees charged by Ameriprise Financial (and its subsidiaries) to institutional clients as well as the fees paid to, and charged by, subadvisers, noting the differences in services provided in each case. In light of these considerations, the Board concluded that projected profitability levels were appropriate. Economies of Scale The Board also considered the "breakpoints" in fees that would be triggered as Fund net asset levels grew and the extent to which shareholders would benefit from such growth. The Board observed that the revised fee schedules under the proposed New IMS Agreement would continue to provide breakpoints similar to those in place pursuant to the current IMS Agreement. Accordingly, the Board concluded that the proposed New IMS Agreement provides adequate opportunity for shareholders to realize benefits as Fund assets grow. Other Considerations In addition, the Board accorded weight to the fact that, under the New IMS Agreement, RiverSource Investments is held to a higher standard of care than under the current IMS Agreement. The Board also noted Ameriprise Financial's commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. Furthermore, the Board recognized that it was not limited to considering management's proposed New IMS Agreement. In this regard, the Board evaluated the circumstances under which it would consider the retention of an investment adviser different from RiverSource Investments. The Board concluded, based on its consultation with independent counsel, that pursuing the retention of a different adviser was not necessary, primarily because, in its best judgment, Ameriprise Financial continues to be basically the same organization (from a functional and managerial standpoint), as it was prior to the spin-off. The Board reasoned that shareholders purchased shares of the Fund with an expectation that the current investment advisory organization would be servicing the Fund. PROXY VOTING The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website www.riversource.com/funds; or by searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283; by looking at the website www.riversource.com/funds; or by searching the website of the SEC at www.sec.gov. - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 37 - ------------------------------------------------------------------------------ RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE LARGE CAP EQUITY FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. 1. ELECTION OF BOARD MEMBERS KATHLEEN BLATZ Affirmative 1,008,787,765.07 Withhold 35,204,732.20 Abstain 0.00 TOTAL 1,043,992,497.27 ARNE H. CARLSON Affirmative 1,007,056,546.76 Withhold 36,935,950.51 Abstain 0.00 TOTAL 1,043,992,497.27 PATRICIA M. FLYNN Affirmative 1,010,259,725.58 Withhold 33,732,771.69 Abstain 0.00 TOTAL 1,043,992,497.27 ANNE P. JONES Affirmative 1,007,296,357.13 Withhold 36,696,140.14 Abstain 0.00 TOTAL 1,043,992,497.27 JEFFREY LAIKIND Affirmative 1,008,655,398.36 Withhold 35,337,098.91 Abstain 0.00 TOTAL 1,043,992,497.27 - ------------------------------------------------------------------------------ 38 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ STEPHEN R. LEWIS, JR. Affirmative 1,010,170,764.81 Withhold 33,821,732.46 Abstain 0.00 TOTAL 1,043,992,497.27 CATHERINE JAMES PAGLIA Affirmative 1,009,913,424.91 Withhold 34,079,072.36 Abstain 0.00 TOTAL 1,043,992,497.27 VIKKI L. PRYOR Affirmative 1,009,778,830.31 Withhold 34,213,666.96 Abstain 0.00 TOTAL 1,043,992,497.27 ALAN K. SIMPSON Affirmative 1,005,323,673.61 Withhold 38,668,823.66 Abstain 0.00 TOTAL 1,043,992,497.27 ALISON TAUNTON-RIGBY Affirmative 1,010,676,382.89 Withhold 33,316,114.38 Abstain 0.00 TOTAL 1,043,992,497.27 WILLIAM F. TRUSCOTT Affirmative 1,010,410,146.11 Withhold 33,582,351.16 Abstain 0.00 TOTAL 1,043,992,497.27 - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 39 - ------------------------------------------------------------------------------ 2. AMEND THE ARTICLES OF INCORPORATION TO PERMIT THE BOARD TO ESTABLISH THE MINIMUM ACCOUNT VALUE AND TO CHANGE THE NAME OF THE CORPORATION Affirmative 984,956,244.45 Against 37,591,169.16 Abstain 21,388,386.58 Broker Non-votes 56,697.08 TOTAL 1,043,992,497.27 3. APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC Affirmative 993,018,182.74 Against 28,976,910.56 Abstain 21,940,706.89 Broker Non-votes 56,697.08 TOTAL 1,043,992,497.27 4. APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES A. DIVERSIFICATION Affirmative 990,017,490.82 Against 31,876,186.28 Abstain 22,042,123.09 Broker Non-votes 56,697.08 TOTAL 1,043,992,497.27 B. LENDING Affirmative 985,427,021.24 Against 35,649,476.57 Abstain 22,859,302.38 Broker Non-votes 56,697.08 TOTAL 1,043,992,497.27 C. BORROWING Affirmative 987,089,316.60 Against 34,838,820.67 Abstain 22,007,662.92 Broker Non-votes 56,697.08 TOTAL 1,043,992,497.27 - ------------------------------------------------------------------------------ 40 -- RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT - ------------------------------------------------------------------------------ THIS PAGE LEFT BLANK INTENTIONALLY - ------------------------------------------------------------------------------ RIVERSOURCE LARGE CAP EQUITY FUND -- 2006 SEMIANNUAL REPORT -- 41 - ------------------------------------------------------------------------------ [RIVERSOURCE(SM) INVESTMENTS LOGO] RIVERSOURCE INVESTMENTS 200 AMERIPRISE FINANCIAL CENTER MINNEAPOLIS, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. RiverSource Funds are managed by RiverSource Investments, LLC and distributed by Ameriprise Financial Services, Inc., Member NASD. Both companies are part of Ameriprise Financial, Inc. Semiannual Report [RIVERSOURCE(SM) INVESTMENTS logo] RIVERSOURCE(SM) LARGE CAP VALUE FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED JAN. 31, 2006 > RIVERSOURCE LARGE CAP VALUE FUND (FORMERLY AXP(R) LARGE CAP VALUE FUND) SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM GROWTH OF CAPITAL. TABLE OF CONTENTS Fund Snapshot..............................3 Performance Summary........................4 Questions & Answers with Portfolio Management................6 Investments in Securities.................10 Financial Statements......................14 Notes to Financial Statements.............17 Fund Expenses Example.....................29 Approval of Investment Management Services Agreement......................31 Proxy Voting..............................35 Results of Meeting of Shareholders........36 [Dalbar Logo] American Express(R) Funds'* reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. * As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the name of the American Express Funds. - -------------------------------------------------------------------------------- 2 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- FUND SNAPSHOT AT JAN. 31, 2006 - ------------------------------------------------------------------------------- PORTFOLIO MANAGER < - ------------------------------------------------------------------------------- PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY Robert Ewing, CFA 6/02 16 - ------------------------------------------------------------------------------- FUND OBJECTIVE < - ------------------------------------------------------------------------------- The Fund seeks to provide shareholders with long-term growth of capital. Inception dates by class A: 6/27/02 B: 6/27/02 C: 6/27/02 I: 3/4/04 Y: 6/27/02 Ticker symbols by class A: ALVAX B: ALVBX C: -- I: ALCIX Y: -- Total net assets $132.3 million Number of holdings 180 - ------------------------------------------------------------------------------- STYLE MATRIX < - ------------------------------------------------------------------------------- [GRAPH] Shading within the style matrix indicates areas in which the Fund generally invests. - ------------------------------------------------------------------------------- SECTOR COMPOSITION* < - ------------------------------------------------------------------------------- Percentage of portfolio assets [Pie Graph] Financials 29.1% Energy 13.8% Information Technology 10.1% Industrials 8.7% Consumer Discretionary 8.2% Consumer Staples 7.1% Health Care 7.1% Telecommunication Services 6.7% Utilities 3.6% Materials 3.3% Short-Term Securities 2.3% * 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. - ------------------------------------------------------------------------------- TOP TEN HOLDINGS < - ------------------------------------------------------------------------------- Percentage of portfolio assets Exxon Mobil (Oil & Gas) 4.5% Bank of America (Commercial Banks) 3.9 Citigroup (Diversified Financial Services) 3.3 American Intl Group (Insurance) 2.7 Pfizer (Pharmaceuticals) 2.6 Altria Group (Tobacco) 2.2 ConocoPhillips (Oil & Gas) 2.1 Wells Fargo & Co (Commercial Banks) 1.8 Verizon Communications (Diversified Telecommunication Services) 1.8 JPMorgan Chase & Co (Diversified Financial Services) 1.7 For further detail about these holdings, please refer to the section entitled "Investments in Securities." The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. Fund holdings are subject to change. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 3 - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY PERFORMANCE COMPARISON For the six-month period ended Jan. 31, 2006 [Bar Graph] +4.28% = RiverSource Large Cap Value Fund Class A (excluding sales charge) +6.21% = Russell 1000(R) Value Index(1) (unmanaged) +5.39% = Lipper Large-Cap Value Funds Index(2) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.riversource.com/funds. (1) The Russell 1000(R) Value Index, an unmanaged index, measures the performance of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (2) The Lipper Large-Cap Value Funds Index includes the 30 largest large-cap value funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. 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. - -------------------------------------------------------------------------------- 4 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY - ----------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < - -----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS Y (INCEPTION DATES) (6/27/02) (6/27/02) (6/27/02) (3/4/04) (6/27/02) AFTER AFTER NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) AT JAN. 31, 2006 6 months* +4.28% -1.72% +3.95% -0.97% +4.00% +3.02% +4.57% +4.45% 1 year +9.35% +3.06% +8.46% +3.46% +8.51% +7.51% +9.82% +9.51% 3 years +16.27% +13.99% +15.42% +14.41% +15.50% +15.50% N/A +16.56% Since inception +9.23% +7.45% +8.44% +7.76% +8.45% +8.45% +7.92% +9.47% AT DEC. 31, 2005 6 months* +3.67% -2.29% +3.35% -1.54% +3.40% +2.42% +3.96% +3.84% 1 year +4.22% -1.77% +3.53% -1.37% +3.58% +2.60% +4.69% +4.57% 3 years +14.11% +11.88% +13.27% +12.22% +13.26% +13.26% N/A +14.40% Since inception +8.58% +6.77% +7.77% +7.06% +7.79% +7.79% 6.64% +8.83%
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to eligible investors only, currently limited to affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. * Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 5 - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT RiverSource Large Cap Value Fund's Class A shares advanced 4.28%, excluding sales charge, for the six months ended Jan. 31, 2006. The Fund underperformed its benchmark, the Russell 1000(R) Value Index (Russell Index), which increased 6.21% during the period. The Fund's peer group, the Lipper Large-Cap Value Funds Index, gained 5.39% during the same time frame. Below, Portfolio Manager Robert Ewing discusses the Fund's results and positioning for the semiannual period ended Jan. 31, 2006. As of Jan. 31, 2006, approximately 28% of the Fund's shares were owned in aggregate by RiverSource Portfolio Builder Funds, a group of six asset allocation funds managed by RiverSource Investments, LLC (RiverSource Investments). It is possible RiverSource Large Cap Value Fund may experience relatively large purchases or redemptions from RiverSource Portfolio Builder Funds (see page 21, Class I capital share transactions for related activity during the most recent fiscal period). RiverSource Investments seeks to minimize the impact of these transactions, which may include structuring them over a reasonable period of time. RiverSource Large Cap Value Fund may experience increased expenses as it buys and sells securities to satisfy purchases and redemptions in RiverSource Portfolio Builder Funds. For more information on the Fund's expenses, see the discussions beginning on pages 20 and 29. Q: What factors most significantly affected performance for the period? A: The stock market advanced strongly during the period and the Fund benefited from the overall upward movement of the market. However, compared to its benchmark, the Russell Index, results were less favorable. At the start of the period, we positioned the Fund somewhat more conservatively than the Russell Index. The economic expansion had been building for some time, the Federal Reserve's policy of higher short-term interest rates was continuing and energy prices were rising. Given such an environment, we determined that a conservative approach was prudent. That conservative positioning made it difficult for Large Cap Value Fund to keep up with the Russell Index as the market rose sharply. During the six month period, stock selection was primarily responsible for the Fund's underperformance of the Russell Index. Sector allocations were slightly favorable. Stock selection in the financial and energy sectors was strong, but was offset by unfavorable results in technology and industrials. Within the financial sector, a number of insurance company holdings performed quite well. In the energy sector, the portfolio held a larger-than-Russell Index position in energy services - -------------------------------------------------------------------------------- 6 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS > THE STOCK MARKET ADVANCED STRONGLY DURING THE PERIOD AND THE FUND BENEFITED FROM THE OVERALL UPWARD MOVEMENT OF THE MARKET. stocks, which benefited as the energy sector appreciated. Conversely, in the technology sector we had focused on some of the larger, more mature technology companies, mainly those related to personal computers. These companies struggled with the technology environment, which included some weakness in personal computer sales. Looking at the overall positive effect of the Fund's sector weightings, a larger-than-Russell Index allocation to technology was advantageous as the index sector performed quite well during the period. A below that of the Russell Index position in utilities was also beneficial as the utilities sector was flat during the six-month period. As we noted above, energy stocks outperformed, making the portfolio's slightly below the Russell Index's energy weighting a negative, despite strong results from individual energy holdings. A less than Russell Index weighting in financials was also detrimental. Although the financial sector outperformed the Russell Index by only a modest amount, financials make up such a large percentage of that Index that any difference in weighting can have a meaningful impact on return. Positive individual contributors to results included insurance company ACE and energy services stocks Halliburton and Weatherford Intl. ACE benefited from firmer pricing in the insurance industry that followed the unusually large flow of natural disasters in 2005. Halliburton and Weatherford Intl benefited along with other energy services stocks as rising energy prices have been a catalyst for more aggressive exploration for oil and natural gas reserves. Detractors from results during the period included a larger-than-Russell Index position in Spectrum Brands and smaller-than-Russell Index positions in financial services company Goldman Sachs and oil refinery stock Valero. Spectrum Brands makes batteries, fertilizers and other consumer discretionary products. The company has had revenue and expense problems, partly stemming from rising raw material costs that the company could not pass on to its customers. As a result, Spectrum fell short of quarterly earnings expectations twice in 2005. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 7 - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS > WE STILL BELIEVE THAT ELEVATED VALUATIONS ON GLOBAL EQUITIES, THE LATE STAGE OF THE ECONOMIC EXPANSION, THE GEOPOLITICAL ENVIRONMENT AND POTENTIAL WEAKNESS IN CONSUMER SPENDING SUPPORT MORE CAUTIOUS PORTFOLIO POSITIONING. Q: What changes did you make to the portfolio and how is it currently positioned? A: The most significant positioning change during the six-month period was an increase in the health care weighting. Specifically, we added to holdings of larger pharmaceutical firms whose stocks became very inexpensive over the period. We also decreased the portfolio weighting in consumer staples because we believe there are developing pressures on revenues and creeping expense issues that are problematic for consumer staples companies. We added to the Fund's consumer discretionary holdings, focusing on two areas: discretionary companies whose stock prices had already weakened a bit in anticipation of slower consumer spending and media stocks that had become inexpensive in our view. To summarize current positioning, the Fund has larger-than-Russell Index weightings in technology and industrials and weightings less-than-Russell Index positions in financials and utilities. The technology portion of the Russell Index is relatively small, so it doesn't take much for the Fund to be overweight relative to the index in that sector. In addition, there are a fair number of reasonably reliable, more mature growth companies in the technology sector that don't appear too expensive to us at this time. As we have explained in the past, we believe maintaining a position less than the Russell Index in financials is justified because the Russell Index position is so large and we cannot identify enough good opportunities among individual financial stocks to fill so large an allocation. In addition, this remains a tough environment for financial stocks. Interest rates are still rising and the yield curve is very flat, which means there is not a lot of difference between short-term and long-term interest rates. The spread between short and long-term rates is a key source of revenue for financial stocks. Similarly, the utilities weighting is below that of the Russell Index because valuations are high and dividend yields on utility stocks are historically low. With interest rates still rising, the environment appears unfavorable for utilities, which are often considered a bond substitute. - -------------------------------------------------------------------------------- 8 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS Q: How do you plan to manage the Fund in the coming months? A: We still believe that elevated valuations on global equities, the late stage of the economic expansion, the geopolitical environment and potential weakness in consumer spending support more cautious portfolio positioning. To summarize key themes, we are looking for companies that are less dependent on the economy. In addition, it seems to us that there are more opportunities in large-cap stocks than there have been in a long time. As a result, the portfolio's average market capitalization is higher than usual for us. The portfolio has a greater emphasis on quality companies than it might typically have. We are also striving to keep valuations relatively low as a risk control measure. At the same time, we see very little valuation difference between traditional value and growth stocks, so we don't have to pay too much to expose the portfolio to growth. For that reason, the portfolio currently has a bit more of a growth tilt but remains firmly in the large-cap value space. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 9 - -------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES RiverSource Large Cap Value Fund JAN. 31, 2006 (UNAUDITED) (Percentages represent value of investments compared to net assets) - ------------------------------------------------------------------------------- COMMON STOCKS (97.7%) - ------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) AEROSPACE & DEFENSE (4.1%) Boeing 6,652 $ 454,398 Empresa Brasileira de Aeronautica ADR 5,211(c) 211,827 General Dynamics 3,565 414,823 Goodrich 11,919 469,251 Honeywell Intl 28,168 1,082,215 Lockheed Martin 14,838 1,003,791 Northrop Grumman 20,175 1,253,472 United Technologies 9,148 533,969 ------------ Total 5,423,746 - ------------------------------------------------------------------------------- AUTOMOBILES (0.1%) General Motors 7,757 186,633 - ------------------------------------------------------------------------------- BEVERAGES (1.0%) Coca-Cola 8,232 340,640 PepsiCo 16,025 916,310 ------------ Total 1,256,950 - ------------------------------------------------------------------------------- BIOTECHNOLOGY (0.1%) Biogen Idec 4,020(b) 179,895 - ------------------------------------------------------------------------------- BUILDING PRODUCTS (0.4%) American Standard Companies 4,734 170,424 Masco 12,558 372,345 ------------ Total 542,769 - ------------------------------------------------------------------------------- CAPITAL MARKETS (4.7%) Bank of New York 30,093 957,258 Franklin Resources 3,336 328,596 Investors Financial Services 5,722 268,591 Legg Mason 661 85,732 Lehman Brothers Holdings 9,146 1,284,556 Merrill Lynch & Co 14,054 1,055,034 Morgan Stanley 27,752 1,705,360 State Street 9,764 590,331 ------------ Total 6,275,458 - ------------------------------------------------------------------------------- CHEMICALS (1.4%) Dow Chemical 27,237 1,152,126 Eastman Chemical 5,156 248,571 Lyondell Chemical 13,048 313,282 RPM Intl 7,657 144,717 ------------ Total 1,858,696 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) COMMERCIAL BANKS (8.5%) Bank of America 117,602 $5,201,535 Commerce Bancorp 7,051 235,785 PNC Financial Services Group 13,839 897,598 US Bancorp 40,199 1,202,352 Wachovia 24,197 1,326,722 Wells Fargo & Co 38,922 2,427,176 ------------ Total 11,291,168 - ------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES (0.5%) Avery Dennison 3,457 206,521 Cendant 29,382 491,855 Total 698,376 - ------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT (1.8%) CBS Cl B 21,276 555,942 Cisco Systems 43,400(b) 805,939 Corning 7,521(b) 183,136 Nokia ADR 29,295(c) 538,442 Scientific-Atlanta 6,191 264,727 ------------ Total 2,348,186 - ------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS (2.9%) Dell 18,740(b) 549,269 EMC 24,608(b) 329,747 Hewlett-Packard 46,120 1,438,022 Intl Business Machines 17,968 1,460,799 ------------ Total 3,777,837 - ------------------------------------------------------------------------------- CONSUMER FINANCE (1.0%) American Express 9,091 476,823 Capital One Financial 10,717 892,726 ------------ Total 1,369,549 - ------------------------------------------------------------------------------- CONTAINERS & PACKAGING (0.6%) Temple-Inland 16,102 755,184 - ------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES (5.0%) Citigroup 92,364 4,302,315 JPMorgan Chase & Co 57,786 2,296,994 ------------ Total 6,599,309 - ------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES (6.4%) ALLTEL 3,590 215,508 AT&T 62,518 1,622,341 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) DIVERSIFIED TELECOMMUNICATION SERVICES (CONT.) BellSouth 47,014 $1,352,593 Chunghwa Telecom ADR 19,198(c) 357,467 Citizens Communications 10,968 134,577 Qwest Communications Intl 42,228(b) 254,213 Sprint Nextel 84,918 1,943,772 Telewest Global 9,555(b,c) 222,632 Verizon Communications 76,019 2,406,761 ------------ Total 8,509,864 - ------------------------------------------------------------------------------- ELECTRIC UTILITIES (2.6%) Entergy 10,048 698,436 Exelon 20,652 1,185,838 FPL Group 3,976 166,157 PPL 12,968 390,726 Southern 20,996 730,661 Xcel Energy 13,865 269,258 ------------ Total 3,441,076 - ------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.2%) Flextronics Intl 24,328(b,c) 254,471 - ------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (2.4%) Cooper Cameron 9,026(b) 436,768 Halliburton 12,723 1,012,114 Schlumberger 2,347 299,125 TODCO Cl A 1,606 71,628 Transocean 8,911(b) 723,128 Weatherford Intl 14,015(b) 627,592 ------------ Total 3,170,355 - ------------------------------------------------------------------------------- FOOD & STAPLES RETAILING (1.2%) CVS 6,701 186,020 Safeway 23,318 546,574 Wal-Mart Stores 17,258 795,766 ------------ Total 1,528,360 - ------------------------------------------------------------------------------- FOOD PRODUCTS (1.1%) Cadbury Schweppes 13,430(c) 131,869 Campbell Soup 6,792 203,285 General Mills 9,719 472,441 Kellogg 14,947 641,225 ------------ Total 1,448,820 - ------------------------------------------------------------------------------- GAS UTILITIES (0.3%) ONEOK 13,706 387,332 - ------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT & SUPPLIES (0.9%) Baxter Intl 18,132 668,165 Boston Scientific 8,041(b) 175,857 Guidant 1,500 110,400 - ------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) HEALTH CARE EQUIPMENT & SUPPLIES (CONT.) Hospira 4,767(b) $213,323 PerkinElmer 2,937 66,787 ------------ Total 1,234,532 - ------------------------------------------------------------------------------- HEALTH CARE PROVIDERS & SERVICES (1.2%) Cardinal Health 9,238 665,505 HCA 6,988 342,971 Magellan Health Services 4,233(b) 154,420 Medco Health Solutions 3,438(b) 185,996 WellPoint 3,447(b) 264,730 ------------ Total 1,613,622 - ------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE (0.4%) McDonald's 16,567 580,011 - ------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (1.7%) Colgate-Palmolive 7,894 433,302 Procter & Gamble 18,771 1,111,806 Spectrum Brands 36,189(b) 684,334 ------------ Total 2,229,442 - ------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES (2.4%) General Electric 66,915 2,191,466 Tyco Intl 38,875(c) 1,012,694 ------------ Total 3,204,160 - ------------------------------------------------------------------------------- INSURANCE (5.6%) ACE 20,668(c) 1,131,573 American Intl Group 55,523 3,634,535 Aon 11,069 378,781 Aspen Insurance Holdings 13,810(c) 320,116 Chubb 6,680 630,258 Endurance Specialty Holdings 6,280(c) 206,800 Hartford Financial Services Group 8,572 704,876 Max Re Capital 5,126(c) 135,890 Prudential Financial 3,637 274,012 ------------ Total 7,416,841 - ------------------------------------------------------------------------------- IT SERVICES (1.0%) Accenture Cl A 4,250(c) 134,003 Affiliated Computer Services Cl A 12,688(b) 794,268 Computer Sciences 2,276(b) 115,393 First Data 5,905 266,316 Patni Computer Systems ADR 1,491(b,c) 34,517 ------------ Total 1,344,497 - ------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS (0.1%) Mattel 7,166 118,239 - ------------------------------------------------------------------------------- See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 11 - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) MACHINERY (1.2%) Caterpillar 8,898 $604,173 Deere & Co 4,536 325,503 Illinois Tool Works 2,958 249,330 Ingersoll-Rand Cl A 6,691(c) 262,756 ITT Inds 1,835 188,088 ------------ Total 1,629,850 - ------------------------------------------------------------------------------- MEDIA (6.2%) Clear Channel Communications 4,303 125,949 Comcast Cl A 21,145(b) 588,254 Comcast Special Cl A 29,446(b) 816,243 EchoStar Communications Cl A 4,107(b) 113,353 Liberty Global Cl A 9,980(b) 213,572 Liberty Global Series C 9,980(b) 201,796 Liberty Media Cl A 135,262(b) 1,130,790 News Corp Cl A 43,276 682,030 NTL 23,684(b) 1,498,012 Time Warner 57,774 1,012,778 Viacom Cl B 21,276(b) 882,529 Vivendi Universal ADR 13,937(c) 436,367 Walt Disney 19,444 492,128 ------------ Total 8,193,801 - ------------------------------------------------------------------------------- METALS & MINING (0.5%) Alcan 10,466(c) 510,636 Alcoa 5,217 164,336 ------------ Total 674,972 - ------------------------------------------------------------------------------- MULTILINE RETAIL (1.0%) Federated Dept Stores 4,522 301,301 JC Penney 6,982 389,596 Target 11,346 621,193 ------------ Total 1,312,090 - ------------------------------------------------------------------------------- MULTI-UTILITIES & UNREGULATED POWER (0.7%) Dominion Resources 12,366 934,004 - ------------------------------------------------------------------------------- OFFICE ELECTRONICS (0.1%) Xerox 10,192(b) 145,848 - ------------------------------------------------------------------------------- OIL & GAS (11.5%) Amerada Hess 2,134 330,343 Anadarko Petroleum 12,520 1,349,906 BP ADR 11,993(c) 867,214 Chevron 38,618 2,293,137 ConocoPhillips 43,109 2,789,152 Devon Energy 8,661 590,767 Exxon Mobil 95,274 5,978,443 - ------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) OIL & GAS (CONT.) Newfield Exploration 7,786(b) $407,986 Royal Dutch Shell ADR 6,105(c) 415,812 ------------ Total 15,022,760 - ------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS (0.8%) Bowater 8,087 221,099 Intl Paper 12,475 407,059 Weyerhaeuser 6,837 476,949 ------------ Total 1,105,107 - ------------------------------------------------------------------------------- PHARMACEUTICALS (4.9%) Bristol-Myers Squibb 21,654 493,495 GlaxoSmithKline ADR 6,769(c) 346,844 Merck & Co 15,659 540,236 Novartis ADR 7,650(c) 421,974 Pfizer 134,900 3,464,231 Schering-Plough 33,295 637,598 Wyeth 11,146 515,503 ------------ Total 6,419,881 - ------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST (0.5%) Apartment Investment & Management Cl A 4,673 198,696 Equity Office Properties Trust 12,551 399,373 HomeBanc 9,340 77,802 ------------ Total 675,871 - ------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (1.6%) Broadcom Cl A 1,740(b) 118,668 Credence Systems 9,012(b) 78,855 Cypress Semiconductor 21,240(b) 359,593 Freescale Semiconductor Cl A 9,982(b) 251,147 Freescale Semiconductor Cl B 3,276(b) 82,719 Infineon Technologies ADR 8,400(b,c) 79,212 Intel 17,604 374,437 MEMC Electronic Materials 17,433(b) 498,236 Texas Instruments 8,423 246,204 ------------ Total 2,089,071 - ------------------------------------------------------------------------------- SOFTWARE (2.6%) Cadence Design Systems 33,231(b) 586,859 Computer Associates Intl 4,636 126,563 Compuware 33,757(b) 278,158 Microsoft 53,151 1,496,200 Oracle 53,736(b) 675,462 Symantec 3,450(b) 63,411 TIBCO Software 18,429(b) 147,248 ------------ Total 3,373,901 - ------------------------------------------------------------------------------- See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 12 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) SPECIALTY RETAIL (0.4%) Home Depot 12,482 $506,145 - ------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE (3.6%) Countrywide Financial 42,863 1,433,339 Fannie Mae 34,634 2,006,694 Freddie Mac 15,649 1,061,941 Washington Mutual 6,616 279,989 ------------ Total 4,781,963 - ------------------------------------------------------------------------------- TOBACCO (2.2%) Altria Group 40,034 2,896,060 - ------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES (0.3%) Vodafone Group ADR 19,137(c) 403,982 - ------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $118,160,212) $129,210,684 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SHORT-TERM SECURITIES (2.3%) - ------------------------------------------------------------------------------- ISSUER EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY COMMERCIAL PAPER Windmill Funding 02-01-06 4.48% $3,000,000(d) $2,999,627 - ------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $3,000,000) $2,999,627 - ------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $121,160,212)(e) $132,210,311 =============================================================================== - ------------------------------------------------------------------------------- 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 Jan. 31, 2006, the value of foreign securities represented 6.4% of net assets. (d) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Jan. 31, 2006, the value of these securities amounted to $2,999,627 or 2.3% of net assets. (e) At Jan. 31, 2006, the cost of securities for federal income tax purposes was approximately $121,160,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $13,446,000 Unrealized depreciation (2,396,000) ---------------------------------------------------------- Net unrealized appreciation $11,050,000 ---------------------------------------------------------- The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 13 - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES RiverSource Large Cap Value Fund JAN. 31, 2006 (UNAUDITED) - ------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------- Investments in securities, at value (Note 1) (identified cost $121,160,212) $132,210,311 Cash in bank on demand deposit 18,732 Capital shares receivable 25,685 Dividends and accrued interest receivable 116,526 Receivable for investment securities sold 1,308,924 - ------------------------------------------------------------------------------- Total assets 133,680,178 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LIABILITIES - ------------------------------------------------------------------------------- Capital shares payable 4,710 Payable for investment securities purchased 1,360,271 Unrealized depreciation on foreign currency contracts held, at value (Note 5) 94 Accrued investment management services fee 2,189 Accrued distribution fee 1,189 Accrued transfer agency fee 275 Accrued administrative services fee 219 Other accrued expenses 37,400 - ------------------------------------------------------------------------------- Total liabilities 1,406,347 - ------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $132,273,831 =============================================================================== - ------------------------------------------------------------------------------- REPRESENTED BY - ------------------------------------------------------------------------------- Capital stock -- $.01 par value (Note 1) $ 231,517 Additional paid-in capital 115,832,866 Undistributed net investment income 35,963 Accumulated net realized gain (loss) 5,123,403 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 5) 11,050,082 - ------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $132,273,831 =============================================================================== Net assets applicable to outstanding shares: Class A $ 68,836,947 Class B $ 24,612,332 Class C $ 1,218,791 Class I $ 37,483,562 Class Y $ 122,199 Net asset value per share of outstanding capital stock: Class A shares 12,045,339 $ 5.71 Class B shares 4,333,143 $ 5.68 Class C shares 214,720 $ 5.68 Class I shares 6,537,184 $ 5.73 Class Y shares 21,324 $ 5.73 - ------------------------------------------------------------------------------- See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS RiverSource Large Cap Value Fund SIX MONTHS ENDED JAN. 31, 2006 (UNAUDITED) - ------------------------------------------------------------------------------- INVESTMENT INCOME - ------------------------------------------------------------------------------- Income: Dividends $1,864,995 Interest 80,529 Less foreign taxes withheld (11,228) - ------------------------------------------------------------------------------- Total income 1,934,296 - ------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 399,620 Distribution fee Class A 90,609 Class B 129,858 Class C 6,528 Transfer agency fee 87,304 Incremental transfer agency fee Class A 6,243 Class B 4,251 Class C 252 Service fee -- Class Y 62 Administrative services fees and expenses 41,373 Compensation of board members 4,934 Custodian fees 19,400 Printing and postage 25,860 Registration fees 16,820 Audit fees 10,250 Other 4,242 - ------------------------------------------------------------------------------- Total expenses 847,606 Earnings credits on cash balances (Note 2) (2,873) - ------------------------------------------------------------------------------- Total net expenses 844,733 - ------------------------------------------------------------------------------- Investment income (loss) -- net 1,089,563 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET - ------------------------------------------------------------------------------- Net realized gain (loss) on: Security transactions (Note 3) 6,026,028 Foreign currency transactions (23) - ------------------------------------------------------------------------------- Net realized gain (loss) on investments 6,026,005 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (991,190) - ------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 5,034,815 - ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $6,124,378 =============================================================================== See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 15 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS RiverSource Large Cap Value Fund JAN. 31, 2006 JULY 31, 2005 SIX MONTHS ENDED YEAR ENDED (UNAUDITED) - ------------------------------------------------------------------------------- OPERATIONS AND DISTRIBUTIONS - ------------------------------------------------------------------------------- Investment income (loss) -- net $ 1,089,563 $ 1,378,478 Net realized gain (loss) on investments 6,026,005 8,924,943 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (991,190) 7,691,556 - ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 6,124,378 17,994,977 - ------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (878,948) (546,048) Class B (101,979) (10,205) Class C (5,946) -- Class I (815,837) (382,906) Class Y (1,721) (1,186) Net realized gain Class A (3,373,386) (3,015,777) Class B (1,215,159) (1,148,832) Class C (63,394) (57,627) Class I (2,287,588) (1,527,915) Class Y (5,789) (5,242) - ------------------------------------------------------------------------------- Total distributions (8,749,747) (6,695,738) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) - ------------------------------------------------------------------------------- Proceeds from sales Class A shares (Note 2) 5,674,898 17,758,111 Class B shares 1,165,547 7,075,931 Class C shares 71,431 380,110 Class I shares 9,153,808 35,295,804 Class Y shares -- 81,000 Reinvestment of distributions at net asset value Class A shares 4,159,571 3,502,995 Class B shares 1,301,176 1,145,619 Class C shares 67,763 56,012 Class I shares 3,103,080 1,910,566 Class Y shares 6,763 5,863 Payments for redemptions Class A shares (13,831,719) (20,411,526) Class B shares (Note 2) (5,943,172) (7,218,949) Class C shares (Note 2) (293,894) (563,631) Class I shares (11,656,289) (18,207,821) Class Y shares (22,232) (17,206) - ------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (7,043,269) 20,792,878 - ------------------------------------------------------------------------------- Total increase (decrease) in net assets (9,668,638) 32,092,117 Net assets at beginning of period 141,942,469 109,850,352 - ------------------------------------------------------------------------------- Net assets at end of period $132,273,831 $141,942,469 =============================================================================== Undistributed net investment income $ 35,963 $ 750,831 - ------------------------------------------------------------------------------- See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS RiverSource Large Cap Value Fund (formerly AXP Large Cap Value Fund) (Unaudited as to Jan. 31, 2006) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Growth Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Growth Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board. The Fund invests primarily in equity securities of companies with a market capitalization greater than $5 billion. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. The Fund offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. At Jan. 31, 2006, Ameriprise Financial, Inc. (Ameriprise Financial) and the RiverSouce Portfolio Builder Funds owned 100% of Class I shares, which represents 28.34% of the Fund's net assets. At Jan. 31, 2006, Ameriprise Financial and the RiverSource Portfolio Builder Funds owned approximately 28% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Directors of the funds, Ameriprise Financial utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 17 - -------------------------------------------------------------------------------- is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair net asset value. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. 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 - -------------------------------------------------------------------------------- 18 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with 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. 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. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 19 - -------------------------------------------------------------------------------- 2. EXPENSES AND SALES CHARGES Under an Investment Management Services Agreement, RiverSource Investments, LLC (the Investment Manager) determines which securities will be purchased, held or sold. Prior to Oct. 1, 2005, investment management services were provided by Ameriprise Financial. The management fee is a percentage of the Fund's average daily net assets that declines from 0.60% to 0.48% annually as the Fund's assets increase. On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. Effective March 1, 2006, the management fee percentage of the Fund's average daily net assets will decline from 0.60% to 0.375% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper Large-Cap Value Funds Index. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment decreased the fee by $29,580 for the six months ended Jan. 31, 2006. Under the current Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.06% to 0.03% annually as the Fund's assets increase. Prior to Oct. 1, 2005, the fee percentage of the Fund's average daily net assets declined from 0.05% to 0.02% annually as the Fund's assets increased. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the Board. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. Under a separate Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: o Class A $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. 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. - -------------------------------------------------------------------------------- 20 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- The Fund has agreements with Ameriprise Financial Services, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $46,142 for Class A, $16,324 for Class B and $35 for Class C for the six months ended Jan. 31, 2006. The Investment Manager and its affiliates agreed to waive certain fees and expenses through Sept. 30, 2005. Beginning Oct. 1, 2005 a new agreement to waive certain fees and expenses is effective until July 31, 2006, such that net expenses, before giving effect to any performance incentive adjustment, will not exceed 1.29% for Class A, 2.05% for Class B, 2.06% for Class C, 0.94% for Class I and 1.12% for Class Y of the Fund's average daily net assets. During the six months ended Jan. 31, 2006, the Fund's custodian and transfer agency fees were reduced by $2,873 as a result of earnings credits from overnight cash balances. The Fund also pays custodian fees to Ameriprise Trust Company, an affiliate of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $38,860,553 and $50,222,366, respectively, for the six months ended Jan. 31, 2006. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
SIX MONTHS ENDED JAN. 31, 2006 CLASS A CLASS B CLASS C CLASS I CLASS Y - ------------------------------------------------------------------------------------------------------------- Sold 983,407 204,121 12,544 1,569,076 -- Issued for reinvested distributions 742,781 233,604 12,166 552,149 1,204 Redeemed (2,394,504) (1,039,593) (51,366) (2,037,267) (3,827) - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) (668,316) (601,868) (26,656) 83,958 (2,623) - ------------------------------------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2005 CLASS A CLASS B CLASS C CLASS I CLASS Y - ------------------------------------------------------------------------------------------------------------- Sold 3,185,715 1,283,395 69,124 6,285,074 14,833 Issued for reinvested distributions 628,904 206,791 10,111 341,783 1,049 Redeemed (3,634,034) (1,298,146) (101,928) (3,228,175) (3,074) - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) 180,585 192,040 (22,693) 3,398,682 12,808 - -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 21 - -------------------------------------------------------------------------------- 5. FORWARD FOREIGN CURRENCY CONTRACTS At Jan. 31, 2006, the Fund has a forward foreign currency exchange contract that obligates it to deliver currency at a specified future date. The unrealized depreciation on this contract is included in the accompanying financial statements. See "Summary of significant accounting policies." The terms of the open contract are as follows: EXCHANGE DATE CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION - -------------------------------------------------------------------------------- Feb. 2, 2006 6,559 11,573 $-- $94 British Pound U.S. Dollar - -------------------------------------------------------------------------------- 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. 20, 2005. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with The Bank of New York. The Fund had no borrowings outstanding during the six months ended Jan. 31, 2006. 7. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS 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. - -------------------------------------------------------------------------------- 22 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- 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 or arbitration 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 or arbitration 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 mattersthat relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. 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. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 23 - -------------------------------------------------------------------------------- 8. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. Class A - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended July 31, 2006(h) 2005 2004 2003 2002(b) Net asset value, beginning of period $5.83 $5.34 $4.98 $4.52 $4.90 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04 .06 .04 .03 -- Net gains (losses) (both realized and unrealized) .20 .70 .59 .44 (.38) - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .24 .76 .63 .47 (.38) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.04) (.03) (.01) -- Distributions from realized gains (.29) (.23) (.24) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.36) (.27) (.27) (.01) -- - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.71 $5.83 $5.34 $4.98 $4.52 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $69 $74 $67 $31 $4 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 1.17%(d) 1.29% 1.24%(e) 1.25%(e) 1.19%(d),(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.54%(d) 1.07% .95% 1.01% .23%(d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 29% 57% 59% 77% 9% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(f) 4.28%(g) 14.52% 12.85% 10.52% (7.75%)(g) - ---------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 1.54%, 2.64% and 20.50% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - -------------------------------------------------------------------------------- 24 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - --------------------------------------------------------------------------------
CLASS B - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended July 31, 2006(h) 2005 2004 2003 2002(b) Net asset value, beginning of period $5.77 $5.29 $4.95 $4.52 $4.90 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .02 .01 -- .01 -- Net gains (losses) (both realized and unrealized) .20 .70 .59 .43 (.38) - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .22 .71 .59 .44 (.38) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) -- (.01) (.01) -- Distributions from realized gains (.29) (.23) (.24) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.31) (.23) (.25) (.01) -- - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.68 $5.77 $5.29 $4.95 $4.52 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $25 $28 $25 $13 $1 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 1.94%(d) 2.05% 2.00%(e) 2.00%(e) 1.95%(d),(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .77%(d) .30% .16% .25% (.49%)(d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 29% 57% 59% 77% 9% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(f) 3.95%(g) 13.66% 12.00% 9.66% (7.75%)(g) - ---------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 2.30%, 3.40% and 21.26% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 25 - -------------------------------------------------------------------------------- CLASS C - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended July 31, 2006(h) 2005 2004 2003 2002(b) Net asset value, beginning of period $5.77 $5.29 $4.94 $4.52 $4.9 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .02 .01 -- .01 -- Net gains (losses) (both realized and unrealized) .20 .70 .60 .42 (.38) - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .22 .71 .60 .43 (.38) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) -- (.01) (.01) -- Distributions from realized gains (.29) (.23) (.24) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.31) (.23) (.25) (.01) -- - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.68 $5.77 $5.29 $4.94 $4.52 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $1 $1 $1 $1 $-- - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 1.94%(d) 2.06% 2.00%(e) 2.00%(e) 1.95%(d),(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .76%(d) .30% .19% .26% (.45%)(d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 29% 57% 59% 77% 9% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(f) 4.00%(g) 13.62% 12.19% 9.50% (7.75%)(g) - ---------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 2.30%, 3.40% and 21.26% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - -------------------------------------------------------------------------------- 26 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- CLASS I - ----------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------- Fiscal period ended July 31, 2006(h) 2005 2004(b) Net asset value, beginning of period $5.86 $5.36 $5.57 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06 .07 .03 Net gains (losses) (both realized and unrealized) .20 .72 (.24) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .26 .79 (.21) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.06) -- Distributions from realized gains (.29) (.23) -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.39) (.29) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.73 $5.86 $5.36 - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $37 $38 $16 - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .73%(d) .86% .93%(d),(e) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.97%(d) 1.50% 1.33%(d) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 29% 57% 59% - ----------------------------------------------------------------------------------------------------------- Total return(f) 4.57%(g) 14.97% (3.77%)(g) - ----------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date is March 4, 2004. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 1.02% for the period ended July 31, 2004. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 27 - -------------------------------------------------------------------------------- CLASS Y - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended July 31, 2006(h) 2005 2004 2003 2002(b) Net asset value, beginning of period $5.85 $5.36 $4.99 $4.52 $4.90 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05 .07 .04 .03 -- Net gains (losses) (both realized and unrealized) .20 .70 .61 .45 (.38) - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .25 .77 .65 .48 (.38) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.05) (.04) (.01) -- Distributions from realized gains (.29) (.23) (.24) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.37) (.28) (.28) (.01) -- - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.73 $5.85 $5.36 $4.99 $4.52 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $-- $-- $-- $-- $-- - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .99%(d) 1.11% 1.06%(e) .95%(e) 1.01%(d),(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.70%(d) 1.25% 1.12% 1.30% .31%(d) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 29% 57% 59% 77% 9% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(f) 4.45%(g) 14.67% 13.14% 10.76% (7.75%)(g) - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 27, 2002 (when shares became publicly available) to July 31, 2002. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (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 Y would have been 1.36%, 2.46% and 20.32% for the periods ended July 31, 2004, 2003 and 2002, respectively. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Jan. 31, 2006 (Unaudited). - -------------------------------------------------------------------------------- 28 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- FUND EXPENSES EXAMPLE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Jan. 31, 2006. 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. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 29 - --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED AUG. 1, 2005 JAN. 31, 2006 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $1,042.80 $6.09 1.17% Hypothetical (5% return before expenses) $1,000 $1,019.52 $6.02 1.17% Class B Actual(b) $1,000 $1,039.50 $10.08 1.94% Hypothetical (5% return before expenses) $1,000 $1,015.59 $9.96 1.94% Class C Actual(b) $1,000 $1,040.00 $10.08 1.94% Hypothetical (5% return before expenses) $1,000 $1,015.59 $9.96 1.94% Class I Actual(b) $1,000 $1,045.70 $3.81 .73% Hypothetical (5% return before expenses) $1,000 $1,021.76 $3.76 .73% Class Y Actual(b) $1,000 $1,044.50 $5.16 .99% Hypothetical (5% return before expenses) $1,000 $1,020.43 $5.10 .99%
(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 186/365 (to reflect the one-half year period). (b) -Based on the actual return for the six months ended Jan. 31, 2006: +4.28% for Class A, +3.95% for Class B, +4.00% for Class C, +4.57% for Class I and +4.45% for Class Y. - -------------------------------------------------------------------------------- 30 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial, formerly American Express Financial Corporation), serves as the investment manager to the Fund. Under an investment management services agreement (the IMS Agreement), the investment manager provides investment advice and other services to the Fund. Throughout the year, the Fund's Board of Directors (the Board) and the Board's Investment Review and Contracts Committees monitor these services. Ameriprise Financial had served as investment manager to the Fund until Sept. 29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise Financial transferred its rights, title, and interest and its burdens and obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary. Each year, the Board determines whether to continue the IMS Agreement by evaluating the quality and level of services received and the costs associated with those services. To assist the Board in making this determination, the investment manager prepares detailed reports for the Board and its Contracts Committee in March and April and provides data prepared by independent organizations. The Board gives considerable weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the IMS Agreement. BACKGROUND This past year, prior to the Board's annual review process, on Feb. 1, 2005, American Express Company, the former parent of Ameriprise Financial, announced its intention to pursue a spin-off of Ameriprise Financial by distributing shares of the common stock of Ameriprise Financial to shareholders of American Express Company. Following this announcement, the Board determined to proceed with its annual review process and, after thorough review of the reports and data provided, at a meeting held in person on April 14, 2005, the Board, including all of its independent members, determined that the quality and level of advisory services provided pursuant to the IMS Agreement were satisfactory and that fees were fair and reasonable. However, in light of the announced plans of the spin-off, the Board approved continuation of the IMS Agreement with Ameriprise Financial for only an interim period ending on the later of (i) the effective date of the spin-off; or (ii) the approval of a new IMS Agreement with Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in no event for a period longer than one year. During the course of the six-month period following the April 2005 meeting, the Board evaluated whether to approve new investment management services agreements for each of the funds within the Ameriprise Financial fund complex (together, the Funds) with post-spin Ameriprise Financial (or RiverSource). Independent counsel, Schulte Roth & Zabel LLP (Schulte), assisted the Boards in fulfilling their statutory and other responsibilities associated with the spin-off and the resulting consideration of new contracts, including the new IMS Agreement. The Board and its committees were provided with a wealth of written and oral information in this regard. Furthermore, in connection with the Board's considerations as to whether post-spin Ameriprise Financial, as an entity independent from American Express Company, would be capable of continuing to provide a high quality of services to the Funds, - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 31 - -------------------------------------------------------------------------------- the Board's independent members retained their own financial adviser, Credit Suisse First Boston LLC (CSFB), to assist them in analyzing the capital adequacy of post-spin Ameriprise Financial. (The costs of independent counsel and CSFB and of additional meetings of the Boards were borne by Ameriprise Financial as part of the commitment of the American Express Company to ensure a complete and thorough review of the proposed spin-off and its effect on the services provided by Ameriprise Financial and its subsidiaries.) At a meeting of the Board held on Sept. 8, 2005, the Board, including all of its independent members, approved, and recommended that shareholders approve, a proposed new IMS Agreement with RiverSource (the New IMS Agreement). At a meeting of the Fund's shareholders held on Feb. 15, 2006, shareholders approved the New IMS Agreement. The following section, "Board Considerations Related to the New IMS Agreement," provides a detailed discussion of the Board's considerations and determinations respecting the New IMS Agreement. BOARD CONSIDERATIONS RELATED TO THE NEW IMS AGREEMENT In carrying out its legal responsibilities associated with the consideration of the New IMS Agreement, the Board evaluated the following factors: Nature, Extent and Quality of Services to be Provided by Post-Spin Ameriprise Financial (and Its Subsidiaries) The Board recognized that only a few months had passed since its April 2005 conclusion that the nature, extent and quality of services provided by Ameriprise Financial were satisfactory and consistent with those that would be expected for a fund family of the size of the Funds and its determination to renew the IMS Agreement for the interim period. However, the Board also recognized the need to supplement this assessment with an evaluation of whether the spin-off or other factors would result in changes to the advisory services being provided under the current IMS Agreement. The Board focused its evaluation on the following factors potentially impacting the nature, extent and quality of advisory services to be provided by Ameriprise Financial: (i) Ameriprise Financial's projected capital structure and capital adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its ability to retain and attract personnel; and (iv) its ability to successfully re-brand its products and services. Based on extensive presentations and reports by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed capital structure (which includes certain indemnification commitments made by American Express Company) should enable RiverSource to continue to provide a high quality and level of advisory services to the Fund. In making this determination, the Board took into account representations by management of Ameriprise Financial that projected capital levels would allow Ameriprise Financial and RiverSource to meet legal and compliance responsibilities, build their distribution network, pursue technological upgrades, make capital commitments necessary to retain and attract key personnel devoted to legal and compliance responsibilities, portfolio management and distribution, and pursue smaller asset management acquisitions to help grow the asset management business. The Board accorded significant weight to CSFB's confirmation as to the reasonableness of the proposed capital structure. The Board also considered the fact that there were no expected departures of key personnel involved in the portfolio management, operations and marketing of the Funds as a result of the announcement of the spin-off. - -------------------------------------------------------------------------------- 32 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- The Board concluded that, based on all of the materials and information provided, post-spin Ameriprise Financial (including RiverSource) would be in a position to continue to provide a high quality and level of advisory services to the Fund. Investment Performance The Board next focused on investment performance. The Board reviewed reports documenting the Fund's performance over one-, three- and/or five-year periods, as well as the entire period during which its current portfolio manager has managed the Fund, and compared to relevant Lipper and market indices. The Board took into account its determination in April 2005 that although investment performance in 2004 was below median, it was consistent with the management style of the Fund in light of market conditions in 2004. The Board also considered that it had been receiving monthly performance reports for the Fund and that there had been no significant deviations from April's overall performance data. Cost of Services Provided The Board evaluated comparative fees and the costs of services under the current IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise Financial (including RiverSource and other subsidiaries) to institutional clients. The Board studied RiverSource's effort (i.e., its "pricing philosophy") to set substantially all Funds' total expense ratios at or below the median expense ratio of comparable mutual funds (as compiled by Lipper). The Board observed that the proposed advisory fee changes are designed to work in tandem with proposed changes to administrative services fees. It also noted that RiverSource has agreed to voluntarily impose expense caps or waivers to achieve this pricing objective whenever the expense ratio exceeded the median expense ratio by more than three basis points (unless the higher ratio was due to the impact of the performance fee adjustment). The Board considered that advisory fees under the New IMS Agreement would stay the same. The Board also took into account the effect of the proposed performance incentive adjustment on the advisory fee. In this regard, the Board recalled its past determinations regarding the appropriateness of (i) the use of the relevant index for the performance comparison; (ii) the methodology for determining when the Board may change an index used to calculate the performance incentive adjustment; (iii) the periods used for averaging the Fund's assets and computing investment performance; and (iv) the length of the period over which performance is computed. The Board next considered the expected profitability to Ameriprise Financial and RiverSource derived from their relationship with the Fund, recalling the April 2005 determination that the profitability level was appropriate. The Board noted that projected profitability of Ameriprise Financial would allow it to operate effectively and, at the same time, reinvest in RiverSource and its other asset management businesses. The Board also considered that the proposed changes in advisory fees and the mergers of certain other Funds would result in revenue gains to Ameriprise Financial, but that these increases would not materially alter profit margins due to expected increases in costs associated with the spin-off, particularly re-branding and separation. CSFB also reported that Ameriprise Financial's projected level of return on equity was generally reasonable in light of the returns on equity of its industry competitors. In evaluating profitability, the Board also considered the benefits Ameriprise Financial obtains through the use of commission dollars paid on portfolio transactions for the Fund and from - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 33 - -------------------------------------------------------------------------------- other business relationships that result from managing the Fund. The Board also considered the fees charged by Ameriprise Financial (and its subsidiaries) to institutional clients as well as the fees paid to, and charged by, subadvisers, noting the differences in services provided in each case. In light of these considerations, the Board concluded that projected profitability levels were appropriate. Economies of Scale The Board also considered the "breakpoints" in fees that would be triggered as Fund net asset levels grew and the extent to which shareholders would benefit from such growth. The Board observed that the revised fee schedules under the proposed New IMS Agreement would continue to provide breakpoints similar to those in place pursuant to the current IMS Agreement. Accordingly, the Board concluded that the proposed New IMS Agreement provides adequate opportunity for shareholders to realize benefits as Fund assets grow Other Considerations In addition, the Board accorded weight to the fact that, under the New IMS Agreement, RiverSource Investments is held to a higher standard of care than under the current IMS Agreement. The Board also noted Ameriprise Financial's commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. Furthermore, the Board recognized that it was not limited to considering management's proposed New IMS Agreement. In this regard, the Board evaluated the circumstances under which it would consider the retention of an investment adviser different from RiverSource Investments. The Board concluded, based on its consultation with independent counsel, that pursuing the retention of a different adviser was not necessary, primarily because, in its best judgment, Ameriprise Financial continues to be basically the same organization (from a functional and managerial standpoint), as it was prior to the spin-off. The Board reasoned that shareholders purchased shares of the Fund with an expectation that the current investment advisory organization would be servicing the Fund. - -------------------------------------------------------------------------------- 34 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- PROXY VOTING The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website www.riversource.com/funds; or by searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283; by looking at the website www.riversource.com/funds; or by searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 35 - -------------------------------------------------------------------------------- RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE LARGE CAP VALUE FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. 1. ELECTION OF BOARD MEMBERS KATHLEEN BLATZ Affirmative 115,509,497.10 Withhold 3,367,597.54 Abstain 0.00 TOTAL 118,877,094.64 ARNE H. CARLSON Affirmative 115,045,986.04 Withhold 3,831,108.60 Abstain 0.00 TOTAL 118,877,094.64 PATRICIA M. FLYNN Affirmative 115,665,095.43 Withhold 3,211,999.21 Abstain 0.00 TOTAL 118,877,094.64 ANNE P. JONES Affirmative 115,001,743.79 Withhold 3,875,350.85 Abstain 0.00 TOTAL 118,877,094.64 JEFFREY LAIKIND Affirmative 114,732,791.01 Withhold 4,144,303.63 Abstain 0.00 TOTAL 118,877,094.64 - -------------------------------------------------------------------------------- 36 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- STEPHEN R. LEWIS, JR. Affirmative 115,281,612.45 Withhold 3,595,482.19 Abstain 0.00 TOTAL 118,877,094.64 CATHERINE JAMES PAGLIA Affirmative 115,529,555.00 Withhold 3,347,539.64 Abstain 0.00 TOTAL 118,877,094.64 VIKKI L. PRYOR Affirmative 115,667,637.87 Withhold 3,209,456.77 Abstain 0.00 TOTAL 118,877,094.64 ALAN K. SIMPSON Affirmative 114,173,016.72 Withhold 4,704,077.92 Abstain 0.00 TOTAL 118,877,094.64 ALISON TAUNTON-RIGBY Affirmative 115,640,728.62 Withhold 3,236,366.02 Abstain 0.00 TOTAL 118,877,094.64 WILLIAM F. TRUSCOTT Affirmative 115,172,707.81 Withhold 3,704,386.83 Abstain 0.00 TOTAL 118,877,094.64 - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 37 - -------------------------------------------------------------------------------- 2. AMEND THE ARTICLES OF INCORPORATION TO PERMIT THE BOARD TO ESTABLISH THE MINIMUM ACCOUNT VALUE AND TO CHANGE THE NAME OF THE CORPORATION Affirmative 114,338,695.34 Against 2,513,956.95 Abstain 2,024,442.35 Broker Non-votes 0.00 TOTAL 118,877,094.64 3. APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC Affirmative 113,721,733.09 Against 2,862,066.64 Abstain 2,293,294.91 Broker Non-votes 0.00 TOTAL 118,877,094.64 4. APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES A. DIVERSIFICATION Affirmative 114,087,870.16 Against 2,617,639.63 Abstain 2,171,584.85 Broker Non-votes 0.00 TOTAL 118,877,094.64 B. LENDING Affirmative 112,546,349.02 Against 4,250,080.22 Abstain 2,080,665.40 Broker Non-votes 0.00 TOTAL 118,877,094.64 C. BORROWING Affirmative 114,431,355.66 Against 2,309,834.97 Abstain 2,135,904.01 Broker Non-votes 0.00 TOTAL 118,877,094.64 - -------------------------------------------------------------------------------- 38 -- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- THIS PAGE LEFT BLANK INTENTIONALLY - -------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP VALUE FUND -- 2006 SEMIANNUAL REPORT -- 39 - -------------------------------------------------------------------------------- [RIVERSOURCE(SM) INVESTMENTS logo] RIVERSOURCE INVESTMENTS 200 AMERIPRISE FINANCIAL CENTER MINNEAPOLIS, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. RiverSource Funds are managed by RiverSource Investments, LLC and distributed by Ameriprise Financial Services, Inc., Member NASD. Both companies are part of Ameriprise Financial, Inc. Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Not applicable for semi-annual reports. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) AXP Growth Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date April 3, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date April 3, 2006 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date April 3, 2006 EX-99.CERT 2 growthseries_cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Paula Meyer, certify that: 1. I have reviewed this report on Form N-CSR of AXP Growth Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 17, 2006 /s/ Paula R. Meyer -------------------------------- Name: Paula R. Meyer Title: President and Chief Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey Fox, certify that: 1. I have reviewed this report on Form N-CSR of AXP Growth Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 17, 2006 /s/ Jeffrey P. Fox -------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 3 growthseries_906cert.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION AXP Growth Series, Inc. (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: March 17, 2006 /s/ Paula R. Meyer ----------------- Paula R. Meyer President and Chief Executive Officer Date: March 17, 2006 /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----