N-CSR 1 stock-ncsr.txt AXP STOCK 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 811-498 ----------- AXP STOCK 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: 9/30 -------------- Date of reporting period: 9/30 -------------- Annual Report RIVERSOURCE INVESTMENTS(SM) LOGO] RiverSource(SM) Stock Fund Annual Report for the Period Ended Sept. 30, 2005 > RiverSource Stock Fund (formerly AXP(R)Stock Fund) seeks to provide shareholders with current income and growth of capital. Table of Contents Fund Snapshot 3 Performance Summary 4 Questions & Answers with Portfolio Management 5 The Fund's Long-term Performance 10 Investments in Securities 12 Financial Statements (Portfolio) 18 Notes to Financial Statements (Portfolio) 20 Report of Independent Registered Public Accounting Firm (Portfolio) 24 Financial Statements (Fund) 25 Notes to Financial Statements (Fund) 28 Report of Independent Registered Public Accounting Firm (Fund) 38 Federal Income Tax Information 39 Fund Expenses Example 41 Board Members and Officers 43 Approval of Investment Management Services Agreement 46 Proxy Voting 51 [DALBAR LOGO] American Express(R) Funds'* reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. * As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the name of the American Express Funds. -------------------------------------------------------------------------------- 2 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Fund Snapshot AT SEPT. 30, 2005 PORTFOLIO MANAGERS Portfolio managers Since Years in industry Scott Mullinix, CFA 6/04 16 Dimitris Bertsimas, Ph.D. 10/04 12 Gina Mourtzinou, Ph.D. 10/04 9 FUND OBJECTIVE For investors seeking current income and growth of capital. Inception dates by class A: 4/6/45 B: 3/20/95 C: 6/26/00 I: 3/4/04 Y: 3/20/95 Ticker symbols by class A: INSTX B: IDSBX C: -- I: -- Y: IDSYX Total net assets $1.928 billion Number of holdings 251 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. STYLE VALUE BLEND GROWTH X LARGE MEDIUM SIZE SMALL SECTOR COMPOSITION Percentage of portfolio assets [PIE CHART] Health Care 16.8% Financials 16.0% Energy 13.1% Information Technology 12.0% Consumer Staples 11.2% Consumer Discretionary 9.5% Industrials 8.8% Utilities 5.2% Telecommunication Services 4.5% Materials 1.9% Short-Term Securities* 1.0% * Of the 1.0%, 0.6% is due to security lending activity and 0.4% is the Portfolio's cash equivalent position. TOP TEN HOLDINGS Percentage of portfolio assets Exxon Mobil (Oil & Gas) 4.0% Altria Group (Tobacco) 3.6 UnitedHealth Group (Health Care Providers & Services) 3.1 Johnson & Johnson (Pharmaceuticals) 2.8 Citigroup (Diversified Financial Services) 2.1 Chevron (Oil & Gas) 1.8 Hewlett-Packard (Computers & Peripherals) 1.8 Microsoft (Software) 1.7 Caterpillar (Machinery) 1.7 Procter & Gamble (Household Products) 1.5 For further detail about these holdings, please refer to the section entitled "Investments in Securities." The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. Fund holdings are subject to change. -------------------------------------------------------------------------------- 3 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Performance Summary [BAR CHART] PERFORMANCE COMPARISON For the year ended Sept. 30, 2005 +12.58% +12.25% +11.47% +12.58% = RiverSource Stock Fund Class A (excluding sales charge) +12.25% = Standard & Poor's 500 Index (unmanaged) +11.47% = Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.riversource.com/investments. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes.
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class I Class Y (Inception dates) (4/6/45) (3/20/95) (6/26/00) (3/4/04) (3/20/95) After After NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6) at Sept. 30, 2005 1 year +12.58% +6.11% +11.72% +6.72% +11.72% +10.72% +13.07% +12.83% 3 years +12.75% +10.54% +11.88% +10.81% +11.88% +11.88% N/A +12.96% 5 years -2.51% -3.66% -3.27% -3.61% -3.27% -3.27% N/A -2.35% 10 years +6.46% +5.84% +5.65% +5.65% N/A N/A N/A +6.62% Since inception +9.79% +9.68% +6.71% +6.71% -2.96% -2.96% +5.32% +7.68%
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 5.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to eligible investors only, currently limited to RiverSource Portfolio Builder Funds, six affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. -------------------------------------------------------------------------------- 4 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, RiverSource(SM) Stock Fund's (formerly AXP(R) Stock Fund) portfolio management team -- Scott Mullinix in Minneapolis and Dimitris Bertsimas and Gina Mourtzinou in Cambridge, Mass. -- discuss the Fund's results and positioning for the 2005 fiscal year. In October 2004, Bertsimas and Mourtzinou began managing approximately 25% of the Fund's assets using a quantitative investing approach. At fiscal year-end, they managed 50% of the Fund's assets. Shareholders will be asked to approve a merger of the Fund into RiverSource Disciplined Equity Fund at a shareholder meeting on Feb. 15, 2006. This approval is not guaranteed. Q: How did RiverSource Stock Fund perform for the 12 months ended Sept. 30, 2005? A: RiverSource(SM) Stock Fund's Class A shares rose 12.58%, excluding sales charge for the 12 months ended Sept. 30, 2005. The Fund outperformed its benchmark, the broad-based Standard & Poor's 500 Index (S&P 500 Index), which rose 12.25% for the same period. The Fund's peer group, as represented by the Lipper Large-Cap Core Funds Index, gained 11.47%. Q: What factors most significantly affected performance? Bertsimas and Mourtzinou: In October 2004, we began managing a portion of the Fund using a quantitative approach. The performance of our portfolio segment has been quite strong, significantly outpacing the S&P 500 Index. We rely on three separate, time-tested models -- a momentum model, a value model and a quality model -- to select individual stocks for the portfolio. Overall, the stocks chosen by the momentum model were the most significant contributors to performance during the period. The momentum model outperformed the S&P 500 Index throughout the period. The value model also outperformed, but not as dramatically. The quality model lagged the benchmark, but strong results from the other models more than compensated, which is a key benefit of our multiple model approach. Sector weightings within our portfolio segment are a byproduct of stock selection rather than a top-down strategy. During this period, our models favored energy stocks and the Fund's large exposure to the sector was particularly beneficial. Three of the Fund's five largest positive contributors were in the energy sector -- Exxon Mobil, ConocoPhillips and Chevron Texaco. Energy stocks advanced sharply this year in response to high oil and natural gas prices and supply problems that intensified when Hurricanes Katrina and Rita damaged production capabilities on the U.S. Gulf Coast. -------------------------------------------------------------------------------- 5 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Questions & Answers [BEGIN CALLOUT QUOTE]> Overall, the stocks chosen by the momentum model were the most significant contributors to performance during the period. [END CALLOUT QUOTE] -- Bertsimas and Mourtzinou The Fund's smaller-than-S&P 500 Index weighting in technology proved beneficial. Within the sector, Autodesk, which was chosen by our momentum model, was a key contributor. This company develops computer aided mechanical design software as well as other technology platforms and is currently in the midst of a very profitable product cycle that has resulted in strong price appreciation. Stock selection within the consumer staples sector was quite strong, and the Fund's large allocation accounted for a meaningful portion of our outperformance. Food and tobacco stock Altria, which was selected by both our momentum and value models, was one of the largest positive contributors. The stock appeared to be underpriced relative to its earnings as investors were concerned about litigation issues. As some of those issues were resolved during the year, Altria's price rose sharply. Individual stocks in the health care sector also added to performance. During the annual period, our models generally favored telecommunications stocks, leading us to a large weighting in the sector. Telecommunications was the only sector to detract from performance during the period. Individual detractors from performance included mortgage finance company Fannie Mae, which was selected by our value model. Fannie Mae suffered from accounting issues and concerns about increased regulatory oversight. Discount retailer Wal-Mart was another detractor. This stock was chosen by our quality model. Wal-Mart remains a solid company, but has faced near-term concerns about consumer spending, particularly in light of higher energy prices. -------------------------------------------------------------------------------- 6 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Questions & Answers [BEGIN CALLOUT QUOTE]> Stock selection in the energy sector was a key contributor as the sector advanced sharply on continued high energy prices and constrained supplies. [END CALLOUT QUOTE] -- Mullinix Because our separate asset allocation model heavily favored international stocks, we maintained a small international position through holdings of iShares MSCI EAFE Index Fund, an exchange-traded fund based on the MSCI EAFE Index. This position added to Fund performance during the fiscal period. Mullinix: Our segment of the portfolio also performed quite well during the fiscal year. The best performing areas were energy and industrials. Stock selection in the energy sector was a key contributor as the sector advanced sharply on continued high energy prices and constrained supplies. Individual energy stocks that added to relative return included EnCana, a Canadian oil and natural gas company, and Peabody Energy, a coal company. Stock selection in the industrials sector was also favorable, although the portfolio was hampered by its larger-than-S&P 500 position in the underperforming sector. Construction and mining equipment company Caterpillar and industrial automation company Rockwell Automation were two industrial stocks that positively affected performance. Stock selection in the technology sector detracted from performance. Internet search engine Google had a strong positive impact, but wireless equipment company Qualcomm detracted. -------------------------------------------------------------------------------- 7 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Questions & Answers Q: What changes did you make to the Fund and how is it currently positioned? Bertsimas and Mourtzinou: Energy stocks have become slightly less attractive according to our models. Consequently, the Fund's energy position has decreased somewhat, although it is still larger than that of the S&P 500 Index. The Fund's allocation to industrials stocks decreased as well. The industrials position is the Fund's largest underweight relative to the S&P 500 Index. During the period, the momentum model had been favoring industrials stocks, but now considers them less attractive. The allocation to the financials sector also went down a bit and is still less than the S&P 500 Index. The technology allocation remains smaller than the S&P 500 Index weighting, although the position has increased slightly as the models have become slightly less negative on technology stocks. Telecommunications has stayed about the same, with a larger-than-S&P 500 Index position. Mullinix: We moved our segment of the portfolio to a less cyclically oriented positioning over the course of the period. At the beginning of the fiscal year, we were generally optimistic about economic growth and the prospects for the market. As inflation concerns and energy prices have risen, we have tempered our outlook. The Fund's industrials position had been materially larger than that of the S&P 500 Index; the position has since been reduced. We increased the Fund's health care position from a weighting about equal to the S&P 500 Index, up to a larger-than-S&P 500 Index position. Other sectors have been adjusted slightly, with our consumer and materials allocations now even smaller relative to the S&P 500 Index. The financials sector allocation also remains below that of the S&P 500 Index. Q: How do you intend to manage the Fund in the coming months? Bertsimas and Mourtzinou: We will continue to use our three well-tested models, striving to find the best performing stocks regardless of market conditions. We will also continue to monitor weightings as a risk control, so that no individual security, industry or sector becomes too large within the portfolio segment. We also intend to continue to employ our risk controls, including restrictions on market capitalization, price, quality, turnover and transaction costs. Because the portfolio's stocks are selected by a quantitative process, our economic and market outlook is not a meaningful factor in our portfolio management. That said, we think it is likely that our momentum model will - ------------------------------------------------------------------------------- 8 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Questions & Answers continue to outperform through the remainder of the calendar year. However, should it weaken, we would expect the performance of the other two models to help support the Fund's return. That is a primary benefit of combining three separate and diverse models into one strategy. We are optimistic that with this approach the Fund can perform well regardless of the types of stock or sectors leading the market. Mullinix: In our view, stock valuations appeared fair to relatively cheap at fiscal year-end. As a result, we do not see significant valuation risk. We consider the corporate profit outlook to be healthy, but not wildly robust. We see higher inflation, interest rates and energy prices as the most prominent risks currently affecting the market. We consider these risks to be linked and also believe they could resolve themselves in a positive way. However, we are maintaining a cautious strategy in case these risks threaten market performance. We are keeping the Fund's market capitalization a little higher than the S&P 500 Index and have somewhat de-emphasized sector allocations as a means to add value. Though we are looking for outperformance from our positions in the industrial and health care sector, we are mainly trying to add value through stock selection as we have done in the past fiscal year. In terms of individual stocks, we are focused on those with positive fundamentals that are leaders in their industries and exhibit attractive valuations. Overall, the Fund is positioned such that we would expect it to participate in any market advance, but also effectively weather any downturns. -------------------------------------------------------------------------------- 9 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Stock Fund Class A shares (from 10/1/95 to 9/30/05) as compared to the performance of two widely cited performance indices, the Standard & Poor's 500 Index (S&P 500 Index) and the Lipper Large-Cap Core Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.riversource.com/investments. Also see "Past Performance" in the Fund's current prospectus. DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements. Class A Short-term Long-term Fiscal year ended Income capital gains capital gains Total Sept. 30, 2005 $0.25 $ -- $ -- $0.25 Sept. 30, 2004 0.19 -- -- 0.19 Sept. 30, 2003 0.18 -- -- 0.18 Sept. 30, 2002 0.17 -- -- 0.17 Sept. 30, 2001 0.18 0.88 1.93 2.99 -------------------------------------------------------------------------------- 10 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE STOCK FUND Riversource Stock Fund (includes sales charge) $9,425 $10,979 $14,297 $14,589 $17,172 $20,021 $15,042 $12,304 $14,277 $15,664 $17,635 S&P 500 Index $10,000 $12,034 $16,901 $18,430 $23,554 $26,682 $19,576 $15,565 $19,363 $22,049 $24,750 Lippper Large-Cap Core Funds Index $10,000 $11,803 $15,955 $16,992 $21,242 $25,006 $18,032 $14,689 $17,637 $19,517 $21,756 `95 `96 `97 `98 `99 `00 `01 `02 `03 `04 `05
COMPARATIVE RESULTS Results at Sept. 30, 2005 Since 1 year 3 years 5 years 10 years inception(3) RiverSource Stock Fund (includes sales charge) Class A Cumulative value of $10,000 $10,611 $13,507 $8,299 $17,635 $2,673,656 Average annual total return +6.11% +10.54% -3.66% +5.84% +9.68% S&P 500 Index(1) Cumulative value of $10,000 $11,225 $15,901 $9,277 $24,750 N/A Average annual total return +12.25% +16.72% -1.49% +9.49% N/A Lipper Large-Cap Core Funds Index(2) Cumulative value of $10,000 $11,147 $14,812 $8,699 $21,756 N/A Average annual total return +11.47% +13.99% -2.75% +8.08% N/A
Results for other share classes can be found on page 4. (1) The S&P 500 Index, an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (2) The Lipper Large-Cap Core Funds Index includes the 30 largest large-cap core funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. See "Fund Management and Compensation" for more information. (3) Fund data is from April 6, 1945. The Fund began operating before the inception of the S&P 500 Index and the Lipper peer group. -------------------------------------------------------------------------------- 11 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Investments in Securities Equity Portfolio Sept. 30, 2005 (Percentages represent value of investments compared to net assets) Common Stocks (96.8%) Issuer Shares Value(a) Aerospace & Defense (2.9%) Boeing 253,530 $17,227,364 General Dynamics 2,866 342,630 Goodrich 23,131 1,025,629 Honeywell Intl 220,000 8,250,000 Lockheed Martin 150,000 9,156,000 Rockwell Collins 55,762 2,694,420 United Technologies 335,544 17,394,600 Total 56,090,643 Air Freight & Logistics (0.1%) FedEx 11,782 1,026,566 Auto Components (0.1%) Dana 30,576 287,720 Delphi 111,477 307,677 Johnson Controls 25,635 1,590,651 Total 2,186,048 Automobiles (0.6%) Ford Motor 512,472 5,052,974 General Motors 151,189(d) 4,627,895 Harley-Davidson 51,295 2,484,730 Total 12,165,599 Beverages (1.8%) Coca-Cola 448,176 19,356,721 Constellation Brands Cl A 74,283(b) 1,931,358 PepsiCo 234,777 13,314,204 Total 34,602,283 Biotechnology (0.7%) Amgen 150,000(b) 11,950,500 Gilead Sciences 29,741(b) 1,450,171 Total 13,400,671 Capital Markets (2.4%) Bear Stearns Companies 13,037 1,430,811 Franklin Resources 94,915 7,969,063 Goldman Sachs Group 150,000 18,237,001 Janus Capital Group 64,951 938,542 Common Stocks (continued) Issuer Shares Value(a) Capital Markets (cont.) Lehman Brothers Holdings 111,553 $12,993,693 Merrill Lynch & Co 34,591 2,122,158 Morgan Stanley 59,546 3,211,911 Total 46,903,179 Chemicals (0.3%) Dow Chemical 56,605 2,358,730 Monsanto 68,798 4,317,075 Total 6,675,805 Commercial Banks (2.7%) Bank of America 210,000 8,841,000 Comerica 21,570 1,270,473 KeyCorp 43,553 1,404,584 Natl City 172,364 5,763,852 PNC Financial Services Group 98,614 5,721,584 US Bancorp 330,000 9,266,400 Wachovia 27,465 1,307,059 Wells Fargo & Co 320,000 18,742,401 Total 52,317,353 Commercial Services & Supplies (--%) Equifax 27,434 958,544 Communications Equipment (1.4%) Cisco Systems 480,000(b) 8,606,400 Comverse Technology 71,637(b) 1,881,904 Corning 356,027(b) 6,882,002 Motorola 360,000 7,952,400 Tellabs 102,379(b) 1,077,027 Total 26,399,733 Computers & Peripherals (3.5%) Apple Computer 251,040(b) 13,458,254 Dell 90,000(b) 3,078,000 EMC 580,000(b) 7,505,200 Gateway 251,317(b) 678,556 Hewlett-Packard 1,155,152 33,730,438 Lexmark Intl Cl A 15,641(b) 954,883 NCR 40,190(b) 1,282,463 Network Appliance 107,784(b) 2,558,792 QLogic 145,178(b) 4,965,088 Total 68,211,674 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 12 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Common Stocks (continued) Issuer Shares Value(a) Construction & Engineering (--%) Fluor 13,516 $870,160 Consumer Finance (0.8%) MBNA 79,188 1,951,192 Providian Financial 52,700(b) 931,736 SLM 220,000 11,800,800 Total 14,683,728 Distributors (0.1%) Genuine Parts 28,762 1,233,890 Diversified Financial Services (3.4%) CIT Group 34,530 1,560,065 Citigroup 867,558 39,491,241 iShares MSCI EAFE Index Fund 407,600 23,677,484 Moody's 20,581 1,051,277 Total 65,780,067 Diversified Telecommunication Services (4.4%) AT&T 386,118 7,645,136 BellSouth 679,135 17,861,251 SBC Communications 963,781 23,101,830 Sprint Nextel 667,110 15,863,876 Verizon Communications 599,438 19,595,628 Total 84,067,721 Electric Utilities (3.4%) Allegheny Energy 49,289(b) 1,514,158 American Electric Power 61,522 2,442,423 CenterPoint Energy 81,337 1,209,481 DTE Energy 7,313 335,374 Edison Intl 31,102 1,470,503 Exelon 207,773 11,103,389 FPL Group 51,979 2,474,200 PG&E 108,523 4,259,528 PPL 440,000 14,225,201 Southern 360,000 12,873,600 TECO Energy 99,311 1,789,584 TXU 101,331 11,438,243 Xcel Energy 51,961 1,018,955 Total 66,154,639 Electrical Equipment (0.4%) American Power Conversion 72,997 1,890,622 Rockwell Automation 121,883(d) 6,447,611 Total 8,338,233 Electronic Equipment & Instruments (0.2%) Jabil Circuit 31,906(b) 986,534 Sanmina-SCI 787,345(b) 3,377,710 Total 4,364,244 Common Stocks (continued) Issuer Shares Value(a) Energy Equipment & Services (2.5%) Baker Hughes 180,000 $10,742,400 Halliburton 218,157 14,948,117 Natl Oilwell Varco 21,945(b) 1,443,981 Noble 32,093 2,197,087 Schlumberger 100,000 8,438,000 Transocean 173,396(b) 10,630,909 Total 48,400,494 Food & Staples Retailing (2.5%) Albertson's 82,337 2,111,944 CVS 402,856 11,686,853 Kroger 183,056(b) 3,769,123 Safeway 129,805 3,323,008 SYSCO 42,579 1,335,703 Wal-Mart Stores 591,524 25,920,582 Total 48,147,213 Food Products (1.4%) Archer-Daniels-Midland 202,405 4,991,307 Hershey 23,734 1,336,462 Kellogg 220,000 10,148,600 WM Wrigley Jr 150,000 10,782,000 Total 27,258,369 Health Care Equipment & Supplies (2.6%) Baxter Intl 190,000 7,575,300 Becton, Dickinson & Co 24,737 1,296,961 Guidant 20,378 1,403,840 Medtronic 436,831 23,422,879 St. Jude Medical 180,000(b) 8,424,000 Stryker 145,000 7,167,350 Total 49,290,330 Health Care Providers & Services (6.8%) Aetna 107,567 9,265,821 Cardinal Health 46,110 2,925,218 Caremark Rx 108,287(b) 5,406,770 CIGNA 86,047 10,141,499 Express Scripts 20,594(b) 1,280,947 HCA 113,610 5,444,191 Humana 51,440(b) 2,462,947 McKesson 78,501 3,724,872 Medco Health Solutions 63,244(b) 3,467,669 Quest Diagnostics 39,405 1,991,529 Tenet Healthcare 69,745(b) 783,236 UnitedHealth Group 1,051,384 59,087,782 WellPoint 334,149(b) 25,335,178 Total 131,317,659 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 13 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Common Stocks (continued) Issuer Shares Value(a) Hotels, Restaurants & Leisure (1.6%) Darden Restaurants 50,646 $1,538,119 Harrah's Entertainment 189,387 12,346,139 Marriott Intl Cl A 208,825 13,155,974 Wendy's Intl 22,198 1,002,240 Yum! Brands 55,583 2,690,773 Total 30,733,245 Household Durables (1.2%) Centex 73,255 4,730,808 DR Horton 191,481 6,935,442 KB HOME 53,290 3,900,828 Pulte Homes 110,575 4,745,879 Stanley Works 4,742 221,357 Whirlpool 21,968 1,664,515 Total 22,198,829 Household Products (1.6%) Kimberly-Clark 38,134 2,270,117 Procter & Gamble 480,000 28,540,800 Total 30,810,917 Industrial Conglomerates (1.9%) 3M 122,286 8,970,901 General Electric 810,000 27,272,700 Total 36,243,601 Insurance (4.5%) ACE 12,982(c) 611,063 Allstate 274,851 15,196,511 Ambac Financial Group 43,792 3,155,652 American Intl Group 190,000 11,772,400 Aon 56,826 1,822,978 Chubb 124,009 11,105,006 Hartford Financial Services Group 19,040 1,469,317 Jefferson-Pilot 14,239 728,610 Lincoln Natl 62,101 3,230,494 Loews 38,931 3,597,614 Marsh & McLennan Companies 95,414 2,899,631 MBIA 53,750 3,258,325 Prudential Financial 161,681 10,923,168 Safeco 18,055 963,776 St. Paul Travelers Companies 316,775 14,213,694 Torchmark 22,084 1,166,698 UnumProvident 76,942 1,577,311 Total 87,692,248 Internet & Catalog Retail (0.2%) eBay 83,280(b) 3,431,136 Common Stocks (continued) Issuer Shares Value(a) Internet Software & Services (0.7%) Google Cl A 25,000(b) $7,911,500 Yahoo! 140,000(b) 4,737,600 Total 12,649,100 IT Services (0.4%) Affiliated Computer Services Cl A 19,858(b) 1,084,247 Automatic Data Processing 21,107 908,445 Convergys 108,755(b) 1,562,809 Electronic Data Systems 95,135 2,134,830 Sabre Holdings Cl A 53,261 1,080,133 Unisys 153,647(b,g) 1,020,216 Total 7,790,680 Leisure Equipment & Products (0.2%) Eastman Kodak 115,450 2,808,899 Mattel 120,252 2,005,803 Total 4,814,702 Machinery (2.2%) Caterpillar 533,574 31,347,473 Ingersoll-Rand Cl A 25,846(c) 988,093 ITT Inds 82,384 9,358,822 PACCAR 14,299 970,759 Total 42,665,147 Media (0.4%) Time Warner 300,000 5,433,000 Walt Disney 121,048 2,920,888 Total 8,353,888 Metals & Mining (1.5%) BHP Billiton ADR 325,000(c) 11,108,500 Nucor 10,550 622,345 Peabody Energy 80,000 6,748,000 Phelps Dodge 87,001 11,304,039 Total 29,782,884 Multi-Utilities & Unregulated Power (1.7%) AES 254,585(b) 4,182,832 CMS Energy 111,348(b) 1,831,675 Constellation Energy Group 23,442 1,444,027 Dominion Resources 122,059 10,514,161 Duke Energy 244,784 7,140,349 Public Service Enterprise Group 82,300 5,296,828 Sempra Energy 35,742 1,682,019 Total 32,091,891 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 14 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Common Stocks (continued) Issuer Shares Value(a) Multiline Retail (2.3%) Dollar General 81,264 $1,490,382 Family Dollar Stores 38,890 772,744 Federated Dept Stores 90,167 6,029,467 JC Penney 32,168 1,525,407 Kohl's 150,000(b) 7,527,000 Nordstrom 86,390 2,964,905 Sears Holdings 2,908(b) 361,813 Target 450,000 23,368,500 Total 44,040,218 Oil & Gas (10.4%) Amerada Hess 9,921 1,364,138 Anadarko Petroleum 28,997 2,776,463 BG Group ADR 290,000(c) 13,830,100 Chevron 522,473 33,819,677 ConocoPhillips 340,857 23,829,313 Devon Energy 110,790 7,604,626 El Paso 227,662 3,164,502 EnCana 240,000(c) 13,994,400 EOG Resources 79,258 5,936,424 Exxon Mobil 1,199,078 76,189,416 Kerr-McGee 14,959 1,452,668 Kinder Morgan 38,796 3,730,623 Marathon Oil 31,607 2,178,671 Occidental Petroleum 25,800 2,204,094 Sunoco 43,220 3,379,804 Valero Energy 32,149 3,634,766 Total 199,089,685 Pharmaceuticals (6.3%) Abbott Laboratories 72,778 3,085,787 Bristol-Myers Squibb 565,979 13,617,455 Johnson & Johnson 835,361 52,861,645 Merck & Co 764,577 20,804,140 Pfizer 581,530 14,520,804 Roche Holding ADR 190,000(c) 13,248,795 Wyeth 78,704 3,641,634 Total 121,780,260 Real Estate Investment Turst (0.2%) Apartment Investment & Management Cl A 18,334 710,993 Equity Office Properties Trust 52,744 1,725,256 Simon Property Group 14,650 1,085,858 Total 3,522,107 Common Stocks (continued) Issuer Shares Value(a) Road & Rail (1.1%) Burlington Northern Santa Fe 69,012 $4,126,918 CSX 267,916 12,452,735 Norfolk Southern 74,244 3,011,337 Union Pacific 10,324 740,231 Total 20,331,221 Semiconductors & Semiconductor Equipment (2.4%) Advanced Micro Devices 96,742(b) 2,437,898 Applied Micro Circuits 361,162(b) 1,083,486 Intel 867,380 21,380,917 LSI Logic 100,831(b) 993,185 Maxim Integrated Products 120,000 5,118,000 Natl Semiconductor 44,096 1,159,725 NVIDIA 82,546(b) 2,829,677 Texas Instruments 310,000 10,509,000 Total 45,511,888 Software (3.1%) Adobe Systems 58,882(d) 1,757,628 Autodesk 41,982 1,949,644 Citrix Systems 41,974(b) 1,055,226 Compuware 301,837(b) 2,867,452 Microsoft 1,235,210 31,781,953 Oracle 867,629(b) 10,749,923 SAP ADR 200,000(c) 8,666,000 Symantec 71,785(b) 1,626,648 Total 60,454,474 Specialty Retail (2.3%) AutoNation 46,675(b) 932,100 Best Buy 255,079(g) 11,103,589 Home Depot 613,978 23,417,120 Lowe's Companies 100,000 6,440,000 Office Depot 46,048(b) 1,367,626 Staples 43,797 933,752 Total 44,194,187 Textiles, Apparel & Luxury Goods (0.3%) Coach 28,636(b) 898,025 Liz Claiborne 15,157 595,973 Nike Cl B 47,341 3,866,813 VF 16,538 958,708 Total 6,319,519 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 15 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Common Stocks (continued) Issuer Shares Value(a) Thrifts & Mortgage Finance (1.6%) Countrywide Financial 55,068 $1,816,143 Fannie Mae 287,414 12,881,895 Freddie Mac 106,639 6,020,838 MGIC Investment 28,521 1,831,048 Washington Mutual 206,790 8,110,304 Total 30,660,228 Tobacco (3.6%) Altria Group 926,178 68,268,580 UST 42,237 1,768,041 Total 70,036,621 Total Common Stocks (Cost: $1,714,526,918) $1,866,043,521 Short-Term Securities (1.0%)(e) Issuer Effective Amount Value(a) yield payable at maturity Commercial Paper Alpine Securitization 10-03-05 3.89% $7,600,000(f) $7,597,536 Citigroup Funding 10-03-05 3.89 900,000 899,708 Societe Generale North America 10-03-05 3.76 10,000,000 9,996,867 Total Short-Term Securities (Cost: $18,496,074) $18,494,111 Total Investments in Securities (Cost: $1,733,022,992)(h) $1,884,537,632 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 16 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Notes to Investments in Securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At Sept. 30, 2005, the value of foreign securities represented 3.2% of net assets. (d) At Sept. 30, 2005, security was partially or fully on loan. See Note 5 to the financial statements. (e) Cash collateral received from security lending activity is invested in short-term securities and represents 0.6% of net assets. See Note 5 to the financial statements. 0.4% of net assets is the Portfolio's cash equivalent position. (f) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Sept. 30, 2005, the value of these securities amounted to $7,597,536 or 0.4% of net assets. (g) Partially pledged as initial margin deposit on the following open stock index futures contracts (see Note 4 to the financial statements): Type of security Contracts Purchase contracts S&P 500 Index, Dec. 2005 68 (h) At Sept. 30, 2005, the cost of securities for federal income tax purposes was $1,739,134,415 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $192,876,508 Unrealized depreciation (47,473,291) ----------- Net unrealized appreciation $145,403,217 ------------ The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.riversource.com/investments. -------------------------------------------------------------------------------- 17 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Financial Statements Statement of assets and liabilities Equity Portfolio Sept. 30, 2005 Assets Investments in securities, at value (Note 1)* (identified cost $1,733,022,992) $1,884,537,632 Dividends and accrued interest receivable 2,409,178 Receivable for investment securities sold 56,700,145 ---------- Total assets 1,943,646,955 ------------- Liabilities Disbursements in excess of cash on demand deposit 343,645 Payable for investment securities purchased 3,821,390 Payable upon return of securities loaned (Note 5) 10,845,600 Accrued investment management services fee 26,371 Other accrued expenses 94,442 ------ Total liabilities 15,131,448 ---------- Net assets $1,928,515,507 ============== * Including securities on loan, at value (Note 5) $ 10,494,679 -------------- See accompanying notes to financial statements. -------------------------------------------------------------------------------- 18 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Statement of operations Equity Portfolio Year ended Sept. 30, 2005 Investment income Income: Dividends $ 44,375,628 Interest 981,342 Fee income from securities lending (Note 5) 111,840 Less foreign taxes withheld (25,100) ------- Total income 45,443,710 ---------- Expenses (Note 2): Investment management services fee 9,961,824 Compensation of board members 17,218 Custodian fees 181,769 Audit fees 33,750 Other 80,906 ------ Total expenses 10,275,467 Earnings credits on cash balances (Note 2) (149) ---- Total net expenses 10,275,318 ---------- Investment income (loss) -- net 35,168,392 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 219,675,266 Futures contracts 1,037,011 --------- Net realized gain (loss) on investments 220,712,277 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 1,908,523 --------- Net gain (loss) on investments and foreign currencies 222,620,800 ----------- Net increase (decrease) in net assets resulting from operations $257,789,192 ============
Statements of changes in net assets Equity Portfolio Year ended Sept. 30, 2005 2004 Operations Investment income (loss) -- net $ 35,168,392 $ 35,485,819 Net realized gain (loss) on investments 220,712,277 197,097,988 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 1,908,523 6,927,011 --------- --------- Net increase (decrease) in net assets resulting from operations 257,789,192 239,510,818 ----------- ----------- Proceeds from contributions 59,766,885 19,586,930 Fair value of withdrawals (584,032,050) (428,338,955) ------------ ------------ Net contributions (withdrawals) from partners (524,265,165) (408,752,025) ------------ ------------ Total increase (decrease) in net assets (266,475,973) (169,241,207) Net assets at beginning of year 2,194,991,480 2,364,232,687 ------------- ------------- Net assets at end of year $1,928,515,507 $2,194,991,480 ============== ==============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 19 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Notes to Financial Statements Equity Portfolio 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Equity Portfolio (the Portfolio) is a series of Growth and Income Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Equity Portfolio invests primarily in common stocks and securities convertible into common stocks. In pursuit of its income objective, the Portfolio will invest in income-producing equity securities (such as convertible securities and preferred stocks) and short-term debt instruments (such as commercial paper). The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to U.S generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Trustees of the portfolios, Ameriprise Financial, Inc. (Ameriprise Financial) (formerly American Express Financial Corporation) utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair net asset value. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Option transactions To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Portfolio may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Portfolio also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Portfolio gives up the opportunity for profit if the -------------------------------------------------------------------------------- 20 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT market price of the security increases. The risk in writing a put option is that the Portfolio may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Portfolio pays a premium whether or not the option is exercised. The Portfolio also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Portfolio will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Portfolio may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. -------------------------------------------------------------------------------- 21 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Guarantees and indemnifications Under the Portfolio's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Portfolio. In addition, certain of the Portfolio's contracts with its service providers contain general indemnification clauses. The Portfolio's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Portfolio cannot be determined and the Portfolio has no historical basis for predicting the likelihood of any such claims. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. FEES AND EXPENSES The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with RiverSource Investments, LLC (the Investment Manager) to manage its portfolio. Prior to Oct. 1, 2005, investment management services were provided by Ameriprise Financial. Under this agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Portfolio's average daily net assets that declines from 0.53% to 0.40% annually as the Portfolio's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of RiverSource Stock Fund to the Lipper Large-Cap Core Funds Index. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment decreased the fee by $423,352 for the year ended Sept. 30, 2005. Under the agreement, the Trust also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees, audit and certain legal fees, fidelity bond premiums, registration fees for units, office expenses, consultants' fees, compensation of trustees, corporate filing fees, expenses incurred in connection with lending securities of the Portfolio and any other expenses properly payable by the Trust or Portfolio and approved by the Board. Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the underlying Fund or other RiverSource funds. The Portfolio's liability for these amounts is adjusted for market value changes and remains in the Portfolio until distributed in accordance with the Plan. -------------------------------------------------------------------------------- 22 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT During the year ended Sept. 30, 2005, the Portfolio's custodian fees were reduced by $149 as a result of earnings credits from overnight cash balances. The Portfolio also pays custodian fees to Ameriprise Trust Company (formerly American Express Trust Company), an affiliate of Ameriprise Financial. According to a Placement Agency Agreement, Ameriprise Financial Services, Inc. (formerly American Express Financial Advisors Inc.) acts as placement agent of the Trust's units. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $2,687,689,212 and $3,113,480,622, respectively, for the year ended Sept. 30, 2005. Realized gains and losses are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with Ameriprise Financial were $23,308 for the year ended Sept. 30, 2005. 4. STOCK INDEX FUTURES CONTRACTS At Sept. 30, 2005, investments in securities included securities valued at $5,323,940 that were pledged as collateral to cover initial margin deposits on 68 open purchase contracts. The notional market value of the open purchase contracts at Sept. 30, 2005 was $20,983,100 with a net unrealized gain of $152,424. See "Summary of significant accounting policies" and "Notes to investments in securities." 5. LENDING OF PORTFOLIO SECURITIES At Sept. 30, 2005, securities valued at $10,494,679 were on loan to brokers. For collateral, the Portfolio received $10,845,600 in cash. Cash collateral received is invested in short-term securities, which are included in the short-term section of the "Investments in securities." Income from securities lending amounted to $111,840 for the year ended Sept. 30, 2005. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 6. FINANCIAL HIGHLIGHTS The table below shows certain important financial information for evaluating the Portfolio's results.
Ratios/supplemental data Fiscal period ended Sept. 30, 2005 2004 2003 2002 2001 Ratio of expenses to average daily net assets(a) .49% .47% .47% .49% .48% Ratio of net investment income (loss) to average daily net assets 1.68% 1.48% 1.56% 1.35% 1.27% Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87% Total return(b) 13.05% 10.19% 16.53% (17.87%) (24.59%)
(a) Expense ratio is based on total expenses of the Portfolio before reduction of earnings credits on cash balances. The ratio does not include feeder fund expenses. (b) Total return is based on a calculated Portfolio net asset value and does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 23 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD OF TRUSTEES AND UNITHOLDERS GROWTH AND INCOME TRUST We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of Equity Portfolio (a series of Growth and Income Trust) as of September 30, 2005, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended September 30, 2005, and the financial highlights for each of the years in the five-year period ended September 30, 2005. These financial statements and the financial highlights are the responsibility of portfolio management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Equity Portfolio as of September 30, 2005, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with U.S generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota November 21, 2005 -------------------------------------------------------------------------------- 24 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Financial Statements
Statement of assets and liabilities RiverSource Stock Fund Sept. 30, 2005 Assets Investment in Portfolio (Note 1) $1,928,427,199 Capital shares receivable 3,471 ----- Total assets 1,928,430,670 ------------- Liabilities Capital shares payable 21,923 Accrued distribution fee 693,279 Accrued service fee 910 Accrued transfer agency fee 1,201 Accrued administrative services fee 1,788 Other accrued expenses 142,682 ------- Total liabilities 861,783 ------- Net assets applicable to outstanding capital stock $1,927,568,887 ============== Represented by Capital stock -- $.01 par value (Note 1) $ 962,872 Additional paid-in capital 1,813,573,085 Undistributed net investment income 435,066 Accumulated net realized gain (loss) (Note 5) (39,078,047) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 151,675,911 ----------- Total -- representing net assets applicable to outstanding capital stock $1,927,568,887 ============== Net assets applicable to outstanding shares: Class A $1,465,893,330 Class B $ 96,842,633 Class C $ 2,561,437 Class I $ 29,862,147 Class Y $ 332,409,340 Net asset value per share of outstanding capital stock: Class A shares 73,190,529 $ 20.03 Class B shares 4,876,852 $ 19.86 Class C shares 129,515 $ 19.78 Class I shares 1,491,161 $ 20.03 Class Y shares 16,599,166 $ 20.03 ---------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 25 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Statement of operations RiverSource Stock Fund Year ended Sept. 30, 2005 Investment income Income: Dividends $ 44,373,878 Interest 981,547 Fee income from securities lending 111,835 Less foreign taxes withheld (25,099) ------- Total income 45,442,161 ---------- Expenses (Note 2): Expenses allocated from Portfolio 10,274,907 Distribution fee Class A 3,845,677 Class B 1,296,503 Class C 28,462 Transfer agency fee 2,221,703 Incremental transfer agency fee Class A 147,751 Class B 46,200 Class C 940 Service fee -- Class Y 398,708 Administrative services fees and expenses 712,884 Compensation of board members 13,518 Printing and postage 349,010 Registration fees 43,633 Audit fees 11,250 Other 39,840 ------ Total expenses 19,430,986 Earnings credits on cash balances (Note 2) (82,322) ------- Total net expenses 19,348,664 ---------- Investment income (loss) -- net 26,093,497 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 219,667,986 Futures contracts 1,036,976 --------- Net realized gain (loss) on investments 220,704,962 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 1,907,020 --------- Net gain (loss) on investments and foreign currencies 222,611,982 ----------- Net increase (decrease) in net assets resulting from operations $248,705,479 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 26 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Statements of changes in net assets RiverSource Stock Fund Year ended Sept. 30, 2005 2004 Operations and distributions Investment income (loss) -- net $ 26,093,497 $ 24,794,317 Net realized gain (loss) on investments 220,704,962 197,092,357 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 1,907,020 6,926,582 --------- --------- Net increase (decrease) in net assets resulting from operations 248,705,479 228,813,256 ----------- ----------- Distributions to shareholders from: Net investment income Class A (19,994,077) (17,822,836) Class B (687,745) (462,784) Class C (15,405) (9,793) Class I (336,154) (73,594) Class Y (5,892,670) (6,002,196) ---------- ---------- Total distributions (26,926,051) (24,371,203) ----------- ----------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 38,099,206 63,479,881 Class B shares 6,244,292 12,358,184 Class C shares 340,354 856,199 Class I shares 17,726,947 13,794,550 Class Y shares 23,186,848 103,308,321 Reinvestment of distributions at net asset value Class A shares 18,040,932 16,110,619 Class B shares 674,826 454,174 Class C shares 15,084 9,509 Class I shares 335,983 73,495 Class Y shares 5,892,670 6,002,197 Payments for redemptions Class A shares (350,217,134) (277,171,254) Class B shares (Note 2) (69,260,145) (73,507,847) Class C shares (Note 2) (1,247,181) (793,152) Class I shares (2,402,445) (1,535,947) Class Y shares (176,240,953) (237,347,682) ------------ ------------ Increase (decrease) in net assets from capital share transactions (488,810,716) (373,908,753) ------------ ------------ Total increase (decrease) in net assets (267,031,288) (169,466,700) Net assets at beginning of year 2,194,600,175 2,364,066,875 ------------- ------------- Net assets at end of year $1,927,568,887 $2,194,600,175 ============== ============== Undistributed net investment income $ 435,066 $ 1,307,250 -------------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 27 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Notes to Financial Statements RiverSource Stock Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Stock Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Stock Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board. The Fund offers Class A, Class B, Class C and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. The Fund offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. At Sept. 30, 2005, Ameriprise Financial and the RiverSource Portfolio Builder Funds owned 100% of Class I shares, which represents 1.55% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Investment in Equity Portfolio The Fund currently invests all of its assets in Equity Portfolio (the Portfolio), a series of Growth and Income Trust (the Trust), an open-end investment company that has the same objectives as the Fund. The Portfolio invests primarily in common stocks and securities convertible into common stocks. In pursuit of its income objective, the Portfolio will invest in income-producing equity securities (such as convertible securities and preferred stocks) and short-term debt instruments (such as commercial paper). The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund at Sept. 30, 2005 was 99.99%. The Fund's Board has approved the withdrawal of the Fund's assets from the Portfolio, which is expected to be completed in late 2005 or early 2006. After that date, the Fund will invest directly in and manage its own portfolio of securities rather than investing in the Portfolio. -------------------------------------------------------------------------------- 28 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT All securities held by the Portfolio are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Pursuant to procedures adopted by the Board of Trustees of the portfolios, Ameriprise Financial utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in accordance with these procedures. If a development or event is so significant that there is a reasonably high degree of certainty that the effect of the development or event has actually caused the closing price to no longer reflect the actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the New York Stock Exchange. Significant events include material movements in the U.S. securities markets prior to the opening of foreign markets on the following trading day. FVP results in an estimated price that reasonably reflects the current market conditions in order to value the portfolio holdings such that shareholder transactions receive a fair net asset value. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Use of estimates Preparing financial statements that conform to U.S generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. Guarantees and indemnifications Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. Federal taxes The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. -------------------------------------------------------------------------------- 29 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $39,630 and accumulated net realized loss has been decreased by $39,630. The tax character of distributions paid for the years indicated is as follows: Year ended Sept. 30, 2005 2004 Class A Distributions paid from: Ordinary income $19,994,077 $17,822,836 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income 687,745 462,784 Long-term capital gain -- -- Class C Distributions paid from: Ordinary income 15,405 9,793 Long-term capital gain -- -- Class I* Distributions paid from: Ordinary income 336,154 73,594 Long-term capital gain -- -- Class Y Distributions paid from: Ordinary income 5,892,670 6,002,196 Long-term capital gain -- -- * Inception date is March 4, 2004. At Sept. 30, 2005, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ 432,975 Accumulated long-term gain (loss) $(32,594,987) Unrealized appreciation (depreciation) $145,194,942 Dividends to shareholders Dividends from net investment income, declared and paid each calendar quarter, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. -------------------------------------------------------------------------------- 30 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with Ameriprise Financial to provide administrative services. Under the current Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.04% to 0.02% annually as the Fund's assets increase. Effective Oct. 1, 2005, the fee percentage of the Fund's average daily net assets declines from 0.06% to 0.03% annually as the Fund's assets increase. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the Board. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. Under a separate Transfer Agency Agreement, RiverSource Service Corporation (formerly American Express Client Service Corporation) (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: o Class A $19.50 o Class B $20.50 o Class C $20.00 o Class Y $17.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. Beginning May 20, 2005, the Transfer Agent implemented an annual closed account fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees were insignificant for the year ended Sept. 30, 2005 and are included in the transfer agency fees on the statement of operations. The Fund has agreements with Ameriprise Financial Services, Inc. (formerly American Express Financial Advisors Inc.) (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. -------------------------------------------------------------------------------- 31 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $363,572 for Class A, $69,470 for Class B and $66 for Class C for the year ended Sept. 30, 2005. During the year ended Sept. 30, 2005, the Fund's transfer agency fees were reduced by $82,322 as a result of earnings credits from overnight cash balances. 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
Year ended Sept. 30, 2005 Class A Class B Class C Class I Class Y Sold 1,971,686 331,033 18,146 927,451 1,226,230 Issued for reinvested distributions 933,025 35,239 790 17,335 304,989 Redeemed (18,300,800) (3,638,263) (66,361) (130,408) (9,233,441) ----------- ---------- ------- -------- ---------- Net increase (decrease) (15,396,089) (3,271,991) (47,425) 814,378 (7,702,222) ----------- ---------- ------- ------- ---------- Year ended Sept. 30, 2004 Class A Class B Class C Class I* Class Y Sold 3,548,705 689,923 48,092 759,831 5,707,084 Issued for reinvested distributions 890,502 25,336 534 4,073 331,674 Redeemed (15,333,355) (4,140,596) (44,248) (87,121) (13,073,718) ----------- ---------- ------- ------- ----------- Net increase (decrease) (10,894,148) (3,425,337) 4,378 676,783 (7,034,960) ----------- ---------- ----- ------- ----------
* Inception date is March 4, 2004 4. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 20, 2005. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with The Bank of New York. The Fund had no borrowings outstanding during the year ended Sept. 30, 2005. 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $32,594,987 at Sept. 30, 2005, that if not offset by capital gains will expire in 2011. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. -------------------------------------------------------------------------------- 32 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT 6. SUBSEQUENT EVENT Shareholders will be asked to approve a merger of RiverSource Stock Fund into RiverSource Disciplined Equity Fund (formerly AXP Quantitative Large Cap Equity Fund) at a shareholder meeting on Feb. 15, 2006. This approval is not guaranteed. 7. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
Class A Per share income and capital changes(a) Fiscal period ended Sept. 30, 2005 2004 2003 2002 2001 Net asset value, beginning of period $18.02 $16.60 $14.47 $17.86 $27.12 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .24 .20 .18 .17 .20 Net gains (losses) (both realized and unrealized) 2.02 1.41 2.13 (3.39) (6.47) ------ ------ ------ ------ ------ Total from investment operations 2.26 1.61 2.31 (3.22) (6.27) ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (.25) (.19) (.18) (.17) (.18) Distributions from realized gains -- -- -- -- (2.81) ------ ------ ------ ------ ------ Total distributions (.25) (.19) (.18) (.17) (2.99) ------ ------ ------ ------ ------ Net asset value, end of period $20.03 $18.02 $16.60 $14.47 $17.86 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $1,466 $1,596 $1,651 $1,599 $2,277 Ratio of expenses to average daily net assets(b) .91% .89% .92% .92% .87% Ratio of net investment income (loss) to average daily net assets 1.26% 1.06% 1.12% .93% .88% Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87% Total return(c) 12.58% 9.72% 16.03% (18.20%) (24.87%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 33 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended Sept. 30, 2005 2004 2003 2002 2001 Net asset value, beginning of period $17.86 $16.44 $14.34 $17.70 $26.90 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .09 .05 .06 .03 .01 Net gains (losses) (both realized and unrealized) 2.00 1.42 2.10 (3.36) (6.39) ------ ------ ------ ------ ------ Total from investment operations 2.09 1.47 2.16 (3.33) (6.38) ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (.09) (.05) (.06) (.03) (.01) Distributions from realized gains -- -- -- -- (2.81) ------ ------ ------ ------ ------ Total distributions (.09) (.05) (.06) (.03) (2.82) ------ ------ ------ ------ ------ Net asset value, end of period $19.86 $17.86 $16.44 $14.34 $17.70 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $97 $146 $190 $210 $306 Ratio of expenses to average daily net assets(b) 1.69% 1.67% 1.69% 1.69% 1.64% Ratio of net investment income (loss) to average daily net assets .51% .27% .35% .15% .11% Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87% Total return(c) 11.72% 8.91% 15.09% (18.84%) (25.48%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 34 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended Sept. 30, 2005 2004 2003 2002 2001 Net asset value, beginning of period $17.79 $16.39 $14.30 $17.66 $26.88 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .09 .06 .07 .04 .04 Net gains (losses) (both realized and unrealized) 1.99 1.39 2.09 (3.36) (6.41) ------ ------ ------ ------ ------ Total from investment operations 2.08 1.45 2.16 (3.32) (6.37) ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (.09) (.05) (.07) (.04) (.04) Distributions from realized gains -- -- -- -- (2.81) ------ ------ ------ ------ ------ Total distributions (.09) (.05) (.07) (.04) (2.85) ------ ------ ------ ------ ------ Net asset value, end of period $19.78 $17.79 $16.39 $14.30 $17.66 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $3 $3 $3 $2 $2 Ratio of expenses to average daily net assets(b) 1.69% 1.67% 1.70% 1.71% 1.64% Ratio of net investment income (loss) to average daily net assets .51% .29% .32% .14% .16% Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87% Total return(c) 11.72% 8.87% 15.11% (18.84%) (25.47%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 35 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Class I Per share income and capital changes(a) Fiscal period ended Sept. 30, 2005 2004(b) Net asset value, beginning of period $18.01 $18.96 ------ ------ Income from investment operations: Net investment income (loss) .31 .20 Net gains (losses) (both realized and unrealized) 2.03 (.96) ------ ------ Total from investment operations 2.34 (.76) ------ ------ Less distributions: Dividends from net investment income (.32) (.19) ------ ------ Net asset value, end of period $20.03 $18.01 ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $30 $12 Ratio of expenses to average daily net assets(c) .56% .52%(d) Ratio of net investment income (loss) to average daily net assets 1.48% 1.50%(d) Portfolio turnover rate (excluding short-term securities) 132% 76% Total return(e) 13.07% (4.03%)(f)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date is March 4, 2004. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. -------------------------------------------------------------------------------- 36 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended Sept. 30, 2005 2004 2003 2002 2001 Net asset value, beginning of period $18.01 $16.59 $14.46 $17.86 $27.13 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .27 .23 .20 .20 .23 Net gains (losses) (both realized and unrealized) 2.03 1.41 2.14 (3.40) (6.47) ------ ------ ------ ------ ------ Total from investment operations 2.30 1.64 2.34 (3.20) (6.24) ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income (.28) (.22) (.21) (.20) (.22) Distributions from realized gains -- -- -- -- (2.81) ------ ------ ------ ------ ------ Total distributions (.28) (.22) (.21) (.20) (3.03) ------ ------ ------ ------ ------ Net asset value, end of period $20.03 $18.01 $16.59 $14.46 $17.86 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $332 $438 $520 $490 $694 Ratio of expenses to average daily net assets(b) .75% .73% .76% .76% .71% Ratio of net investment income (loss) to average daily net assets 1.44% 1.23% 1.28% 1.08% 1.04% Portfolio turnover rate (excluding short-term securities) 132% 76% 68% 86% 87% Total return(c) 12.83% 9.90% 16.23% (18.12%) (24.77%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 37 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD AND SHAREHOLDERS AXP STOCK SERIES, INC. We have audited the accompanying statement of assets and liabilities of RiverSource Stock Fund (a series of AXP Stock Series, Inc.) as of September 30, 2005, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended September 30, 2005, and the financial highlights for each of the years in the five-year period ended September 30, 2005. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of RiverSource Stock Fund as of September 30, 2005, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with U.S generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota November 21, 2005 -------------------------------------------------------------------------------- 38 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Federal Income Tax Information (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. RiverSource Stock Fund Fiscal year ended Sept. 30, 2005 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share Dec. 22, 2004 $0.12588 March 28, 2005 0.03557 June 28, 2005 0.04590 Sept. 28, 2005 0.04043 Total distributions $0.24778 Class B Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share Dec. 22, 2004 $0.08943 June 28, 2005 0.00098 Total distributions $0.09041 -------------------------------------------------------------------------------- 39 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Class C Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share Dec. 22, 2004 $0.09030 Sept. 28, 2005 0.00219 Total distributions $0.09249 Class I Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share Dec. 22, 2004 0.14313 March 28, 2005 0.05432 June 28, 2005 0.06408 Sept. 28, 2005 0.05895 Total $0.32048 Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 100% Dividends Received Deduction for corporations 100% Payable date Per share Dec. 22, 2004 $0.13346 March 28, 2005 0.04359 June 28, 2005 0.05417 Sept. 28, 2005 0.04852 Total distributions $0.27974 -------------------------------------------------------------------------------- 40 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Fund Expenses Example (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Sept. 30, 2005. Actual Expenses The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. -------------------------------------------------------------------------------- 41 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Beginning Ending Expenses account value account value paid during Annualized April 1, 2005 Sept. 30, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,057.70 $4.85(c) .94% Hypothetical (5% return before expenses) $1,000 $1,020.36 $4.76(c) .94% Class B Actual(b) $1,000 $1,053.60 $8.80(c) 1.71% Hypothetical (5% return before expenses) $1,000 $1,016.50 $8.64(c) 1.71% Class C Actual(b) $1,000 $1,053.40 $8.80(c) 1.71% Hypothetical (5% return before expenses) $1,000 $1,016.50 $8.64(c) 1.71% Class I Actual(b) $1,000 $1,059.70 $2.94(c) .57% Hypothetical (5% return before expenses) $1,000 $1,022.21 $2.89(c) .57% Class Y Actual(b) $1,000 $1,058.60 $3.97(c) .77% Hypothetical (5% return before expenses) $1,000 $1,021.21 $3.90(c) .77%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Sept. 30, 2005: +5.77% for Class A, +5.36% for Class B, +5.34% for Class C, +5.97% for Class I and +5.86% for Class Y. (c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund. If the revised fee schedule under the Administrative Services Agreement had been in place for the entire six-month period ended Sept. 30, 2005, the actual expenses paid would have been $4.95 for Class A, $8.91 for Class B, $8.91 for Class C, $3.05 for Class I and $4.08 for Class Y; the hypothetical expenses paid would have been $4.86 for Class A, $8.74 for Class B, $8.74 for Class C, $2.99 for Class I and $4.00 for Class Y. -------------------------------------------------------------------------------- 42 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Board Members and Officers Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board members. Each member oversees 11 Master Trust portfolios and 90 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday.
Independent Board Members Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service -------------------------------------- ------------------- ------------------------------------ ------------------------ Arne H. Carlson Board member Chair, Board Services Corporation 901 S. Marquette Ave. since 1999 (provides administrative services Minneapolis, MN 55402 to boards); former Governor of Age 71 Minnesota -------------------------------------- ------------------- ------------------------------------ ------------------------ Philip J. Carroll, Jr*. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, 901 S. Marquette Ave. since 2002 Corporation (engineering and Vulcan Materials Minneapolis, MN 55402 construction) Company, Inc. Age 67 (construction materials/chemicals) -------------------------------------- ------------------- ------------------------------------ ------------------------ Patricia M. Flynn Board member Trustee Professor of Economics and 901 S. Marquette Ave. since 2004 Management, Bentley College; Minneapolis, MN 55402 former Dean, McCallum Graduate Age 54 School of Business, Bentley College -------------------------------------- ------------------- ------------------------------------ ------------------------ Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 70 -------------------------------------- ------------------- ------------------------------------ ------------------------ Jeffrey Laikind Board member Former Managing Director, Shikiar American Progressive 901 S. Marquette Ave. since 2005 Asset Management Insurance Minneapolis, MN 55402 Age 70 -------------------------------------- ------------------- ------------------------------------ ------------------------ Stephen R. Lewis, Jr. Board member President Emeritus and Professor Valmont Industries, 901 S. Marquette Ave. since 2002 of Economics, Carleton College Inc. (manufactures Minneapolis, MN 55402 irrigation systems) Age 65 -------------------------------------- ------------------- ------------------------------------ ------------------------ Catherine James Paglia Board member Director, Enterprise Asset Strategic 901 S. Marquette Ave. since 2004 Management, Inc. (private real Distribution, Inc. Minneapolis, MN 55402 estate and asset management (transportation, Age 53 company) distribution and logistics consultants) -------------------------------------- ------------------- ------------------------------------ ------------------------
* Phillip J. Carroll, Jr. retired as a member of the Board, effective Nov. 10, 2005 -------------------------------------------------------------------------------- 43 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service -------------------------------------- ------------------- ------------------------------------ ------------------------ Alan K. Simpson Board member Former three-term United States 1201 Sunshine Ave. since 1997 Senator for Wyoming Cody, WY 82414 Age 74 -------------------------------------- ------------------- ------------------------------------ ------------------------ Alison Taunton-Rigby Board member Chief Executive Officer, Hybridon, Inc. 901 S. Marquette Ave. since 2002 RiboNovix, Inc. since 2003 (biotechnology) Minneapolis, MN 55402 (biotechnology); former President, Age 61 Forester Biotech -------------------------------------- ------------------- ------------------------------------ ------------------------ Board Member Affiliated with Ameriprise Financial, Inc. (formerly AEFC)** Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service -------------------------------------- ------------------- ------------------------------------ ------------------------ William F. Truscott Board member President - U.S. Asset Management 53600 Ameriprise Financial Center since 2001, Vice and Chief Investment Officer of Minneapolis, MN 55474 President since Ameriprise Financial, Inc. and Age 45 2002 President, Chairman of the Board and Chief Investment Officer of RiverSource Investments, LLC since 2005. Senior Vice President - Chief Investment Officer of Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer of RiverSource Investments, LLC, 2001-2005; former Chief Investment Officer and Managing Director, Zurich Scudder -------------------------------------- ------------------- ------------------------------------ ------------------------
** Interested person by reason of being an officer, director and/or employee of Ameriprise Financial, Inc. (formerly American Express Financial Corporation) or of RiverSource Investments, LLC, its wholly owned subsidiary. -------------------------------------------------------------------------------- 44 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the Fund's other officers are:
Fund Officers Name, address, age Position held Principal occupation during past Other directorships with Fund and five years length of service -------------------------------------- ------------------- ------------------------------------ ------------------------ Jeffrey P. Fox Treasurer Vice President - Investment 105 Ameriprise Financial Center since 2002 Accounting, Ameriprise Financial, Minneapolis, MN 55474 Inc., since 2002; Vice President - Age 50 Finance, American Express Company, 2000-2002; Vice President - Corporate Controller, Ameriprise Financial, Inc., 1996-2000 -------------------------------------- ------------------- ------------------------------------ ------------------------ Paula R. Meyer President Senior Vice President - Mutual 596 Ameriprise Financial Center since 2002 Funds, Ameriprise Financial, Minneapolis, MN 55474 Inc., since 2002 and Senior Vice Age 51 President, RiverSource Investments, LLC since 2004; Vice President and Managing Director - American Express Funds, Ameriprise Financial, Inc., 2000-2002; Vice President, Ameriprise Financial, Inc., 1998-2000 -------------------------------------- ------------------- ------------------------------------ ------------------------ Leslie L. Ogg Vice President, President of Board Services 901 S. Marquette Ave. General Counsel, Corporation Minneapolis, MN 55402 and Secretary Age 67 since 1978 -------------------------------------- ------------------- ------------------------------------ ------------------------ Beth E. Weimer Chief Compliance Vice President and Chief 172 Ameriprise Financial Center Officer since 2004 Compliance Officer, Ameriprise Minneapolis, MN 55474 Financial, Inc., since 2001 and Age 52 Chief Compliance Officer, RiverSource Investments, LLC since 2005; Vice President and Chief Compliance Officer - Asset Management and Insurance, Ameriprise Financial Services, Inc., since 2001; Partner, Arthur Andersen Regulatory Risk Services, 1998-2001 -------------------------------------- ------------------- ------------------------------------ ------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. -------------------------------------------------------------------------------- 45 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Approval of Investment Management Services Agreement RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial; formerly, American Express Financial Corporation), serves as the investment manager to the Fund. Under an investment management services agreement (the IMS Agreement), the investment manager provides investment advice and other services to the Fund. Throughout the year, the Fund's Board of Directors (the Board) and the Board's Investment Review and Contracts Committees monitor these services. Ameriprise Financial had served as investment manager to the Fund until Sept. 29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise Financial transferred its rights, title, and interest and its burdens and obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary. Each year, the Board determines whether to continue the IMS Agreement by evaluating the quality and level of service received and the costs associated with those services. To assist the Board in making this determination, the investment manager prepares detailed reports for the Board and its Contracts Committee in March and April and provides data prepared by independent organizations. The Board gives considerable weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the IMS Agreement. This past year, prior to the Board's annual review process, on Feb. 1, 2005, American Express Company, the former parent of Ameriprise Financial, announced its intention to pursue a spin-off of Ameriprise Financial by distributing shares of the common stock of Ameriprise Financial to shareholders of American Express Company. Following this announcement, the Board determined to proceed with its annual review process and, after thorough review of the reports and data provided, at a meeting held in person on April 14, 2005, the Board, including all of its independent members, determined that the quality and level of advisory services provided pursuant to the IMS Agreement were satisfactory and that fees were fair and reasonable. However, in light of the announced plans of the spin-off, the Board approved continuation of the IMS Agreement with Ameriprise Financial for only an interim period ending on the later of (i) the effective date of the spin-off; or (ii) the approval of a new IMS Agreement with Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in no event for a period longer than one year. A detailed discussion of the Board's considerations and determinations is provided below under "Board Considerations Related to Renewal of IMS Agreement for an Interim Period." While it was expected that the spin-off would not result in an "assignment" of the IMS Agreement under the Investment Company Act of 1940 and, therefore, would not cause the termination of the IMS Agreement according to its terms, independent counsel to the Board advised the Board that the legal question of whether the spin-off would result in an assignment turns on a highly fact-sensitive analysis. Therefore, the Board determined, as a matter of prudence, to proceed as if the IMS Agreement would terminate as a result of the spin-off. Accordingly, the Board determined to renew the IMS Agreement for the interim period only and to consider a new IMS Agreement for the Fund prior to the spin-off. In light of the need to consider new contracts, the Board also determined to review, and consider where appropriate, making changes to the current terms of the IMS Agreement. -------------------------------------------------------------------------------- 46 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT During the course of the six-month period following the April 2005 meeting, the Board and its committees met at five in-person meetings to consider proposed new contracts for the Fund. At a meeting of the Board held on Sept. 8, 2005, the Board, including all of its independent members, approved, and recommended shareholders approve, a proposed new IMS Agreement with RiverSource (the New IMS Agreement). A meeting of the Fund's shareholders is expected to be held on Feb. 15, 2006, to consider approval of the new agreement. If approved, the New IMS Agreement would take effect shortly after the shareholder meeting. A detailed discussion of the Board's considerations and determinations respecting the New IMS Agreement is provided below under "Board Considerations Related to the New IMS Agreement." Board Considerations Related to Renewal of IMS Agreement for an Interim Period Investment performance is a major factor in the evaluation process, and the Board reviewed the Fund's performance over a range of different periods by comparing its performance to relevant Lipper and broader market indices. The Board considered that, over time, the Fund's investment performance should be above median for a peer group of funds with similar investment goals and noted that the Fund's investment performance in 2004 was below median. Ameriprise Financial has taken steps to address the below median performance. The Board noted that, in addition to portfolio management and investment research, Ameriprise Financial provides portfolio trading, daily net asset value calculation, management of cash flow, product development, administration of its compliance and legal departments, access to distribution, accounting and recordkeeping, and reporting to the Board and shareholders. To evaluate these services, the Board referred to surveys and benchmarks established by commercial providers, trade associations and Ameriprise Financial's internal processes. The Board concluded that the services provided were consistent with services provided by investment managers to comparable mutual funds. The Board also evaluated the price paid for the services provided by Ameriprise Financial, noting the existence of a pricing philosophy, established by the Board and Ameriprise Financial, that seeks to maintain total Fund expenses within a range of the median expenses charged to comparable funds sold through financial advisers. The Board considered detailed information set forth in an annual report on fees and expenses, including, among other things, data showing (i) a comparison of the Fund's expenses with median expenses paid by funds in its comparison group and (ii) the Fund's contribution to Ameriprise Financial's profitability. The Board determined that the total expense ratio of the Fund is below median of its comparison group. The Board considered the economies of scale that might be realized by Ameriprise Financial as the Fund grew and took note of the extent to which Fund shareholders also might benefit from such growth. The Board considered that the IMS Agreement provided for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. The Board took into account the Contracts Committee's discussion comparing the fees Ameriprise Financial charges to the Fund with those it charges to institutional clients, noting that the relatively higher fees paid by the Fund were principally attributable to the additional services required to manage a regulated mutual fund such as the Fund, and the operation of a -------------------------------------------------------------------------------- 47 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT large mutual fund family. The Board also considered the profitability realized by Ameriprise Financial and its affiliates from its relationship with the Fund. The Board took into account the services acquired by Ameriprise Financial through the use of commission dollars paid by the Fund on portfolio transactions. The Board concluded that Ameriprise Financial's overall costs and profitability were appropriate, although profitability may be too low on an ongoing basis. The Board noted that the fees paid by the Fund should permit Ameriprise Financial to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. Based on the foregoing, the Board concluded that the fees paid to Ameriprise Financial under the IMS Agreement were fair and reasonable and determined to approve renewal of the IMS Agreement for the interim period. Board Considerations Related to Approval of New IMS Agreement For the six months following the April 2005 meeting, the Board evaluated whether to approve the New IMS Agreements for each of the funds within the Ameriprise Financial fund complex (together, the Funds) with post-spin Ameriprise Financial (or RiverSource). Independent counsel, Schulte Roth & Zabel LLP (Schulte), assisted the Boards in fulfilling their statutory and other responsibilities associated with the spin-off and the resulting consideration of new contracts, including the New IMS Agreement. The Board and its committees were provided with a wealth of written and oral information in this regard. Furthermore, in connection with the Board's considerations as to whether post-spin Ameriprise Financial, as an entity independent from American Express Company, would be capable of continuing to provide a high quality of services to the Funds, the Board's independent members retained their own financial adviser, Credit Suisse First Boston LLC (CSFB) to assist it in analyzing the capital adequacy of post-spin Ameriprise Financial. (The costs of independent counsel and CSFB and of additional meetings of the Boards were borne by Ameriprise Financial as part of the commitment of American Express Company to ensure a complete and thorough review of the proposed spin-off and its effect on the services provided by Ameriprise Financial and its subsidiaries.) In carrying out its legal responsibilities associated with the consideration of the New IMS Agreement, the Board evaluated the following factors: Nature, Extent and Quality of Services to be Provided by Post-Spin Ameriprise Financial (and Its Subsidiaries) The Board recognized that only a few months had passed since its April 2005 conclusion that the nature, extent and quality of services provided by Ameriprise Financial were satisfactory and consistent with those that would be expected for a fund family of the size of the Funds and its determination to renew the IMS Agreement for the interim period. However, the Board also recognized the need to supplement this assessment with an evaluation of whether the spin-off or other factors would result in changes to the advisory services being provided under the current IMS Agreement. The Board focused its evaluation on the following factors potentially impacting the nature, extent and quality of advisory services to be provided by Ameriprise Financial: (i) Ameriprise Financial's projected capital structure and capital adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its ability to retain and attract personnel; and (iv) its ability to successfully re-brand its products and services. Based on extensive presentations and reports -------------------------------------------------------------------------------- 48 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed capital structure (which includes certain indemnification commitments made by American Express Company) should enable RiverSource to continue to provide a high quality and level of advisory services to the Fund. In making this determination, the Board took into account representations by management of Ameriprise Financial that projected capital levels would allow Ameriprise Financial and RiverSource to meet legal and compliance responsibilities, build their distribution network, pursue technological upgrades, make capital commitments necessary to retain and attract key personnel devoted to legal and compliance responsibilities, portfolio management and distribution, and pursue smaller asset management acquisitions to help grow the asset management business. The Board accorded significant weight to CSFB's confirmation as to the reasonableness of the proposed capital structure. The Board also considered the fact that there were no expected departures of key personnel involved in the portfolio management, operations and marketing of the Funds as a result of the announcement of the spin-off. The Board concluded that, based on all of the materials and information provided, post-spin Ameriprise Financial (including RiverSource) would be in a position to continue to provide a high quality and level of advisory services to the Fund. Investment Performance The Board next focused on investment performance. The Board reviewed reports documenting the Fund's performance over one-, three- and/or five-year periods, as well as the entire period during which its current portfolio manager has managed the Fund, and compared to relevant Lipper and market indices. The Board took into account its determination in April 2005 that investment performance had not met expectations but appropriate action, such as adding the Cambridge office to the portfolio management team, had been pursued in order to help the Fund achieve its longer-term performance objective. The Board also considered that it had been receiving monthly performance reports for the Fund and that there had been no significant deviations from April's overall performance data. Cost of Services Provided The Board evaluated comparative fees and the costs of services under the current IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise Financial (including RiverSource and other subsidiaries) to institutional clients. The Board studied RiverSource's effort (i.e., its "pricing philosophy") to set substantially all Funds' total expense ratios at or below the median expense ratio of comparable mutual funds (as compiled by Lipper). The Board observed that the proposed advisory fee changes are designed to work in tandem with proposed changes to administrative services fees. It also noted that RiverSource has agreed to voluntarily impose expense caps or waivers to achieve this pricing objective whenever the expense ratio exceeded the median expense ratio by more than three basis points (unless the higher ratio was due to the impact of the performance fee adjustment.) The Board considered that advisory fees under the New IMS Agreements would stay the same or decrease. The Board also took into account the effect of the proposed performance incentive adjustment on the advisory fee. In this regard, the Board recalled its past determinations regarding the appropriateness of (i) the use of the relevant index for the performance comparison; (ii) the methodology for determining when the Board may change an index used -------------------------------------------------------------------------------- 49 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT to calculate the performance incentive adjustment; (iii) the periods used for averaging the Fund's assets and computing investment performance; and (iv) the length of the period over which performance is computed. The Board next considered the expected profitability to Ameriprise Financial and RiverSource derived from their relationship with the Fund, recalling the April 2005 determination that the profitability level was appropriate. The Board noted that projected profitability of Ameriprise Financial would allow it to operate effectively and, at the same time, reinvest in RiverSource and its other asset management businesses. The Board also considered that the proposed changes in advisory fees and the mergers of certain other Funds would result in revenue gains to Ameriprise Financial, but that these increases would not materially alter profit margins due to expected increases in costs associated with the spin-off, particularly re-branding and separation. CSFB also reported that Ameriprise Financial's projected level of return on equity was generally reasonable in light of the returns on equity of its industry competitors. In evaluating profitability, the Board also considered the benefits Ameriprise Financial obtains through the use of commission dollars paid on portfolio transactions for the Fund and from other business relationships that result from managing the Fund. The Board also considered the fees charged by Ameriprise Financial (and its subsidiaries) to institutional clients as well as the fees paid to, and charged by, sub-advisers, noting the differences in services provided in each case. In light of these considerations, the Board concluded that projected profitability levels were appropriate. Other Considerations In addition, the Board accorded weight to the fact that, under the New IMS Agreement, RiverSource Investments is held to a higher standard of care than under the current IMS Agreements. The Board also noted Ameriprise Financial's commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. Furthermore, the Board recognized that it was not limited to considering management's proposed contracts. In this regard, the Board evaluated the circumstances under which it would consider the retention of an investment adviser different from RiverSource Investments. The Board concluded, based on its consultation with independent counsel, that pursuing the retention of a different adviser was not necessary, primarily because, in its best judgment, Ameriprise Financial continues to be basically the same organization (from a functional and managerial standpoint), as was prior to the spin-off. The Board reasoned that shareholders purchased shares of the Fund with an expectation that the current investment advisory organization would be servicing the Fund. The Fund's Board has approved a merger of the Fund into RiverSource Disciplined Equity Fund. Completion of the merger is subject to final approval by shareholders of the Fund. Proxy materials regarding the merger will be distributed to shareholders in December 2005, and a meeting of shareholders to consider the merger will be scheduled for February 2006. -------------------------------------------------------------------------------- 50 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website www.riversource.com/investments; or by searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283; by looking at the website www.riversource.com/investments; or by searching the website of the SEC at www.sec.gov. -------------------------------------------------------------------------------- 51 -- RIVERSOURCE STOCK FUND -- 2005 ANNUAL REPORT [RIVERSOURCE INVESTMENTS(SM) LOGO] RiverSource Investments 200 Ameriprise Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. RiverSource funds are managed by RiverSource Investments, LLC and distributed by Ameriprise Financial Services, Inc., Member NASD. Both companies are part of Ameriprise Financial, Inc. Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Livio D. DeSimone and Anne P. Jones, each qualify as audit committee financial experts. Item 4. Principal Accountant Fees and Services Fund - Related Fees* (a) Audit Fees. The fees paid for the years ended Sept. 30, to KPMG LLP for professional services rendered for the audits of the annual financial statements for AXP Stock Series, Inc. were as follows: 2005 - $10,750; 2004 - $11,052 (b) Audit - Related Fees. The fees paid for the years ended Sept. 30, to KPMG LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 for AXP Stock Series, Inc. were as follows: 2005 - $464; 2004 - $502 (c) Tax Fees. The fees paid for the years ended Sept. 30, to KPMG LLP for tax compliance related services for AXP Stock Series, Inc. were as follows: 2005 - $3,187; 2004 - $2,559 (d) All Other Fees. The fees paid for the years ended Sept. 30, to KPMG LLP for additional professional services rendered in connection to proxy filing for AXP Stock Series, Inc. were as follows: 2005 - $673; 2004 - None (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by KPMG LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2005 and 2004 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees paid for the years ended Sept. 30, by the registrant for non-audit services to KPMG LLP were as follows: 2005 - $90,860; 2004 - $129,459 The fees paid for the years ended Sept. 30, to KPMG LLP by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2005 - $87,000; 2004 - $126,900 (h) 100% of the services performed for item (g) above during 2005 and 2004 were pre-approved by the audit committee. *2004 represents bills paid 10/1/03 - 9/30/04 2005 represents bills paid 10/1/04 - 9/30/05 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) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (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 Stock Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date December 1, 2005 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 December 1, 2005 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date December 1, 2005