-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OrlVXZLjyHE5HXg6DtrOlYrPW6qEy+aOF3Ef6FmnoCUmKODGeEzWdDh6hBwOXWBv Co7cmn1G3MRRp/L1EYtm5Q== 0000950134-08-017524.txt : 20081003 0000950134-08-017524.hdr.sgml : 20081003 20081003084034 ACCESSION NUMBER: 0000950134-08-017524 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080731 FILED AS OF DATE: 20081003 DATE AS OF CHANGE: 20081003 EFFECTIVENESS DATE: 20081003 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE DIMENSIONS SERIES INC CENTRAL INDEX KEY: 0000049717 IRS NUMBER: 410940846 STATE OF INCORPORATION: MN FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-01629 FILM NUMBER: 081105311 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSOURCE DIMENSIONS SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP DIMENSIONS SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP NEW DIMENSIONS FUND INC /MN/ DATE OF NAME CHANGE: 20000417 0000049717 S000003459 RiverSource Disciplined Small Cap Value Fund C000009585 RiverSource Disciplined Small Cap Value Fund Class A RDVAX C000009586 RiverSource Disciplined Small Cap Value Fund Class B C000009587 RiverSource Disciplined Small Cap Value Fund Class C RDVCX C000009588 RiverSource Disciplined Small Cap Value Fund Class I RCVIX C000042778 RiverSource Disciplined Small Cap Value Fund Class R2 C000042779 RiverSource Disciplined Small Cap Value Fund Class R3 C000042780 RiverSource Disciplined Small Cap Value Fund Class R4 RSDVX C000042781 RiverSource Disciplined Small Cap Value Fund Class R5 0000049717 S000011670 RiverSource Disciplined Small and Mid Cap Equity Fund C000032029 RiverSource Disciplined Small and Mid Cap Equity Fund Class A RDSAX C000032030 RiverSource Disciplined Small and Mid Cap Equity Fund Class B C000032031 RiverSource Disciplined Small and Mid Cap Equity Fund Class C RDSCX C000032032 RiverSource Disciplined Small and Mid Cap Equity Fund Class I RDSIX C000042782 RiverSource Disciplined Small and Mid Cap Equity Fund Class R4 C000042783 RiverSource Disciplined Small and Mid Cap Equity Fund Class W RSEWX N-CSR 1 c35053nvcsr.txt FORM N-CSR 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 811-1629 RIVERSOURCE DIMENSIONS SERIES, INC. (Exact name of registrant as specified in charter) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (Address of principal executive offices) (Zip code) Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474 (Name and address of agent for service) Registrant's telephone number, including area code: (612) 671-1947 Date of fiscal year end: 7/31 Date of reporting period: 7/31 Annual Report and Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND ANNUAL REPORT FOR THE PERIOD ENDED JULY 31, 2008 (Prospectus also enclosed) RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM CAPITAL GROWTH. This annual report includes a prospectus that describes in detail the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money. (SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS -------------------------------------------------------------- Your Fund at a Glance............... 2 Manager Commentary.................. 5 The Fund's Long-term Performance ... 12 Fund Expenses Example............... 14 Portfolio of Investments............ 16 Financial Statements................ 23 Notes to Financial Statements....... 27 Report of Independent Registered Public Accounting Firm........... 46 Federal Income Tax Information...... 48 Board Members and Officers.......... 49 Approval of Investment Management Services Agreement............... 53 Proxy Voting........................ 55
(DALBAR LOGO) The RiverSource mutual fund shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 1 YOUR FUND AT A GLANCE ---------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- > RiverSource Disciplined Small and Mid Cap Equity Fund (the Fund) Class A shares declined 11.94% (excluding sales charge) for the 12-month period ended July 31, 2008. > The Fund underperformed its benchmark, the Russell 2500(R) Index, which fell 8.42% during the annual period. > The Fund also underperformed the Lipper Mid-Cap Core Funds Index, representing the Fund's peer group, which declined 8.83%, for the same period. ANNUALIZED TOTAL RETURNS (for period ended July 31, 2008) - --------------------------------------------------------------------------------
Since 1 year inception(a) - ----------------------------------------------------------------------------- RiverSource Disciplined Small and Mid Cap Equity Fund Class A (excluding sales charge) -11.94% -5.12% - ----------------------------------------------------------------------------- Russell 2500(R) Index (unmanaged) -8.42% +1.16% - ----------------------------------------------------------------------------- Lipper Mid-Cap Core Funds Index -8.83% +2.47% - -----------------------------------------------------------------------------
(a) Fund data is from May 18, 2006. Russell 2500 Index and Lipper peer group data is from June 1, 2006. (See "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. See the Average Annual Total Returns table for performance of other share classes of the Fund. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- 2 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- STYLE MATRIX - ----------------------------------------
STYLE VALUE BLEND GROWTH LARGE X MEDIUM SIZE X SMALL
Shading within the style matrix indicates areas in which the Fund is designed to generally invest. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and may serve as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) - ----------------------------------------
Net Total Expenses(a) - ----------------------------------------------------- Class A 1.32% 1.23% - ----------------------------------------------------- Class B 2.09% 2.00% - ----------------------------------------------------- Class C 2.08% 1.99% - ----------------------------------------------------- Class I 0.91% 0.79% - ----------------------------------------------------- Class R4 1.23% 1.09% - ----------------------------------------------------- Class W 1.34% 1.24% - -----------------------------------------------------
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment (that decreased the management fee by 0.13% for the year ended July 31, 2008), will not exceed 1.36% for Class A, 2.13% for Class B, 2.12% for Class C, 0.92% for Class I, 1.22% for Class R4 and 1.37% for Class W. Investments in small- and mid-capitalization companies often involve greater risks and potential volatility than investments in larger, more established companies. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 3 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT JULY 31, 2008 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 5/18/06) -11.94% -5.12% - ------------------------------------------------------------ Class B (inception 5/18/06) -12.67% -5.86% - ------------------------------------------------------------ Class C (inception 5/18/06) -12.67% -5.88% - ------------------------------------------------------------ Class I (inception 5/18/06) -11.63% -4.83% - ------------------------------------------------------------ Class R4 (inception 5/18/06) -11.48% -4.83% - ------------------------------------------------------------ Class W (inception 12/1/06) -12.13% -8.63% - ------------------------------------------------------------ WITH SALES CHARGE Class A (inception 5/18/06) -16.98% -7.65% - ------------------------------------------------------------ Class B (inception 5/18/06) -17.04% -7.58% - ------------------------------------------------------------ Class C (inception 5/18/06) -13.54% -5.88% - ------------------------------------------------------------
AT JUNE 30, 2008 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 5/18/06) -19.79% -5.64% - ------------------------------------------------------------ Class B (inception 5/18/06) -20.43% -6.35% - ------------------------------------------------------------ Class C (inception 5/18/06) -20.43% -6.38% - ------------------------------------------------------------ Class I (inception 5/18/06) -19.57% -5.34% - ------------------------------------------------------------ Class R4 (inception 5/18/06) -19.46% -5.39% - ------------------------------------------------------------ Class W (inception 12/1/06) -20.05% -9.49% - ------------------------------------------------------------ WITH SALES CHARGE Class A (inception 5/18/06) -24.43% -8.25% - ------------------------------------------------------------ Class B (inception 5/18/06) -24.40% -8.13% - ------------------------------------------------------------ Class C (inception 5/18/06) -21.22% -6.38% - ------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 5.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class I, Class R4 and Class W shares. Class I and Class R4 are available to institutional investors only. Class W shares are offered through qualifying discretionary accounts. - -------------------------------------------------------------------------------- 4 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT MANAGER COMMENTARY ------------------------------------------------------------- At July 31, 2008, approximately 38% of the Fund's shares were owned in the aggregate by affiliated funds-of-funds managed by RiverSource Investments, LLC (RiverSource). As a result of asset allocation decisions by RiverSource, it is possible that RiverSource Disciplined Small and Mid Cap Equity Fund may experience relatively large purchases or redemptions from affiliated funds-of-funds (see page 36, Class I capital share transactions for related activity during the most recent fiscal period). RiverSource seeks to minimize the impact of these transactions by structuring them over a reasonable period of time. RiverSource Disciplined Small and Mid Cap Equity Fund may experience increased expenses as it buys and sells securities as a result of purchases or redemptions by affiliated funds-of-funds. For more information of the Fund's expenses, see the discussions beginning on pages 14 and 32. Dear Shareholder, RiverSource Disciplined Small and Mid Cap Equity Fund (the Fund) Class A shares declined 11.94% (excluding sales charge) for the 12-month period ended July 31, 2008. The Fund underperformed its benchmark, the Russell 2500(R) Index (Russell Index), which fell 8.42%, as well as the Lipper Mid-Cap Core Funds Index, representing the Fund's peer group, which declined 8.83%, for the same period. SECTOR DIVERSIFICATION(1) (at July 31, 2008; % of portfolio assets) - ----------------------------------------------------------------- Consumer Discretionary 13.8% - -------------------------------------------------------------- Consumer Staples 2.4% - -------------------------------------------------------------- Energy 13.0% - -------------------------------------------------------------- Financials 14.4% - -------------------------------------------------------------- Health Care 13.1% - -------------------------------------------------------------- Industrials 19.5% - -------------------------------------------------------------- Information Technology 10.8% - -------------------------------------------------------------- Materials 9.1% - -------------------------------------------------------------- Telecommunication Services 0.3% - -------------------------------------------------------------- Utilities 1.8% - -------------------------------------------------------------- Other(2) 1.8% - --------------------------------------------------------------
(1) Sectors can be comprised of several industries. Please refer to the section entitled "Portfolio of Investments" for a complete listing. No single industry exceeds 25% of portfolio assets. (2) Cash & Cash Equivalents. The sectors identified above are based on the Global Industry Classification Standard (GICS), which 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. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 5 MANAGER COMMENTARY (continued) ------------------------------------------------- SIGNIFICANT PERFORMANCE FACTORS The annual period was a most challenging one, characterized by heightened concerns about weakness in the economy, ongoing turmoil in the housing and financial markets, a credit crunch and soaring commodity prices. As a result, equity volatility increased as the year progressed, peaking in March with the collapse of Bear Stearns and rearing its head again in June. Given the extreme pressure on the financial system, it makes sense, then, that the financials sector performed worst. The resulting equity market decline was only partially mitigated by the impressive double-digit gains generated by the energy sector, as crude oil prices surged past $140 per barrel before falling back a bit to end July at just over $124 per barrel. The Fund's performance resulted from the quantitative investment models we employ in selecting stocks for the Fund's portfolio. Early in the annual period, we decided that the quality-adjusted value model would not be able to manage the extremely volatile market conditions caused by the subprime mortgage market upheaval, surging oil prices, credit market troubles and recessionary fears that dominated the equity market during these months, especially within the small- and mid-cap segments of the market. Thus, we eliminated the Fund's use of the quality-adjusted value model, which had been designed to select undervalued securities by adjusting the valuations of stocks to take into account each stock's historical earnings stability and TOP TEN HOLDINGS (at July 31, 2008; % of portfolio assets) - ----------------------------------------------------------------- Helmerich & Payne 1.4% - -------------------------------------------------------------- Axis Capital Holdings 1.3% - -------------------------------------------------------------- NVR 1.1% - -------------------------------------------------------------- PartnerRe 1.0% - -------------------------------------------------------------- Patterson-UTI Energy 1.0% - -------------------------------------------------------------- SAIC 1.0% - -------------------------------------------------------------- Commercial Metals 1.0% - -------------------------------------------------------------- Arch Capital Group 0.9% - -------------------------------------------------------------- Ashland 0.9% - -------------------------------------------------------------- RenaissanceRe Holdings 0.8% - --------------------------------------------------------------
For further detail about these holdings, please refer to the section entitled "Portfolio of Investments." Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. - -------------------------------------------------------------------------------- 6 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- debt load. We correspondingly increased the Fund's weighting allotted to the value model, which selects undervalued stocks based on proprietary estimates of future corporate earnings. We also continued to use the momentum model, which singles out groups of companies that appear to be having improving prospects based on the pattern of stock returns observed over history. Under the Fund's investment process, the models choose the small- and mid-cap stocks for the portfolio. We then weight the models and determine the exposure to sectors and industries. During the 12-month period, the momentum model outperformed the Russell Index, but not enough to offset the underperformance of the value model. Such variance in performance supports our research, indicating that the style diversification provided by the very different quantitative models is a significant investment advantage over the long term, even though the Fund may experience underperformance in the short term. Following a specific, disciplined process, we do not make sector or industry bets based on economic or equity market outlooks. That said, the Fund's quantitative models led to a bias toward smaller-cap stocks within the Russell Index and toward the cheapest P/E stocks, both of which detracted from results. Most of the small-cap value-oriented stocks were financials, a group that struggled significantly during most of the period. Overall, sector allocation contributed to the Fund's performance, with sizable weightings in energy and materials and only a modest position in financials particularly helpful. Partially offsetting these positives was the detracting effect of significant exposure to the weakly-performing consumer discretionary and utilities sectors. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 7 MANAGER COMMENTARY (continued) ------------------------------------------------- Because we use a bottom-up approach, it is not surprising that most of the Fund's underperformance came from stock selection. Specifically, stock selection in the financials, industrials and consumer discretionary sectors detracted most. This more than offset the combined effect of positive stock selection in materials and information technology. Among individual holdings, the stocks that detracted most from the Fund's results were three financials companies and two airlines, each selected by the value model. These were mortgage insurers PMI GROUP and RADIAN GROUP, student loan provider FIRST MARBLEHEAD, and airlines UAL (parent company of United Airlines) and US AIRWAYS. On the positive side, stocks that contributed favorably to the Fund's return included metals and mining company CLEVELAND-CLIFFS (selected by both models), chemical company CF INDUSTRIES HOLDINGS (both models), computer manufacturer WESTERN DIGITAL (value model), and energy company HELMERICH & PAYNE (both models). At the end of July 2008, the Fund's largest individual stock holdings included oil and gas company HELMERICH & PAYNE, financials company AXIS CAPITAL HOLDINGS (selected by the value model), consumer discretionary firm NVR (value model), energy company PATTERSON-UTI ENERGY (momentum and value models), and insurance company PARTNERS RE (value model). CHANGES TO THE FUND'S PORTFOLIO As mentioned, the biggest change we made during the period was the elimination of our use of the quality-adjusted value model and the increased Fund weighting to the value model. Also, as a result of quantitative models-driven stock selection during the period, the Fund's sector allocations changed somewhat. For example, the Fund's exposure to consumer discretionary telecommunications and utilities relative to the Russell Index decreased. Conversely, the Fund's relative positions in energy and industrials increased. - -------------------------------------------------------------------------------- 8 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- We believe our use of multiple investment disciplines serves the Fund well in all investment environments over the long term, and the diversified portfolio is well positioned for most potential market conditions. In managing risk associated with small- and mid-cap investing, we use a proprietary risk management system that allows us to manage the Fund's exposure to several key factors, including industry, sector, market capitalization and portfolio turnover. During the period, we used these and other techniques attempting to reduce the expected risk of the portfolio and to avoid large deviations in exposure from the Index. OUR FUTURE STRATEGY We believe our use of multiple investment disciplines serves the Fund well in all investment environments over the long term, and the diversified portfolio is well positioned for most potential market conditions. Whether there is a surge in small- and mid-cap stocks or a downturn, the combination of models should, in our view, help us deliver value relative to the Russell Index over extended periods of time. We are convinced of the merit of our multifaceted, disciplined approach to managing risk in the Fund. We believe this combination of style diversification - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 9 MANAGER COMMENTARY (continued) ------------------------------------------------- and rigorous risk management will allow us to maintain the high quality of the Fund's portfolio in whatever market conditions lie ahead. (PHOTO - DIMITRIS (PHOTO - STEVE (PHOTO - GINA BERTSIMAS) KOKKOTOS) MOURTZINOU) Dimitris Bertsimas, Ph.D. Steve Kokkotos, Ph.D. Gina Mourtzinou, Ph.D. Senior Portfolio Manager Portfolio Manager Portfolio Manager
Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investments, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource fund. - -------------------------------------------------------------------------------- 10 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT THIS PAGE LEFT BLANK INTENTIONALLY THE FUND'S LONG-TERM PERFORMANCE ----------------------------------------------- The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Disciplined Small and Mid Cap Equity Fund Class A shares (from 6/1/06 to 7/31/08)* as compared to the performance of two widely cited performance indices, the Russell 2500 Index and the Lipper Mid-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 table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. * Fund data is from May 18, 2006. Russell 2500 Index and Lipper peer group data is from June 1, 2006. COMPARATIVE RESULTS - --------------------------------------------------------------------------------
SINCE Results at July 31, 2008 1 YEAR INCEPTION(3) RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $8,302 $8,395 - ------------------------------------------------------------------------- Average annual total return -16.98% -7.65% - ------------------------------------------------------------------------- RUSSELL 2500 INDEX(1) Cumulative value of $10,000 $9,158 $10,254 - ------------------------------------------------------------------------- Average annual total return -8.42% +1.16% - ------------------------------------------------------------------------- LIPPER MID-CAP CORE FUNDS INDEX(2) Cumulative value of $10,000 $9,117 $10,544 - ------------------------------------------------------------------------- Average annual total return -8.83% +2.47% - -------------------------------------------------------------------------
Results for other share classes can be found on page 4. - -------------------------------------------------------------------------------- 12 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- (GRAPH)
RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND CLASS A (INCLUDES SALES LIPPER MID-CAP CORE CHARGE RUSSELL 2500 INDEX(1) FUNDS INDEX(2) ---------------------------- --------------------- ------------------------ 6/1/06 $ 9,425 $10,000 $10,000 7/31/06 8,898 9,690 9,777 1/31/07 10,191 11,226 11,156 7/31/07 9,533 11,197 11,564 1/31/08 8,505 10,405 10,815 7/31/08 8,395 10,254 10,544
(1) The Russell 2500 Index, an unmanaged index, measures the performance of the 2,500 smallest companies in the Russell 3000 Index, which represents approximately 16% of the total market capitalization of the Russell 3000 Index. The index reflects reinvestment of all distributions and changes in market prices. (2) The Lipper Mid-Cap Core Funds Index includes the 30 largest mid-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. (3) Fund data is from May 18, 2006. Russell 2500 Index and Lipper peer group data is from June 1, 2006. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 13 FUND EXPENSES EXAMPLE ---------------------------------------------------------- (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the expense ratio of each of the acquired funds as of the acquired fund's most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended July 31, 2008. ACTUAL EXPENSES The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 14 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT - --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED FEB. 1, 2008 JULY 31, 2008 THE PERIOD(A) EXPENSE RATIO - ------------------------------------------------------------------------------------------ Class A - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 987.10 $5.58(c) 1.13% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,019.24 $5.67(c) 1.13% - ------------------------------------------------------------------------------------------ Class B - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 983.40 $9.37(c) 1.90% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,015.42 $9.52(c) 1.90% - ------------------------------------------------------------------------------------------ Class C - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 983.40 $9.37(c) 1.90% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,015.42 $9.52(c) 1.90% - ------------------------------------------------------------------------------------------ Class I - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 988.30 $3.66(c) .74% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,021.18 $3.72(c) .74% - ------------------------------------------------------------------------------------------ Class R4 - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 989.40 $5.00(c) 1.01% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,019.84 $5.07(c) 1.01% - ------------------------------------------------------------------------------------------ Class W - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 985.90 $5.93(c) 1.20% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.02(c) 1.20% - ------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) Based on the actual return for the six months ended July 31, 2008: -1.29% for Class A, -1.66% for Class B, -1.66% for Class C, -1.17% for Class I, -1.06% for Class R4 and -1.41% for Class W. (c) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2009, unless sooner terminated at the discretion of the Fund's Board, such that net expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment, will not exceed 1.36% for Class A, 2.13% for Class B, 2.12% for Class C, 0.92% for Class I, 1.22% for Class R4 and 1.37% for Class W. Any amounts waived will not be reimbursed by the Fund. This change was effective Aug. 1, 2008. Had this change been in place for the entire six month period ended July 31, 2008, the actual expenses paid would have been $3.46 for Class I, $4.95 for Class R4 and $5.68 for Class W; the hypothetical expenses paid would have been $3.52 for - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 15 FUND EXPENSES EXAMPLE (continued) ---------------------------------------------- Class I, $5.02 for Class R4 and $5.77 for Class W. The actual and hypothetical expenses paid for Class A, Class B and Class C would have been the same as those expenses presented in the table above. - -------------------------------------------------------------------------------- 16 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT PORTFOLIO OF INVESTMENTS ------------------------------------------------------- JULY 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
COMMON STOCKS (98.7%) ISSUER SHARES VALUE(A) AEROSPACE & DEFENSE (0.7%) Axsys Technologies 2,006(b) $147,321 Ceradyne 1,610(b) 74,624 DRS Technologies 773 60,912 --------------- Total 282,857 - ------------------------------------------------------------------------------------ AIR FREIGHT & LOGISTICS (0.2%) Pacer Intl 2,617 62,128 - ------------------------------------------------------------------------------------ AIRLINES (3.1%) Alaska Air Group 11,296(b) 201,972 AMR 22,832(b) 206,173 Continental Airlines Cl B 12,329(b) 169,277 Delta Air Lines 14,412(b) 108,666 Hawaiian Holdings 17,028(b) 150,187 Northwest Airlines 25,346(b) 232,170 SkyWest 5,564 84,684 UAL 11,061 91,917 --------------- Total 1,245,046 - ------------------------------------------------------------------------------------ AUTO COMPONENTS (1.3%) Exide Technologies 5,970(b) 94,326 Goodyear Tire & Rubber 4,076(b) 80,012 Lear 4,728(b) 68,130 Modine Mfg 5,490 95,746 Stoneridge 3,571(b) 47,030 TRW Automotive Holdings 7,790(b) 144,505 --------------- Total 529,749 - ------------------------------------------------------------------------------------ BEVERAGES (0.4%) Central European Distribution 1,992(b) 145,336 - ------------------------------------------------------------------------------------ BIOTECHNOLOGY (2.6%) AVANT Immunotherapeutics 3,652(b) 59,308 BioMarin Pharmaceutical 4,478(b) 145,758 Cepheid 6,527(b) 111,742 Idenix Pharmaceuticals 7,495(b) 62,134 Idera Pharmaceuticals 6,711(b) 99,256 Incyte 12,900(b) 119,454
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) BIOTECHNOLOGY (CONT.) Isis Pharmaceuticals 6,313(b) $108,142 Martek Biosciences 2,955(b) 111,138 Momenta Pharmaceuticals 6,611(b) 109,610 Savient Pharmaceuticals 4,220(b) 112,168 --------------- Total 1,038,710 - ------------------------------------------------------------------------------------ BUILDING PRODUCTS (0.8%) Armstrong World Inds 1,834 61,824 Owens Corning 6,304(b) 163,968 USG 2,762(b) 79,269 --------------- Total 305,061 - ------------------------------------------------------------------------------------ CAPITAL MARKETS (1.0%) BGC Partners Cl A 7,678(b) 54,514 Knight Capital Group Cl A 4,423(b) 72,493 SWS Group 6,798 128,618 Waddell & Reed Financial Cl A 4,174 139,412 --------------- Total 395,037 - ------------------------------------------------------------------------------------ CHEMICALS (5.5%) Ashland 8,440 352,538 Calgon Carbon 8,989(b) 170,791 CF Inds Holdings 1,658 271,017 Eastman Chemical 2,309 138,448 FMC 1,218 90,583 Innophos Holdings 2,413 70,870 NewMarket 2,183 134,822 Olin 5,175 153,905 PolyOne 7,060(b) 52,950 ShengdaTech 12,352(b,c) 120,308 Solutia 5,194(b) 79,312 Stepan 1,592 91,317 Terra Inds 5,131 277,074 Westlake Chemical 3,216 56,312 WR Grace & Co 4,848(b) 124,933 --------------- Total 2,185,180 - ------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 16 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) COMMERCIAL BANKS (1.3%) Community Bank System 2,001 $47,224 First Citizens BancShares Cl A 437 61,836 Oriental Financial Group 6,094(c) 105,853 Republic Bancorp Cl A 2,242 69,367 Southside Bancshares 2,333 46,263 UMB Financial 3,617 199,188 --------------- Total 529,731 - ------------------------------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES (2.9%) CBIZ 12,258(b) 100,393 Clean Harbors 1,259(b) 98,252 Copart 2,977(b) 130,571 FTI Consulting 2,290(b) 162,957 GeoEye 6,038(b) 130,723 Hill Intl 7,286(b) 123,498 Metalico 9,686(b) 149,164 Standard Parking 5,413(b) 116,704 TrueBlue 3,843(b) 58,029 Watson Wyatt Worldwide Cl A 1,323 76,655 --------------- Total 1,146,946 - ------------------------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT (0.7%) EMS Technologies 3,965(b) 82,115 InterDigital 3,270(b) 75,897 Tellabs 12,753(b) 65,550 UTStarcom 11,257(b) 53,133 --------------- Total 276,695 - ------------------------------------------------------------------------------------ COMPUTERS & PERIPHERALS (1.6%) Lexmark Intl Cl A 8,561(b) 300,320 Synaptics 3,860(b) 186,129 Western Digital 5,653(b) 162,750 --------------- Total 649,199 - ------------------------------------------------------------------------------------ CONSTRUCTION & ENGINEERING (0.6%) Granite Construction 1,398 44,219 Jacobs Engineering Group 2,326(b,d) 179,893 --------------- Total 224,112 - ------------------------------------------------------------------------------------ CONTAINERS & PACKAGING (0.5%) Greif Cl A 763 46,421 Owens-Illinois 3,871(b) 163,511 --------------- Total 209,932 - ------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) DISTRIBUTORS (0.4%) LKQ 6,974(b) $142,967 - ------------------------------------------------------------------------------------ DIVERSIFIED CONSUMER SERVICES (0.1%) Regis 1,978 55,364 - ------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES (0.2%) Ampal-American Israel Series A 12,033(b,c) 67,024 - ------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES (0.2%) CenturyTel 1,823 67,797 - ------------------------------------------------------------------------------------ ELECTRIC UTILITIES (0.1%) ITC Holdings 839 43,729 - ------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT (1.8%) American Superconductor 4,901(b) 193,541 Capstone Turbine 39,358(b) 120,435 Encore Wire 2,277 41,510 Ener1 18,733(b) 131,880 Energy Conversion Devices 997(b) 69,720 II-VI 1,443(b) 55,498 Powell Inds 995(b) 52,238 Superior Essex 1,610(b) 72,482 --------------- Total 737,304 - ------------------------------------------------------------------------------------ ELECTRONIC EQUIPMENT & INSTRUMENTS (3.2%) Arrow Electronics 6,521(b) 210,107 Avnet 5,756(b) 156,909 Benchmark Electronics 9,918(b) 145,200 FLIR Systems 4,992(b) 203,374 Ingram Micro Cl A 14,900(b) 274,606 Plexus 5,898(b) 168,093 SYNNEX 2,326(b) 54,335 Vishay Intertechnology 9,810(b) 87,996 --------------- Total 1,300,620 - ------------------------------------------------------------------------------------ ENERGY EQUIPMENT & SERVICES (5.9%) BASiC Energy Services 4,738(b) 127,547 Grey Wolf 18,999(b) 162,251 Helmerich & Payne 9,278 548,608 Hercules Offshore 4,898(b) 122,303 IHS Cl A 1,098(b) 68,329 Oil States Intl 2,457(b) 134,840 Patterson-UTI Energy 14,410 409,532 SEACOR Holdings 1,992(b) 166,671
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 17
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) ENERGY EQUIPMENT & SERVICES (CONT.) Tidewater 5,302 $317,802 Unit 4,334(b) 292,762 --------------- Total 2,350,645 - ------------------------------------------------------------------------------------ FOOD & STAPLES RETAILING (0.6%) Great Atlantic & Pacific Tea 3,757(b) 59,774 PriceSmart 3,208 75,228 Winn-Dixie Stores 6,159(b) 97,866 --------------- Total 232,868 - ------------------------------------------------------------------------------------ FOOD PRODUCTS (1.5%) Cal-Maine Foods 3,835 145,347 Chiquita Brands Intl 2,131(b) 32,711 Darling Intl 16,258(b) 263,053 Fresh Del Monte Produce 4,883(b,c) 102,934 Sanderson Farms 1,236 49,119 --------------- Total 593,164 - ------------------------------------------------------------------------------------ GAS UTILITIES (1.3%) EnergySouth 1,892 114,636 Laclede Group 2,584 109,587 New Jersey Resources 2,958 100,838 Nicor 4,668 185,881 --------------- Total 510,942 - ------------------------------------------------------------------------------------ HEALTH CARE EQUIPMENT & SUPPLIES (2.6%) Exactech 4,863(b) 139,763 Meridian Bioscience 6,387 166,126 Merit Medical Systems 4,906(b) 99,150 Neogen 2,476(b) 68,016 NuVasive 3,253(b) 182,720 Somanetics 5,234(b) 114,729 Vision-Sciences 17,885(b) 76,369 Wright Medical Group 3,220(b) 101,398 ZOLL Medical 2,797(b) 88,106 --------------- Total 1,036,377 - ------------------------------------------------------------------------------------ HEALTH CARE PROVIDERS & SERVICES (2.6%) AMERIGROUP 5,474(b) 139,039 Chindex Intl 5,156(b) 79,970 CorVel 3,460(b) 113,315 Health Net 2,720(b) 76,051 HealthSpring 5,024(b) 97,717 HMS Holdings 3,820(b) 95,042 Kindred Healthcare 4,044(b) 109,067 Magellan Health Services 1,155(b) 48,221
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) HEALTH CARE PROVIDERS & SERVICES (CONT.) Molina Healthcare 4,676(b) $139,531 WellCare Health Plans 3,532(b) 138,914 --------------- Total 1,036,867 - ------------------------------------------------------------------------------------ HEALTH CARE TECHNOLOGY (0.2%) TriZetto Group 2,761(b) 60,217 - ------------------------------------------------------------------------------------ HOTELS, RESTAURANTS & LEISURE (0.5%) Bally Technologies 3,057(b) 97,182 Rick's Cabaret Intl 3,299(b) 50,475 WMS Inds 2,280(b) 64,250 --------------- Total 211,907 - ------------------------------------------------------------------------------------ HOUSEHOLD DURABLES (2.1%) DR Horton 5,115 56,879 MDC Holdings 1,798 74,653 Meritage Homes 4,426(b) 79,889 Natl Presto Inds 847 60,544 NVR 819(b) 452,350 Ryland Group 5,137 105,771 --------------- Total 830,086 - ------------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES (0.7%) Seaboard 75 135,000 Walter Inds 1,508 158,144 --------------- Total 293,144 - ------------------------------------------------------------------------------------ INSURANCE (9.1%) Allied World Assurance Holdings 5,123(c) 213,168 American Financial Group 8,496 246,129 Arch Capital Group 5,199(b,c) 362,526 Aspen Insurance Holdings 8,887(c) 225,641 Axis Capital Holdings 15,881(c) 503,110 Endurance Specialty Holdings 5,748(c) 175,889 Fidelity Natl Financial Cl A 12,412 165,824 First American 6,354 160,121 HCC Insurance Holdings 9,945 225,254 IPC Holdings 5,894(c) 189,197 Odyssey Re Holdings 2,302 89,939 Old Republic Intl 8,346 87,633 PartnerRe 5,936(c) 417,420 Platinum Underwriters Holdings 5,084(c) 183,532
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) INSURANCE (CONT.) RenaissanceRe Holdings 6,623(c) $336,912 Transatlantic Holdings 1,844 106,841 --------------- Total 3,689,136 - ------------------------------------------------------------------------------------ INTERNET & CATALOG RETAIL (0.7%) NetFlix 2,960(b) 91,434 priceline.com 1,725(b) 198,289 --------------- Total 289,723 - ------------------------------------------------------------------------------------ INTERNET SOFTWARE & SERVICES (0.7%) CMGI 5,938(b) 72,681 RealNetworks 7,279(b) 50,007 Sohu.com 2,256(b,c) 170,283 --------------- Total 292,971 - ------------------------------------------------------------------------------------ IT SERVICES (1.9%) Hewitt Associates Cl A 1,142(b) 42,083 Integral Systems 1,348 63,396 ManTech Intl Cl A 2,645(b) 147,697 SAIC 20,574(b) 388,643 TNS 5,868(b) 133,790 --------------- Total 775,609 - ------------------------------------------------------------------------------------ LEISURE EQUIPMENT & PRODUCTS (0.8%) Brunswick 14,232 183,593 JAKKS Pacific 5,484(b) 120,538 --------------- Total 304,131 - ------------------------------------------------------------------------------------ LIFE SCIENCES TOOLS & SERVICES (2.1%) Bio-Rad Laboratories Cl A 1,215(b) 108,257 Covance 1,419(b) 130,264 Illumina 2,153(b) 200,746 Kendle Intl 2,035(b) 83,740 Luminex 6,315(b) 138,930 PAREXEL Intl 6,530(b) 190,872 --------------- Total 852,809 - ------------------------------------------------------------------------------------ MACHINERY (4.6%) AGCO 4,167(b) 249,395 Badger Meter 1,692 95,310 Bucyrus Intl 2,598 181,886 FreightCar America 3,790 144,361 Gorman-Rupp 2,220 98,879 K-Tron Intl 793(b) 110,060 LB Foster Cl A 4,169(b) 160,381 Lindsay 1,528 140,989 Lydall 3,315(b) 51,581
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) MACHINERY (CONT.) Mueller Inds 5,155 $132,329 NACCO Inds Cl A 640 64,640 Nordson 1,313 92,777 Robbins & Myers 3,139 159,367 Timken 5,049 166,718 --------------- Total 1,848,673 - ------------------------------------------------------------------------------------ MARINE (0.8%) Genco Shipping & Trading 2,700 184,086 TBS Intl Series A 3,775(b,c) 137,939 --------------- Total 322,025 - ------------------------------------------------------------------------------------ MEDIA (0.2%) Marvel Entertainment 1,767(b) 61,315 - ------------------------------------------------------------------------------------ METALS & MINING (3.1%) AK Steel Holding 2,433 154,496 Cleveland-Cliffs 2,215 240,128 Coeur d'Alene Mines 23,585(b) 68,161 Commercial Metals 12,827 382,885 Compass Minerals Intl 1,768 133,661 Kaiser Aluminum 517 27,272 Olympic Steel 2,314 117,667 Schnitzer Steel Inds Cl A 1,404 126,697 --------------- Total 1,250,967 - ------------------------------------------------------------------------------------ MULTILINE RETAIL (0.6%) Big Lots 3,015(b) 91,837 Dillard's Cl A 15,928 161,032 --------------- Total 252,869 - ------------------------------------------------------------------------------------ MULTI-UTILITIES (0.4%) Integrys Energy Group 3,473 177,331 - ------------------------------------------------------------------------------------ OIL, GAS & CONSUMABLE FUELS (7.2%) Alpha Natural Resources 2,489(b) 246,287 Arena Resources 2,366(b) 96,793 Callon Petroleum 6,274(b) 144,239 Carrizo Oil & Gas 1,145(b) 57,639 Cimarex Energy 5,685 296,245 Clayton Williams Energy 1,407(b) 131,132 Forest Oil 712(b) 40,605 Frontier Oil 9,759 178,102 Frontline 2,930(c) 188,018 Holly 2,455 70,164 James River Coal 3,939(b) 170,756 Overseas Shipholding Group 1,918 151,043
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 19
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) OIL, GAS & CONSUMABLE FUELS (CONT.) St. Mary Land & Exploration 3,688 $156,961 Stone Energy 2,888(b) 147,346 Swift Energy 4,215(b) 214,206 Tesoro 15,153 233,962 W&T Offshore 2,602 115,165 Whiting Petroleum 2,732(b) 255,906 --------------- Total 2,894,569 - ------------------------------------------------------------------------------------ PHARMACEUTICALS (3.2%) Ardea Biosciences 5,653(b) 73,546 Auxilium Pharmaceuticals 5,275(b) 195,702 CPEX Pharmaceuticals 1(b) 15 Durect 26,082(b) 115,804 King Pharmaceuticals 24,950(b) 287,174 Medicines 3,955(b) 87,841 Perrigo 4,327 152,440 POZEN 7,706(b) 93,859 ViroPharma 10,447(b) 128,603 XenoPort 2,800(b) 128,296 --------------- Total 1,263,280 - ------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS (REITS) (2.6%) Annaly Capital Management 12,437 187,426 Anworth Mtge Asset 20,898 124,343 Capstead Mtge 10,954 119,618 HCP 1,606 57,928 Health Care REIT 1,151 57,400 LTC Properties 2,956 86,404 MFA Mtge Investments 10,145 65,435 Nationwide Health Properties 3,397 126,063 Omega Healthcare Investors 4,379 75,625 Senior Housing Properties Trust 3,551 74,749 Ventas 1,677 75,230 --------------- Total 1,050,221 - ------------------------------------------------------------------------------------ ROAD & RAIL (2.7%) Arkansas Best 6,828 253,591 Con-way 4,045 204,515 Ryder System 3,198(d) 210,940
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) ROAD & RAIL (CONT.) Werner Enterprises 6,633 $157,932 YRC Worldwide 14,525(b) 245,473 --------------- Total 1,072,451 - ------------------------------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (1.1%) Actel 5,554(b) 76,368 Amkor Technology 11,032(b) 96,640 MKS Instruments 2,242(b) 46,185 OmniVision Technologies 9,915(b) 108,569 Pericom Semiconductor 8,539(b) 121,766 --------------- Total 449,528 - ------------------------------------------------------------------------------------ SOFTWARE (1.5%) ANSYS 2,247(b) 103,092 BMC Software 1,415(b) 46,539 Concur Technologies 4,842(b) 199,588 Ebix 963(b) 96,801 Salesforce.com 806(b) 51,415 TiVo 12,696(b) 97,505 --------------- Total 594,940 - ------------------------------------------------------------------------------------ SPECIALTY RETAIL (6.5%) Aeropostale 1,894(b) 61,082 American Eagle Outfitters 4,243 59,402 AnnTaylor Stores 2,490(b) 56,150 Asbury Automotive Group 7,026 69,628 AutoNation 13,765(b) 142,055 Barnes & Noble 9,010 213,176 Blockbuster Cl A 52,068(b) 145,270 Cato Cl A 8,358 149,525 Children's Place Retail Stores 1,564(b) 59,510 Collective Brands 7,639(b) 98,390 Finish Line Cl A 7,291(b) 79,107 Foot Locker 13,960 210,237 GameStop Cl A 2,974(b) 120,477 Group 1 Automotive 2,962 58,203 Men's Wearhouse 2,121 42,229 New York & Co 5,398(b) 52,253 Office Depot 25,627(b) 174,263 OfficeMax 3,506 44,737 RadioShack 9,662 161,162 Rent-A-Center 7,914(b) 167,777 Ross Stores 1,599 60,698 Sonic Automotive Cl A 8,936 89,986 Stage Stores 9,845 145,903
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 20 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) SPECIALTY RETAIL (CONT.) Urban Outfitters 3,004(b) $99,162 Wet Seal Cl A 11,429(b) 50,173 --------------- Total 2,610,555 - ------------------------------------------------------------------------------------ TEXTILES, APPAREL & LUXURY GOODS (0.7%) Hanesbrands 3,887(b) 83,337 Jones Apparel Group 10,812 180,993 --------------- Total 264,330 - ------------------------------------------------------------------------------------ THRIFTS & MORTGAGE FINANCE (0.1%) Capitol Federal Financial 1,345 54,392 - ------------------------------------------------------------------------------------ TRADING COMPANIES & DISTRIBUTORS (0.7%) Rush Enterprises Cl A 3,239(b) 36,568 United Rentals 6,444(b) 104,264 WESCO Intl 3,606(b) 135,766 --------------- Total 276,598 - ------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) WIRELESS TELECOMMUNICATION SERVICES (0.2%) Syniverse Holdings 3,986(b) $64,573 - ------------------------------------------------------------------------------------ TOTAL COMMON STOCKS (Cost: $42,842,271) $39,509,737 - ------------------------------------------------------------------------------------
MONEY MARKET FUND (1.8%) SHARES VALUE(A) RiverSource Short-Term Cash Fund, 2.54% 716,797(e) $716,797 - ------------------------------------------------------------------------------------ TOTAL MONEY MARKET FUND (Cost: $716,797) $716,797 - ------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $43,559,068)(f) $40,226,534 ====================================================================================
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT JULY 31, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION/ CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - --------------------------------------------------------------------------------------------------- E-Mini S&P MidCap 400 Index 2 $160,780 Sept. 2008 $1,045 Mini Russell 2000 Index 5 357,750 Sept. 2008 4,568 - --------------------------------------------------------------------------------------------------- Total $5,613 - ---------------------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At July 31, 2008, the value of foreign securities represented 8.7% of net assets. (d) At July 31, 2008, investments in securities included securities valued at $64,745 that were partially pledged as collateral to cover initial margin deposits on open stock index futures contracts. (e) Affiliated Money Market Fund - See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at July 31, 2008. (f) At July 31, 2008, the cost of securities for federal income tax purposes was $43,614,099 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 3,960,158 Unrealized depreciation (7,347,723) - ------------------------------------------------------------------------------ Net unrealized depreciation $(3,387,565) - ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 21 NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) The sectors identified above are based on the Global Industry Classification Standard (GICS), which 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 riversource.com/funds. - -------------------------------------------------------------------------------- 22 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT FINANCIAL STATEMENTS ----------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JULY 31, 2008 ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $42,842,271) $ 39,509,737 Affiliated money market fund (identified cost $716,797) 716,797 - -------------------------------------------------------------------------- Total investments in securities (identified cost $43,559,068) 40,226,534 Capital shares receivable 244,092 Dividends receivable 19,699 - -------------------------------------------------------------------------- Total assets 40,490,325 ========================================================================== LIABILITIES Capital shares payable 396,690 Variation margin payable 5,485 Accrued investment management services fees 773 Accrued distribution fees 195 Accrued transfer agency fees 79 Accrued administrative services fees 66 Other accrued expenses 59,072 - -------------------------------------------------------------------------- Total liabilities 462,360 - -------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 40,027,965 ========================================================================== REPRESENTED BY Capital stock -- $.01 par value $ 47,715 Additional paid-in capital 60,661,394 Excess of distributions over net investment income (483) Accumulated net realized gain (loss) (17,353,740) Unrealized appreciation (depreciation) on investments (3,326,921) - -------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 40,027,965 ==========================================================================
NET ASSET VALUE PER SHARE Net assets Shares outstanding Net asset value per share Class A $16,737,687 1,995,771 $8.39(1) Class B $ 1,001,638 121,121 $8.27 Class C $ 162,845 19,685 $8.27 Class I $15,280,626 1,816,335 $8.41 Class R4 $ 10,136 1,204 $8.42 Class W $ 6,835,033 817,433 $8.36 - ------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $8.90. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 5.75%. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 23 STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 2008 INVESTMENT INCOME Income: Dividends $ 726,208 Income distributions from affiliated money market fund 116,391 Less foreign taxes withheld (1,466) - ---------------------------------------------------------------------------- Total income 841,133 - ---------------------------------------------------------------------------- Expenses: Investment management services fees 365,578 Distribution fees Class A 44,049 Class B 12,319 Class C 1,632 Class W 54,372 Transfer agency fees Class A 23,992 Class B 1,870 Class C 239 Class R4 5 Class W 43,498 Administrative services fees 38,114 Plan administration services fees -- Class R4 29 Compensation of board members 1,089 Custodian fees 51,010 Printing and postage 35,574 Registration fees 52,879 Professional fees 26,429 Other 5,725 - ---------------------------------------------------------------------------- Total expenses 758,403 Expenses waived/reimbursed by the Investment Manager and its affiliates (46,967) Earnings and bank fee credits on cash balances (94) - ---------------------------------------------------------------------------- Total net expenses 711,342 - ---------------------------------------------------------------------------- Investment income (loss) -- net 129,791 - ---------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (16,983,785) Futures contracts (300,632) - ---------------------------------------------------------------------------- Net realized gain (loss) on investments (17,284,417) Net change in unrealized appreciation (depreciation) on investments 4,376,682 - ---------------------------------------------------------------------------- Net gain (loss) on investments (12,907,735) - ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(12,777,944) ============================================================================
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 24 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 129,791 $ 236,927 Net realized gain (loss) on investments (17,284,417) 1,725 Net change in unrealized appreciation (depreciation) on investments 4,376,682 (6,728,788) - --------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (12,777,944) (6,490,136) - --------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (34,283) (51,227) Class B -- (1,714) Class C -- (180) Class I (113,611) (86,805) Class R4 (45) (57) Class W (63,669) (25) Tax return of capital Class A (10,260) -- Class I (34,002) -- Class R4 (13) -- Class W (19,056) -- - --------------------------------------------------------------------------------------- Total distributions (274,939) (140,008) - ---------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 25 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
2008 2007 CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares $ 5,314,007 $ 9,526,024 Class B shares 524,710 1,559,049 Class C shares 84,450 186,778 Class I shares 5,433,998 41,657,381 Class R4 shares -- 4,169 Class W shares 36,417,280 74,596,249 Reinvestment of distributions at net asset value Class A shares 23,307 12,334 Class B shares -- 1,637 Class C shares -- 133 Class I shares 147,564 86,753 Class R4 shares 14 12 Class W shares 82,712 -- Payments for redemptions Class A shares (4,596,964) (602,001) Class B shares (699,446) (163,893) Class C shares (81,500) (1,577) Class I shares (24,982,300) (1,367,934) Class R4 shares (3,611) -- Class W shares (80,368,252) (12,494,015) - --------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (62,704,031) 113,001,099 - --------------------------------------------------------------------------------------- Total increase (decrease) in net assets (75,756,914) 106,370,955 Net assets at beginning of year 115,784,879 9,413,924 - --------------------------------------------------------------------------------------- Net assets at end of year $ 40,027,965 $115,784,879 ======================================================================================= Undistributed (excess of distributions over) net investment income $ (483) $ 88,863 - ---------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 26 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS --------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Disciplined Small and Mid Cap Equity Fund (the Fund) is a series of RiverSource Dimensions Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Dimensions Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund invests primarily in equity securities of companies with market capitalizations of up to $5 billion or that fall within the range of companies that comprise the Russell 2500(TM) Index at the time of investment. The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares. - - Class A shares are sold with a front-end sales charge. - - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - - Class C shares may be subject to a CDSC. - - Class I and Class R4 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. - - Class W shares are sold without a front-end sales charge or CDSC and are offered through qualifying discretionary accounts. At July 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares. At July 31, 2008, the Investment Manager and the RiverSource affiliated funds-of-funds owned approximately 38% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 27 VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a - -------------------------------------------------------------------------------- 28 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At July 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 29 using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. At July 31, 2008, the Fund had no outstanding forward foreign currency contracts. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than- not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of futures contracts, re- characterization of REIT distributions, post-October losses and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $7,529 and accumulated net realized loss has been decreased by $7,529. - -------------------------------------------------------------------------------- 30 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED JULY 31, 2008 2007* - --------------------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income................................ $34,283 $51,227 Long-term capital gain......................... -- -- Tax return of capital.......................... 10,260 -- CLASS B Distributions paid from: Ordinary income................................ -- 1,714 Long-term capital gain......................... -- -- Tax return of capital.......................... -- -- CLASS C Distributions paid from: Ordinary income................................ -- 180 Long-term capital gain......................... -- -- Tax return of capital.......................... -- -- CLASS I Distributions paid from: Ordinary income................................ 113,611 86,805 Long-term capital gain......................... -- -- Tax return of capital.......................... 34,002 -- CLASS R4 Distributions paid from: Ordinary income................................ 45 57 Long-term capital gain......................... -- -- Tax return of capital.......................... 13 -- CLASS W Distributions paid from: Ordinary income................................ 63,669 25 Long-term capital gain......................... -- -- Tax return of capital.......................... 19,056 --
* Class W is for the period from Dec. 1, 2006 (inception date) to July 31, 2007. At July 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income........................... $ -- Undistributed accumulated long-term gain................ $ -- Accumulated realized loss............................... $(17,293,096) Unrealized appreciation (depreciation).................. $ (3,388,048)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 31 Activities - an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after Nov. 15, 2008. As of July 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Aug. 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.70% to 0.475% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment determined monthly by - -------------------------------------------------------------------------------- 32 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT measuring the percentage difference over a rolling 12-month period between the annualized performance of one Class A share of the Fund and the annualized performance of the Lipper Mid-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 management fee by $79,088 for the year ended July 31, 2008. The management fee for the year ended July 31, 2008, was 0.57% of the Fund's average daily net assets, including the adjustment under the terms of the performance incentive arrangement. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.06% to 0.03% annually as the Fund's assets increase. The fee for the year ended July 31, 2008 was 0.06% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended July 31, 2008, other expenses paid to this company were $445. COMPENSATION OF BOARD MEMBERS Compensation of board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $19.50 for Class A, $20.50 for Class B and $20.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R4 shares and an annual asset-based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 33 The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as a principal underwriter and distributor to the Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A and Class W shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $44,000 and $1,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of July 31, 2008 and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $24,965 for Class A, $1,244 for Class B and $19 for Class C for the year ended July 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended July 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A..................................................... 1.20% Class B..................................................... 1.97 Class C..................................................... 1.96 Class I..................................................... 0.84 Class R4.................................................... 0.84 Class W..................................................... 1.31
- -------------------------------------------------------------------------------- 34 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class R4.................................................... $ 3 Class W..................................................... 211
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R4.................................................... $29
The management fees waived/reimbursed at the Fund level were $46,724. Under an agreement which was effective until July 31, 2008, the Investment Manager and its affiliates contractually agreed to waive certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any performance incentive adjustment, would not exceed the following percentage of the Fund's average daily net assets: Class A..................................................... 1.36% Class B..................................................... 2.12 Class C..................................................... 2.12 Class I..................................................... 0.96 Class R4.................................................... 1.23 Class W..................................................... 1.41
Effective Aug. 1, 2008, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until July 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any performance incentive adjustment, will not exceed the following percentage of the Fund's average daily net assets: Class A..................................................... 1.36% Class B..................................................... 2.13 Class C..................................................... 2.12 Class I..................................................... 0.92 Class R4.................................................... 1.22 Class W..................................................... 1.37
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS AND BANK FEE CREDITS During the year ended July 31, 2008, the Fund's custodian and transfer agency fees were reduced by $94 as a result of earnings and bank fee credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 35 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $34,481,277 and $93,642,813, respectively, for the year ended July 31, 2008. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
YEAR ENDED JULY 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 598,899 2,670 (530,197) 71,372 Class B 60,646 -- (83,716) (23,070) Class C 9,742 -- (9,464) 278 Class I 619,508 16,884 (2,871,475) (2,235,083) Class R4 -- 2 (384) (382) Class W 3,946,189 9,475 (9,117,650) (5,161,986) - ----------------------------------------------------------------------------------------------
YEAR ENDED JULY 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 943,472 1,246 (59,415) 885,303 Class B 155,478 166 (15,613) 140,031 Class C 18,543 14 (150) 18,407 Class I 4,167,297 8,763 (131,451) 4,044,609 Class R4 421 1 -- 422 Class W* 7,145,709 -- (1,166,290) 5,979,419 - ----------------------------------------------------------------------------------------------
* For the period from Dec, 1, 2006 (inception date) to July 31, 2007. 5. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-term Cash Fund aggregated $40,412,808 and $41,455,798, respectively, for the year ended July 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short-Term Cash Fund at July 31, 2008, can be found in the Portfolio of Investments. - -------------------------------------------------------------------------------- 36 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 6. BANK BORROWINGS The Fund has entered into a revolving credit facility 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 credit facility became effective on Oct. 18, 2007, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Under the prior credit facility, a Fund paid interest on its outstanding 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. The Fund had no borrowings during the year ended July 31, 2008. 7. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, the Fund had a capital loss carry-over of $2,301,857 at July 31, 2008, that if not offset by capital gains will expire as follows:
2014 2015 2016 $93,125 $21,904 $2,186,828
Because the measurement periods for a regulated investment company's income are different for excise tax purposes versus income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the Fund is permitted to treat net capital losses realized between Nov. 1, 2007 and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At July 31, 2008 the Fund had a post-October loss of $14,991,239 that is treated for income tax purposes as occurring on Aug. 1, 2008. 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. 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 37 Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the - -------------------------------------------------------------------------------- 38 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 39 9. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2008 2007 2006(B) Net asset value, beginning of period $9.55 $8.95 $9.48 - --------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .00(c),(d) .05(c) -- Net gains (losses) (both realized and unrealized) (1.14) .59 (.53) - --------------------------------------------------------------------------------------------------------------- Total from investment operations (1.14) .64 (.53) - --------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) (.04) -- Tax return of capital (.00)(d) -- -- - --------------------------------------------------------------------------------------------------------------- Total distributions (.02) (.04) -- - --------------------------------------------------------------------------------------------------------------- Net asset value, end of period $8.39 $9.55 $8.95 - --------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $17 $18 $9 - --------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) 1.32% 1.67% 5.83%(g) - --------------------------------------------------------------------------------------------------------------- Net expenses after waiver/reimbursement(f),(h),(i) 1.20% 1.29% 1.26%(g) - --------------------------------------------------------------------------------------------------------------- Net investment income (loss) .05%(d) .52% .01%(g) - --------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 56% 84% 14% - --------------------------------------------------------------------------------------------------------------- Total return(j) (11.94%) 7.12% (5.59%)(k) - ---------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (i) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. - -------------------------------------------------------------------------------- 40 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2008 2007 2006(B) Net asset value, beginning of period $9.47 $8.93 $9.48 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.06)(c) (.04)(c) (.01) Net gains (losses) (both realized and unrealized) (1.14) .62 (.54) - ----------------------------------------------------------------------------------------------------------- Total from investment operations (1.20) .58 (.55) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- (.04) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $8.27 $9.47 $8.93 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.09% 2.12% 6.64%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after waiver/reimbursement(e),(g),(h) 1.97% 2.06% 2.07%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) (.71%) (.41%) (.37%)(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 56% 84% 14% - ----------------------------------------------------------------------------------------------------------- Total return(i) (12.67%) 6.43% (5.80%)(j) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 41 CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2008 2007 2006(B) Net asset value, beginning of period $9.47 $8.93 $9.48 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.06)(c) (.04)(c) (.01) Net gains (losses) (both realized and unrealized) (1.14) .61 (.54) - ----------------------------------------------------------------------------------------------------------- Total from investment operations (1.20) .57 (.55) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- (.03) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $8.27 $9.47 $8.93 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.08% 2.16% 6.61%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after waiver/reimbursement(e),(g),(h) 1.96% 2.06% 2.04%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) (.72%) (.40%) (.78%)(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 56% 84% 14% - ----------------------------------------------------------------------------------------------------------- Total return(i) (12.67%) 6.37% (5.80%)(j) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 42 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2008 2007 2006(B) Net asset value, beginning of period $9.57 $8.95 $9.48 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05(c) .08(c) -- Net gains (losses) (both realized and unrealized) (1.16) .59 (.53) - ----------------------------------------------------------------------------------------------------------- Total from investment operations (1.11) .67 (.53) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.05) -- Tax return of capital (.01) -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.05) (.05) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $8.41 $9.57 $8.95 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $15 $39 $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .91% .95% 5.58%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after waiver/reimbursement(e),(g),(h) .84% .95% 1.01%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) .50% .80% .19%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 56% 84% 14% - ----------------------------------------------------------------------------------------------------------- Total return (11.63%) 7.48% (5.59%)(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 43 CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2008 2007 2006(B) Net asset value, beginning of period $9.56 $8.95 $9.48 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04(c) .07(c) -- Net gains (losses) (both realized and unrealized) (1.14) .58 (.53) - ----------------------------------------------------------------------------------------------------------- Total from investment operations (1.10) .65 (.53) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) (.04) -- Tax return of capital (.01) -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.04) (.04) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $8.42 $9.56 $8.95 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.23% 1.68% 5.69%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after waiver/reimbursement(e),(g),(h) .84% 1.15% 1.12%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) .42% .71% .21%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 56% 84% 14% - ----------------------------------------------------------------------------------------------------------- Total return (11.48%) 7.30% (5.59%)(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- 44 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2008 2007(B) Net asset value, beginning of period $9.54 $9.79 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .01 -- Net gains (losses) (both realized and unrealized) (1.17) (.20) - ----------------------------------------------------------------------------------------------------------- Total from investment operations (1.16) (.20) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.01) (.05) Tax return of capital (.01) -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.02) (.05) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $8.36 $9.54 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $7 $57 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.34% 1.60%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after waiver/reimbursement(e),(g),(h) 1.31% 1.32%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) .08% .03%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 56% 84% - ----------------------------------------------------------------------------------------------------------- Total return (12.13%) (2.06%)(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to July 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 45 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of RiverSource Disciplined Small and Mid Cap Equity Fund (the Fund) (one of the portfolios constituting the RiverSource Dimensions Series, Inc.) as of July 31, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the period presented through July 31, 2006, were audited by other auditors whose report dated September 20, 2006, expressed an unqualified opinion on those financial highlights. 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 financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. - -------------------------------------------------------------------------------- 46 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of RiverSource Disciplined Small and Mid Cap Equity Fund of the RiverSource Dimensions Series, Inc. at July 31, 2008, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota September 22, 2008 - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 47 FEDERAL INCOME TAX INFORMATION ------------------------------------------------- (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. Fiscal year ended July 31, 2008
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 100% Dividends Received Deduction for corporations......... 100% U.S. Government Obligations........................... 0.00%
The Fund also designates as distributions of long-term gains, to the extent necessary to fully distribute such capital gains, earnings and profits distributed to shareholders on the redemption of shares. - -------------------------------------------------------------------------------- 48 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 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 104 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, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------- Kathleen Blatz Board member Chief Justice, Minnesota Supreme None 901 S. Marquette Ave. since 2006 Court, 1998-2006; Attorney Minneapolis, MN 55402 Age 54 - ----------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, RiverSource Funds, None 901 S. Marquette Ave. since 1999 1999-2006; former Governor of Minneapolis, MN 55402 Minnesota Age 73 - ----------------------------------------------------------------------------------------------------- Pamela G. Carlton Board member President, Springboard -- Partners None 901 S. Marquette Ave. since 2007 in Cross Cultural Leadership Minneapolis, MN 55402 (consulting company) Age 53 - ----------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics and None 901 S. Marquette Ave. since 2004 Management, Bentley College; former Minneapolis, MN 55402 Dean, McCallum Graduate School of Age 57 Business, Bentley College - ----------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant None 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 73 - ----------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive 901 S. Marquette Ave. since 2005 Asset Management Insurance Minneapolis, MN 55402 Age 72 - ----------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries, 901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures Minneapolis, MN 55402 Chair of the irrigation systems) Age 69 Board since 2007 - -----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 49 INDEPENDENT BOARD MEMBERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset None 901 S. Marquette Ave. since 2004 Management, Inc. (private real Minneapolis, MN 55402 estate and asset management Age 55 company) - ----------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer and Idera 901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Pharmaceutical, Inc. Minneapolis, MN 55402 2003 (biotechnology); former (biotechnology); Age 64 President, Forester Biotech Healthways, Inc. (health management programs) - -----------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------- William F. Truscott Board member President -- U.S. Asset Management None 53600 Ameriprise since 2001, and Chief Investment Officer, Financial Center Vice President Ameriprise Financial, Inc. and Minneapolis, MN 55474 since 2002 President, Chairman of the Board Age 47 and Chief Investment Officer, RiverSource Investments, LLC since 2005; Director, President, and Chief Executive Officer, Ameriprise Certificate Company since 2006; Chairman of the Board, Chief Executive Officer and President, RiverSource Distributors, Inc. since 2006; Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 - -----------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. The SAI has additional information about the Fund's Board members and is available, without charge, upon request by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; or visiting riversource.com/funds. - -------------------------------------------------------------------------------- 50 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 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, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------ Patrick T. Bannigan President since Director and Senior Vice President, Asset 172 Ameriprise 2006 Management, Products and Marketing, Financial Center RiverSource Investments, LLC since 2006; Minneapolis, MN 55474 Director and Vice President -- Asset Age 42 Management, Products and Marketing, RiverSource Distributors, Inc. since 2006; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004 - ------------------------------------------------------------------------------------------ Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed 172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and Financial Center RiverSource Investments, LLC since 2006; Vice Minneapolis, MN 55474 President -- Investments, Ameriprise Age 44 Certificate Company since 2003; Senior Vice President -- Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 - ------------------------------------------------------------------------------------------ Amy K. Johnson Vice President Vice President -- Asset Management and Trust 5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC Financial Center since 2006; Vice President -- Operations and Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC, Age 42 2004-2006; Director of Product Development -- Mutual Funds, Ameriprise Financial, Inc., 2001-2004 - ------------------------------------------------------------------------------------------ Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting, 105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Chief Financial Center Financial Officer, RiverSource Distributors, Minneapolis, MN 55474 Inc. since 2006 Age 53 - ------------------------------------------------------------------------------------------ Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset 5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since Financial Center and Secretary 2005; Chief Counsel, RiverSource Distributors, Minneapolis, MN 55474 since 2006 Inc. since 2006; Vice President, General Age 49 Counsel and Secretary, Ameriprise Certificate Company since 2005; Vice President -- Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002-2004 - ------------------------------------------------------------------------------------------ Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance 172 Ameriprise Officer since Officer, RiverSource Investments, LLC since Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset Minneapolis, MN 55474 Management, 2003-2006; Director of Finance, Age 47 Voyageur Asset Management, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 51 FUND OFFICERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------ Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering 2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since Financial Center Officer since 2004; Manager Anti-Money Laundering, Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004; Age 44 Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 52 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT ---------------------------------------------------------------------- RiverSource Investments, LLC ("RiverSource Investments" or the "investment manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), serves as the investment manager to the Fund. Under an investment management services agreement (the "IMS Agreement") RiverSource Investments provides investment advice and other services to the Fund and all RiverSource funds (collectively, the "Funds"). On an annual basis, the Fund's Board of Directors (the "Board"), including the independent Board members (the "Independent Directors"), considers renewal of the IMS Agreement. RiverSource Investments prepared detailed reports for the Board and its Contracts Committee in March and April 2008, including reports based on data provided by independent organizations to assist the Board in making this determination. In addition, throughout the year, the Board (or its committees) reviews information prepared by RiverSource Investments addressing the services RiverSource Investments provides and Fund performance. The Board accords particular weight to the work, deliberations and conclusions of the Contracts, Investment Review and Compliance Committees in determining whether to continue the IMS Agreement. At the April 9-10, 2008 in-person Board meeting, independent legal counsel to the Independent Directors reviewed with the Independent Directors various factors relevant to the Board's consideration of advisory agreements and the Board's legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Directors, approved renewal of the IMS Agreement. Nature, Extent and Quality of Services Provided by RiverSource Investments: The Board analyzed various reports and presentations it had received detailing the services performed by RiverSource Investments, as well as its expertise, resources and capabilities. The Board specifically considered many developments during the past year concerning the services provided by RiverSource Investments, including, in particular, the continued investment in, and resources dedicated to, the Fund's operations, particularly in the areas of trading systems, new product initiatives, legal and compliance. Further, in connection with the Board's evaluation of the overall package of services provided by RiverSource Investments, the Board considered the quality of the administrative and transfer agency services provided by RiverSource Investments' affiliates to the Fund. The Board also reviewed the financial condition of RiverSource Investments (and its affiliates) and each entity's ability to carry out its responsibilities under the IMS Agreement. The Board also discussed the acceptability of the terms of the IMS Agreement (including the relatively broad scope of services required to be performed by RiverSource Investments). The Board concluded that the services being performed under the IMS Agreement were of a reasonably high quality, particularly in light of recent market conditions. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 53 APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT (continued) ---------------------------------------------------------- Based on the foregoing, and based on other information received (both oral and written, including the information on investment performance referenced below) and other considerations, the Board concluded that RiverSource Investments and its affiliates were in a position to continue to provide a high quality and level of services to the Fund. Investment Performance: For purposes of evaluating the nature, extent and quality of services provided under the IMS Agreement, the Board carefully reviewed the investment performance of the Fund. In this regard, the Board considered: (i) detailed reports containing data prepared by an independent organization showing, for various periods, the performance of the Fund, the performance of a benchmark index, the percentage ranking of the Fund among its comparison group and the net assets of the Fund; and (ii) a report detailing the Fund's performance over various periods (including since inception), recent Fund inflows (and outflows) and a comparison of the Fund's net assets from December 2006 to December 2007. The Board observed that the Fund's investment performance, although weaker than the previous year, reflected the interrelationship of particularly volatile market conditions with the investment strategies employed by the portfolio management team. Further, the Board noted that appropriate measures have been taken to adjust certain proprietary models. Comparative Fees, Costs of Services Provided and the Profits Realized By RiverSource Investments and its Affiliates from their Relationships with the Fund: The Board reviewed comparative fees and the costs of services to be provided under the IMS Agreement. The Board members considered detailed comparative information set forth in an annual report on fees and expenses, including, among other things, data (prepared by an independent organization) showing a comparison of the Fund's expenses with median expenses paid by funds in its peer group, as well as data showing the Fund's contribution to RiverSource Investments' profitability. The Board accorded particular weight to the notion that the level of fees should reflect a rational pricing model applied consistently across the various product lines in the Funds' family, while assuring that the overall fees for each fund are generally in line with the "pricing philosophy" (i.e., that the total expense ratio of each fund, with few exceptions, is at or below the median expense ratio of funds in the same comparison group). The Board took into account that the Fund's total expense ratio (after considering proposed expense caps/waivers) was slightly below the peer group's median expense ratio shown in the reports. The Board also considered the Fund's performance incentive adjustment and noted its continued appropriateness. Based on its review, the Board concluded that the Fund's management fee was fair and reasonable in light of the extent and quality of services that the Fund receives. - -------------------------------------------------------------------------------- 54 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- The Board also considered the expected profitability of RiverSource Investments and its affiliates in connection with RiverSource Investments providing investment management services to the Fund. In this regard, the Board referred to a detailed profitability report, discussing the profitability to RiverSource Investments and Ameriprise Financial from managing and operating the Fund, including data showing comparative profitability since inception. The Board also considered the services acquired by the investment manager through the use of commission dollars paid by the Funds on portfolio transactions. The Board noted that the fees paid by the Fund should permit the investment manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. The Board concluded that profitability levels were reasonable. Economies of Scale to be Realized: The Board also considered the economies of scale that might be realized by RiverSource Investments as the Fund grows and took note of the extent to which Fund shareholders might also benefit from such growth. The Board considered that the IMS Agreement provides for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. Based on the foregoing, the Board, including all of the Independent Directors, concluded that the investment management service fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was determinative. On April 10, 2008, the Board, including all of the Independent Directors, approved the renewal of the IMS Agreement. PROXY VOTING - ------------------------------------------------------------------------------- The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2008 ANNUAL REPORT 55 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND 734 Ameriprise Financial Center Minneapolis, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource(R) mutual funds are distributed by RiverSource Distributors, Inc., Member FINRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. (RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6505 E (9/08)
Annual Report and Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND ANNUAL REPORT FOR THE PERIOD ENDED JULY 31, 2008 (Prospectus also enclosed) RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM CAPITAL GROWTH. This annual report includes a prospectus that describes in detail the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money. (SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS -------------------------------------------------------------- Your Fund at a Glance.............. 2 Manager Commentary................. 5 The Fund's Long-term Performance... 10 Fund Expenses Example.............. 12 Portfolio of Investments........... 15 Financial Statements............... 22 Notes to Financial Statements...... 28 Report of Independent Registered Public Accounting Firm........... 49 Federal Income Tax Information..... 51 Board Members and Officers......... 52 Approval of Investment Management Services Agreement............... 55 Proxy Voting....................... 57
(DALBAR LOGO) The RiverSource mutual fund shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 1 YOUR FUND AT A GLANCE ---------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- > RiverSource Disciplined Small Cap Value Fund (the Fund) Class A shares declined 9.67% (excluding sales charge) for the 12-month period ended July 31, 2008. > The Fund outperformed its benchmark, the unmanaged Russell 2000(R) Value Index, which fell 9.95% for the annual period. > The Fund also outperformed the Lipper Small-Cap Value Funds Index, representing the Fund's peer group, which declined 12.36% for the same period. ANNUALIZED TOTAL RETURNS (for period ended July 31, 2008) - --------------------------------------------------------------------------------
Since 1 year inception(a) - ------------------------------------------------------------------ RiverSource Disciplined Small Cap Value Fund Class A (excluding sales charge) -9.67% -4.19% - ------------------------------------------------------------------ Russell 2000(R) Value Index (unmanaged) -9.95% -1.03% - ------------------------------------------------------------------ Lipper Small-Cap Value Funds Index -12.36% -1.07% - ------------------------------------------------------------------
(a) Fund data is from Feb. 16, 2006. Russell 2000 Value Index and Lipper peer group data is from March 1, 2006. (See "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. See the Average Annual Total Returns table for performance of other share classes of the Fund. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- 2 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- STYLE MATRIX - --------------------------------------------------------------------------------
STYLE VALUE BLEND GROWTH LARGE MEDIUM SIZE X SMALL
Shading within the style matrix indicates areas in which the Fund is designed to generally invest. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and may serve as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) - --------------------------------------------------------------------------------
Net Fund and Acquired Fund Total Net (Underlying Fund Expenses(a) Fund)(b) - ------------------------------------------------ Class A 1.54% 1.24% 1.29% - ------------------------------------------------ Class B 2.29% 2.00% 2.05% - ------------------------------------------------ Class C 2.29% 2.00% 2.05% - ------------------------------------------------ Class I 1.22% 0.92% 0.97% - ------------------------------------------------ Class R2 2.03% 1.72% 1.77% - ------------------------------------------------ Class R3 1.79% 1.47% 1.52% - ------------------------------------------------ Class R4 1.52% 1.22% 1.27% - ------------------------------------------------ Class R5 1.28% 0.97% 1.02% - ------------------------------------------------
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment (that decreased the management fee by 0.10% for the year ended July 31, 2008), will not exceed 1.43% for Class A, 2.19% for Class B, 2.19% for Class C, 1.04% for Class I, 1.84% for Class R2, 1.59% for Class R3, 1.34% for Class R4 and 1.09% for Class R5. (b) In addition to the Fund's total annual operating expenses that the Fund bears directly, the Fund's shareholders indirectly bear the expenses of acquired funds (affiliated and unaffiliated funds) in which the Fund invests. The Fund's "Acquired fund fees and expenses," based on its investment in the acquired funds, was 0.05% for the year ended July 31, 2008. Investments in small- and mid-capitalization companies often involve greater risks and potential volatility than investments in larger, more established companies. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 3 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT JULY 31, 2008 SINCE Without sales charge 1 YEAR INCEPTION Class A (inception 2/16/06) -9.67% -4.19% - ----------------------------------------------------------------- Class B (inception 2/16/06) -10.47% -4.98% - ----------------------------------------------------------------- Class C (inception 2/16/06) -10.43% -4.97% - ----------------------------------------------------------------- Class I (inception 2/16/06) -9.46% -3.90% - ----------------------------------------------------------------- Class R2 (inception 12/11/06) -9.82% -10.44% - ----------------------------------------------------------------- Class R3 (inception 12/11/06) -9.65% -10.22% - ----------------------------------------------------------------- Class R4 (inception 2/16/06) -9.27% -3.97% - ----------------------------------------------------------------- Class R5 (inception 12/11/06) -9.50% -9.96% - ----------------------------------------------------------------- With sales charge Class A (inception 2/16/06) -14.86% -6.46% - ----------------------------------------------------------------- Class B (inception 2/16/06) -14.84% -6.48% - ----------------------------------------------------------------- Class C (inception 2/16/06) -11.30% -4.97% - -----------------------------------------------------------------
AT JUNE 30, 2008 SINCE Without sales charge 1 YEAR INCEPTION Class A (inception 2/16/06) -21.64% -6.06% - ----------------------------------------------------------------- Class B (inception 2/16/06) -22.19% -6.79% - ----------------------------------------------------------------- Class C (inception 2/16/06) -22.23% -6.78% - ----------------------------------------------------------------- Class I (inception 2/16/06) -21.35% -5.77% - ----------------------------------------------------------------- Class R2 (inception 12/11/06) -21.70% -13.36% - ----------------------------------------------------------------- Class R3 (inception 12/11/06) -21.46% -13.13% - ----------------------------------------------------------------- Class R4 (inception 2/16/06) -21.29% -5.84% - ----------------------------------------------------------------- Class R5 (inception 12/11/06) -21.40% -12.93% - ----------------------------------------------------------------- With sales charge Class A (inception 2/16/06) -26.13% -8.37% - ----------------------------------------------------------------- Class B (inception 2/16/06) -25.98% -8.32% - ----------------------------------------------------------------- Class C (inception 2/16/06) -22.99% -6.78% - -----------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 5.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class I, Class R2, Class R3, Class R4 and Class R5 shares. Class I, Class R2, Class R3, Class R4 and Class R5 are available to institutional investors only. - -------------------------------------------------------------------------------- 4 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT MANAGER COMMENTARY ------------------------------------------------------------- At July 31, 2008, approximately 63% of the Fund's shares were owned in the aggregate by affiliated funds-of-funds managed by RiverSource Investments, LLC (RiverSource). As a result of asset allocation decisions by RiverSource, it is possible that RiverSource Disciplined Small Cap Value Fund may experience relatively large purchases or redemptions from affiliated funds-of-funds (see page 37, Class I capital share transactions for related activity during the most recent fiscal period). RiverSource seeks to minimize the impact of these transactions by structuring them over a reasonable period of time. RiverSource Disciplined Small Cap Value Fund may experience increased expenses as it buys and sells securities as a result of purchases or redemptions by affiliated funds-of-funds. For more information of the Fund's expenses, see the discussions beginning on pages 12 and 33. Dear Shareholders: RiverSource Disciplined Small Cap Value Fund (the Fund) Class A shares declined 9.67% (excluding sales charge) for the 12-month period ended July 31, 2008. The Fund outperformed its benchmark, the unmanaged Russell 2000(R) Value Index (Russell Index), which fell 9.95%, as well as the Lipper Small-Cap Value Funds Index, representing the Fund's peer group, which declined 12.36%, for the same period. SECTOR DIVERSIFICATION(1) (at July 31, 2008; % of portfolio assets) - ---------------------------------------------------------------------
Consumer Discretionary 12.9% - ------------------------------------------------ Consumer Staples 5.1% - ------------------------------------------------ Energy 8.6% - ------------------------------------------------ Financials 28.8% - ------------------------------------------------ Health Care 6.0% - ------------------------------------------------ Industrials 18.9% - ------------------------------------------------ Information Technology 8.3% - ------------------------------------------------ Materials 8.2% - ------------------------------------------------ Telecommunication Services 0.5% - ------------------------------------------------ Utilities 2.7% - ------------------------------------------------
(1) Sectors can be comprised of several industries. Please refer to the section entitled "Portfolio of Investments" for a complete listing. No single industry exceeds 25% of portfolio assets. The sectors identified above are based on the Global Industry Classification Standard (GICS), which 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. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 5 MANAGER COMMENTARY (continued) ------------------------------------------------- SIGNIFICANT PERFORMANCE FACTORS The annual period was a most challenging one, characterized by heightened concerns about weakness in the economy, ongoing turmoil in the housing and financial markets, a credit crunch and soaring commodity prices. As a result, equity volatility increased as the year progressed, peaking in March with the collapse of Bear Stearns and rearing its head again in June. Given the extreme pressure on the financial system, it makes sense, then, that the financials sector performed worst. Clearly, the resulting equity market decline was only partially mitigated by the impressive double-digit gains generated by the energy sector, as crude oil prices surged past $140 per barrel before falling back a bit to end July at just over $124 per barrel. The Fund's performance resulted from the three quantitative investment models we employ in selecting stocks for the Fund's portfolio: momentum, value and quality. The momentum model identifies stocks that we believe will experience improving investor sentiment over the next six to nine months. The value model uses a proprietary earnings estimate and selects stocks with low price-to- predicted-earnings ratios. The quality model selects companies that we feel possess strong and stable fundamentals, adjusted for value. Under the Fund's investment process, the three models choose the small-cap value stocks for the TOP TEN HOLDINGS (at July 31, 2008; % of portfolio assets) - ---------------------------------------------------------------------
Aspen Insurance Holdings 2.0% - ------------------------------------------------ Platinum Underwriters Holdings 1.5% - ------------------------------------------------ IPC Holdings 1.4% - ------------------------------------------------ Swift Energy 1.3% - ------------------------------------------------ Montpelier Re Holdings 1.2% - ------------------------------------------------ Max Capital Group 1.1% - ------------------------------------------------ Zenith Natl Insurance 1.0% - ------------------------------------------------ Odyssey Re Holdings 1.0% - ------------------------------------------------ Grey Wolf 0.9% - ------------------------------------------------ Rent-A-Center 0.9% - ------------------------------------------------
For further detail about these holdings, please refer to the section entitled "Portfolio of Investments." Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. - -------------------------------------------------------------------------------- 6 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- portfolio. We then weight the models and determine the exposure to sectors and industries. During the reporting period, the momentum and value models outperformed the Russell Index, more than offsetting the lagging performance of the quality model. The variance in performance supports our research, indicating that the style diversification provided by the very different quantitative models is a significant investment advantage over the long term. Following a specific, disciplined process, we do not make sector or industry bets based on economic or equity market outlooks. That said, the Fund's quantitative models led to a bias toward smaller-cap stocks within the Russell Index and toward the cheapest price-to-earnings stocks, both of which detracted from results. Overall, sector allocation contributed to the Fund's performance, with sizable weightings in energy and materials and only modest positions in financials and information technology particularly helpful. Partially offsetting these positives was the detracting effect of having a significant exposure to the weakly-performing consumer discretionary sector. Because we use a bottom-up approach, it is not surprising that most of the Fund's outperformance was driven by stock selection. Stock selection was especially effective in the consumer discretionary, telecommunications, consumer staples and materials sectors. Stock selection in the energy and health care sectors detracted somewhat from performance. Individual stocks that contributed most favorably to the Fund's return were consumer staples During the reporting period, the momentum and value models outperformed the Russell Index, more than offsetting the lagging performance of the quality model. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 7 MANAGER COMMENTARY (continued) ------------------------------------------------- company CAL-MAINE FOODS (selected by the momentum and value models), telecommunications company GOLDEN TELECOM (all three models), energy company WHITING PETROLEUM (value and quality models), and insurance company IPC HOLDINGS (value and quality models). Among individual holdings, the stocks that detracted most from the Fund's results were financials company LANDAMERICA FINANCIAL GROUP (selected by the value and quality models), energy company USEC (value and quality models), consumer discretionary firm STANDARD PACIFIC (quality model), and financials company THORNBURG MORTGAGE (momentum model). At the end of July, the Fund's individual stock holdings included four financials companies: ASPEN INSURANCE HOLDINGS (selected by all three models), PLATINUM UNDERWRITERS HOLDINGS (value and quality models), IPC HOLDINGS (value and quality models) and MONTPELIER RE HOLDINGS (value and quality models). Another top holding at the end of the period was energy company SWIFT ENERGY (all three models). CHANGES TO THE FUND'S PORTFOLIO As a result of quantitative models-driven stock selection during the period, the Fund's sector allocations changed somewhat. For example, the Fund's exposure to consumer discretionary and financials decreased relative to the Russell Index, while its positions in health care, telecommunications and industrials increased. In managing risk associated with small-cap investing, we use a proprietary risk management system that allows us to manage the Fund's exposure to several key factors, including industry, sector, market capitalization and portfolio turnover. During the period, we used these and other techniques to reduce the expected risk of the portfolio and to avoid large deviations in exposure from the Russell Index. OUR FUTURE STRATEGY We believe our use of multiple investment disciplines serves the Fund well in all investment environments over the long term, and the portfolio is well positioned for most potential market conditions. Whether there is a surge in small-cap stocks or a downturn, the combination of models should, in our view, help us deliver value relative to the Russell Index - -------------------------------------------------------------------------------- 8 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- over extended periods of time. We are convinced that our multifaceted, disciplined approach may assist in managing risk in the portfolio. We believe this combination of style diversification and rigorous risk management will allow us to maintain the high quality of the Fund's portfolio in whatever market conditions lie ahead. (PHOTO - DIMITRIS BERTSIMAS) (PHOTO - STEVE KOKKOTOS) (PHOTO - GINA MOURTZINOU) Dimitris Bertsimas, Ph.D. Steve Kokkotos, Ph.D. Gina Mourtzinou, Ph.D. Senior Portfolio Manager Portfolio Manager Portfolio Manager
Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investments, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource fund. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 9 THE FUND'S LONG-TERM PERFORMANCE ----------------------------------------------- The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Disciplined Small Cap Value Fund Class A shares (from 3/1/06 to 7/31/08)* as compared to the performance of two widely cited performance indices, the Russell 2000 Value Index and the Lipper Small-Cap Value Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 5.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. * Fund data is from Feb. 16, 2006. Russell 2000 Value Index and Lipper peer group data is from March 1, 2006. COMPARATIVE RESULTS - --------------------------------------------------------------------------------
Results at July 31, 2008 SINCE 1 YEAR INCEPTION(3) RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $8,514 $8,485 - -------------------------------------------------------------------------- Average annual total return -14.86% -6.46% - -------------------------------------------------------------------------- RUSSELL 2000 VALUE INDEX(1) Cumulative value of $10,000 $9,005 $9,754 - -------------------------------------------------------------------------- Average annual total return -9.95% -1.03% - -------------------------------------------------------------------------- LIPPER SMALL-CAP VALUE FUNDS INDEX(2) Cumulative value of $10,000 $8,764 $9,743 - -------------------------------------------------------------------------- Average annual total return -12.36% -1.07% - --------------------------------------------------------------------------
Results for other share classes can be found on page 4. - -------------------------------------------------------------------------------- 10 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND LINE GRAPH)
RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND CLASS A LIPPER SMALL-CAP (INCLUDES SALES RUSSELL 2000 VALUE FUNDS CHARGE) VALUE INDEX(1) INDEX(2) ----------------------- -------------- ----------------- 3/1/06 $9,425 $10,000 $10,000 7/31/06 9,010 10,059 9,793 1/31/07 10,326 11,576 11,173 7/31/07 9,405 10,831 11,116 1/31/08 8,389 9,868 9,988 7/31/08 8,485 9,754 9,743
(1) The Russell 2000 Value Index, an unmanaged index, measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The index reflects reinvestment of all distributions and changes in market prices. (2) The Lipper Small-Cap Value Funds Index includes the 30 largest small-cap value funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. (3) Fund data is from Feb. 16, 2006. Russell 2000 Value Index and Lipper peer group data is from March 1, 2006. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 11 FUND EXPENSES EXAMPLE ---------------------------------------------------------- (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the expense ratio of each of the acquired funds as of the acquired fund's most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended July 31, 2008. 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. - -------------------------------------------------------------------------------- 12 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT - --------------------------------------------------------------------------------
DIRECT AND DIRECT INDIRECT BEGINNING ENDING EXPENSES EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING PAID DURING FEB. 1, 2008 JULY 31, 2008 THE PERIOD(A),(B) THE PERIOD(B),(C) - -------------------------------------------------------------------------------------------------- Class A - -------------------------------------------------------------------------------------------------- Actual(d) $1,000 $1,011.50 $ 6.45 $ 6.60 - -------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.45 $ 6.47 $ 6.62 - -------------------------------------------------------------------------------------------------- Class B - -------------------------------------------------------------------------------------------------- Actual(d) $1,000 $1,007.00 $10.23 $10.38 - -------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,014.67 $10.27 $10.42 - -------------------------------------------------------------------------------------------------- Class C - -------------------------------------------------------------------------------------------------- Actual(d) $1,000 $1,007.00 $10.23 $10.38 - -------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,014.67 $10.27 $10.42 - -------------------------------------------------------------------------------------------------- Class I - -------------------------------------------------------------------------------------------------- Actual(d) $1,000 $1,012.70 $ 4.55 $ 4.70 - -------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.34 $ 4.57 $ 4.72 - -------------------------------------------------------------------------------------------------- Class R2 - -------------------------------------------------------------------------------------------------- Actual(d) $1,000 $1,010.40 $ 8.55 $ 8.70 - -------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,016.36 $ 8.57 $ 8.72 - -------------------------------------------------------------------------------------------------- Class R3 - -------------------------------------------------------------------------------------------------- Actual(d) $1,000 $1,011.50 $ 7.30 $ 7.45 - -------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,017.60 $ 7.32 $ 7.47 - -------------------------------------------------------------------------------------------------- Class R4 - -------------------------------------------------------------------------------------------------- Actual(d) $1,000 $1,013.90 $ 6.06 $ 6.21 - -------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.85 $ 6.07 $ 6.22 - -------------------------------------------------------------------------------------------------- Class R5 - -------------------------------------------------------------------------------------------------- Actual(d) $1,000 $1,012.70 $ 4.80 $ 4.95 - -------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.09 $ 4.82 $ 4.97 - --------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 13 FUND EXPENSES EXAMPLE (continued) ---------------------------------------------- ANNUALIZED EXPENSE RATIOS
FUND'S ACQUIRED FUND ANNUALIZED FEES AND NET FUND EXPENSE RATIO EXPENSES EXPENSES - ---------------------------------------------------------------------- Class A 1.29% .03% 1.32% - ---------------------------------------------------------------------- Class B 2.05% .03% 2.08% - ---------------------------------------------------------------------- Class C 2.05% .03% 2.08% - ---------------------------------------------------------------------- Class I .91% .03% .94% - ---------------------------------------------------------------------- Class R2 1.71% .03% 1.74% - ---------------------------------------------------------------------- Class R3 1.46% .03% 1.49% - ---------------------------------------------------------------------- Class R4 1.21% .03% 1.24% - ---------------------------------------------------------------------- Class R5 .96% .03% .99% - ----------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio for each class, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2009, unless sooner terminated at the discretion of the Fund's Board, such that net expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment, will not exceed 1.43% for Class A, 2.19% for Class B, 2.19% for Class C, 1.04% for Class I, 1.84% for Class R2, 1.59% for Class R3, 1.34% for Class R4 and 1.09% for Class R5. Any amounts waived will not be reimbursed by the Fund. This change was effective Aug. 1, 2008. Had this change been in place for the entire six month period ended July 31, 2008, the actual direct expenses paid would have been: $6.60 for Class A, $10.38 for Class B, $10.38 for Class C, $4.65 for Class I, $8.65 for Class R2, $7.40 for Class R3, $6.16 for Class R4 and $4.90 for Class R5; the hypothetical direct expenses paid would have been: $6.62 for Class A, $10.42 for Class B, $10.42 for Class C, $4.67 for Class I, $8.67 for Class R2, $7.42 for Class R3, $6.17 for Class R4 and $4.92 for Class R5. Additionally, had this change been in place for the entire six month period ended July 31, 2008, the actual direct and indirect expenses paid would have been: $6.75 for Class A, $10.53 for Class B, $10.53 for Class C, $4.80 for Class I, $8.80 for Class R2, $7.55 for Class R3, $6.31 for Class R4 and $5.05 for Class R5; the hypothetical direct and indirect expenses paid would have been: $6.77 for Class A, $10.57 for Class B, $10.57 for Class C, $4.82 for Class I, $8.82 for Class R2, $7.57 for Class R3, $6.32 for Class R4 and $5.07 for Class R5. (c) Expenses are equal to the Fund's annualized expense ratio for each class plus the acquired fund fees and expenses, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (d) Based on the actual return for the six months ended July 31, 2008: +1.15% for Class A, +0.70% for Class B, +0.70% for Class C, 1.27% for Class I, +1.04% for Class R2, +1.15% for Class R3, +1.39% for Class R4 and +1.27% for Class R5. - -------------------------------------------------------------------------------- 14 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT PORTFOLIO OF INVESTMENTS ------------------------------------------------------- JULY 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
COMMON STOCKS (97.8%) ISSUER SHARES VALUE(a) AEROSPACE & DEFENSE (0.4%) Ceradyne 2,052(b) $95,111 Triumph Group 989 52,377 --------------- Total 147,488 - ------------------------------------------------------------------------------------- AIR FREIGHT & LOGISTICS (0.2%) Hub Group Cl A 1,975(b) 76,749 - ------------------------------------------------------------------------------------- AIRLINES (1.9%) Alaska Air Group 12,301(b) 219,942 Hawaiian Holdings 20,121(b) 177,467 SkyWest 14,529 221,131 UAL 9,225 76,660 --------------- Total 695,200 - ------------------------------------------------------------------------------------- AUTO COMPONENTS (1.4%) ArvinMeritor 3,968 54,798 Cooper Tire & Rubber 6,030 55,536 Dana Holding 5,655(b) 36,079 Lear 8,509(b) 122,614 Modine Mfg 6,309 110,029 Stoneridge 6,462(b) 85,105 Superior Inds Intl 1,858 31,382 --------------- Total 495,543 - ------------------------------------------------------------------------------------- BEVERAGES (0.5%) Central European Distribution 2,369(b) 172,842 - ------------------------------------------------------------------------------------- BIOTECHNOLOGY (0.4%) Celera 3,202(b) 43,707 Emergent BioSolutions 6,419(b) 86,464 --------------- Total 130,171 - ------------------------------------------------------------------------------------- BUILDING PRODUCTS (1.1%) American Woodmark 2,700 63,693 Ameron Intl 718 92,830 Gibraltar Inds 3,490 55,177 Griffon 5,100(b) 51,255 Insteel Inds 2,763 48,822 Universal Forest Products 3,172 85,644 --------------- Total 397,421 - ------------------------------------------------------------------------------------- CAPITAL MARKETS (2.6%) Apollo Investment 4,108 65,440 BGC Partners Cl A 11,278(b) 80,074 Epoch Holding 3,670 43,379 Knight Capital Group Cl A 8,897(b) 145,822 MCG Capital 7,447 35,597 Penson Worldwide 1,930(b) 35,551 Piper Jaffray Companies 1,798(b) 63,829 SWS Group 9,559 180,856 Waddell & Reed Financial Cl A 5,017 167,568 Westwood Holdings Group 2,887 134,188 --------------- Total 952,304 - ------------------------------------------------------------------------------------- CHEMICALS (5.4%) Calgon Carbon 10,210(b) 193,990 CF Inds Holdings 1,041 170,162 Innophos Holdings 3,056 89,755 Koppers Holdings 5,007 216,352 NewMarket 2,489 153,721 Olin 2,569 76,402 OM Group 4,425(b) 148,680 PolyOne 17,163(b) 128,723 Quaker Chemical 3,627 108,375 Sensient Technologies 4,893 152,270 Solutia 1,479(b) 22,584 Stepan 3,999 229,382 Westlake Chemical 4,435 77,657 WR Grace & Co 6,970(b) 179,617 --------------- Total 1,947,670 - -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 15
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) COMMERCIAL BANKS (6.4%) BancFirst 3,648 $172,368 Capitol Bancorp 7,257 96,446 Chemical Financial 5,999 159,393 Community Bank System 4,934 116,442 Community Trust Bancorp 5,313 163,747 First BanCorp 9,385(c) 82,119 First Community Bancshares 2,534 90,793 First Financial Bankshares 1,038 47,634 First Merchants 3,564 74,844 Glacier Bancorp 3,678 79,702 Oriental Financial Group 4,721(c) 82,004 Renasant 3,531 62,534 Republic Bancorp Cl A 5,111 158,134 Security Bank 12,265 64,391 Simmons First Natl Cl A 3,875 115,281 Southside Bancshares 3,684 73,054 Tompkins Financial 2,414 103,102 Trustmark 7,144 129,021 UMB Financial 3,946 217,307 Umpqua Holdings 9,459 128,453 W Holding 86,156(c) 67,632 --------------- Total 2,284,401 - ------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES (3.6%) ABM Inds 5,312 127,116 Exponent 5,809(b) 177,407 GeoEye 6,526(b) 141,288 IKON Office Solutions 14,446 206,578 Kelly Services Cl A 7,100 130,711 Kimball Intl Cl B 9,948 106,543 MPS Group 4,866(b) 56,056 Spherion 6,173(b) 30,186 Standard Parking 4,249(b) 91,608 Viad 968 29,505 Volt Information Sciences 3,851(b) 53,413 Watson Wyatt Worldwide Cl A 2,425 140,505 --------------- Total 1,290,916 - ------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT (1.0%) ARRIS Group 13,724(b) 131,339 Black Box 2,326 69,082 DG FastChannel 1,214(b) 20,638 EMS Technologies 4,796(b) 99,325 Loral Space & Communications 1,769(b) 29,242 --------------- Total 349,626 - ------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS (0.6%) Adaptec 14,051(b) 51,286 Electronics for Imaging 4,798(b) 67,220 Imation 4,278 81,539 --------------- Total 200,045 - ------------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING (0.8%) Dycom Inds 2,219(b) 35,216 Granite Construction 1,917 60,635 Northwest Pipe 2,279(b) 132,523 Perini 2,050(b) 56,088 --------------- Total 284,462 - ------------------------------------------------------------------------------------- CONSTRUCTION MATERIALS (0.4%) Headwaters 10,089(b) 132,267 - ------------------------------------------------------------------------------------- CONSUMER FINANCE (0.6%) Advanta Cl B 7,813 61,801 Cash America Intl 3,489 147,096 --------------- Total 208,897 - ------------------------------------------------------------------------------------- CONTAINERS & PACKAGING (0.3%) Rock-Tenn Cl A 3,224 114,613 - ------------------------------------------------------------------------------------- DIVERSIFIED CONSUMER SERVICES (0.3%) Regis 3,785 105,942 - ------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES (0.5%) Ampal-American Israel Series A 21,423(b,c) 119,326 PHH 3,814(b) 59,079 --------------- Total 178,405 - ------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES (0.2%) Alaska Communications Systems Group 3,197 40,730 Atlantic Tele-Network 1,584 48,454 --------------- Total 89,184 - -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 16 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) ELECTRIC UTILITIES (0.8%) Portland General Electric 4,379 $102,863 UIL Holdings 4,169 130,406 Westar Energy 1,916 42,305 --------------- Total 275,574 - ------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT (2.8%) AZZ 3,453(b) 158,044 Encore Wire 3,604 65,701 GrafTech Intl 10,250(b) 240,363 Powell Inds 4,196(b) 220,290 Superior Essex 3,724(b) 167,654 Woodward Governor 3,235 145,575 --------------- Total 997,627 - ------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS (1.7%) Anixter Intl 1,196(b) 81,364 Benchmark Electronics 14,489(b) 212,118 Insight Enterprises 5,122(b) 65,357 Methode Electronics 2,508 28,065 Plexus 3,602(b) 102,657 SYNNEX 4,564(b) 106,615 --------------- Total 596,176 - ------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (3.7%) Bristow Group 2,580(b) 116,074 Bronco Drilling 6,667(b) 116,673 Dawson Geophysical 1,368(b) 89,782 Grey Wolf 37,848(b) 323,221 GulfMark Offshore 2,500(b) 125,450 Hornbeck Offshore Services 1,274(b) 56,795 Oil States Intl 2,769(b) 151,963 Parker Drilling 12,843(b) 103,643 Pioneer Drilling 11,920(b) 189,409 Trico Marine Services 1,172(b) 29,909 Union Drilling 1,933(b) 37,230 --------------- Total 1,340,149 - ------------------------------------------------------------------------------------- FOOD & STAPLES RETAILING (1.6%) Andersons 3,883 176,483 Great Atlantic & Pacific Tea 5,729(b) 91,148 Ruddick 5,189 160,651 Village Super Market Cl A 1,517 64,093 Winn-Dixie Stores 4,977(b) 79,085 --------------- Total 571,460 - ------------------------------------------------------------------------------------- FOOD PRODUCTS (2.2%) Cal-Maine Foods 6,843 259,350 Chiquita Brands Intl 4,560(b) 69,996 Flowers Foods 3,363 101,125 Fresh Del Monte Produce 2,598(b,c) 54,766 Imperial Sugar 3,311 46,288 Omega Protein 9,141(b) 142,965 Sanderson Farms 2,977 118,306 --------------- Total 792,796 - ------------------------------------------------------------------------------------- GAS UTILITIES (1.6%) EnergySouth 3,336 202,129 Laclede Group 2,109 89,443 New Jersey Resources 4,802 163,700 South Jersey Inds 3,348 124,880 --------------- Total 580,152 - ------------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT & SUPPLIES (0.3%) Datascope 2,548 118,941 - ------------------------------------------------------------------------------------- HEALTH CARE PROVIDERS & SERVICES (4.0%) Alliance Imaging 14,153(b) 134,170 AMERIGROUP 11,107(b) 282,118 HealthSpring 6,255(b) 121,660 Kindred Healthcare 9,294(b) 250,659 Magellan Health Services 2,729(b) 113,936 Molina Healthcare 5,604(b) 167,223 Owens & Minor 2,095 96,202 RehabCare Group 3,980(b) 65,909 ResCare 6,119(b) 112,345 Universal American Financial 9,379(b) 98,386 --------------- Total 1,442,608 - ------------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE (0.4%) Bob Evans Farms 3,264 93,480 O'Charley's 4,974 55,958 --------------- Total 149,438 - ------------------------------------------------------------------------------------- HOUSEHOLD DURABLES (1.9%) American Greetings Cl A 3,828 56,731 Beazer Homes USA 11,104 69,178 Furniture Brands Intl 5,195 61,665 Hovnanian Enterprises Cl A 5,816(b) 40,886 M/I Homes 3,063 58,044 Meritage Homes 3,926(b) 70,864 Natl Presto Inds 1,413 101,001 Standard Pacific 17,865 59,669
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 17
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) HOUSEHOLD DURABLES (CONT.) Tupperware Brands 4,412 $172,069 --------------- Total 690,107 - ------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES (0.8%) Seaboard 106 190,800 Tredegar 5,483 89,812 --------------- Total 280,612 - ------------------------------------------------------------------------------------- INSURANCE (11.6%) American Physicians Capital 804 40,023 Aspen Insurance Holdings 27,062(c) 687,104 Employers Holdings 5,104 90,953 Infinity Property & Casualty 1,206 53,739 IPC Holdings 15,864(c) 509,234 LandAmerica Financial Group 3,062 35,182 Max Capital Group 16,716(c) 392,325 Montpelier Re Holdings 27,647(c) 434,058 Natl Western Life Insurance Cl A 369 87,398 Odyssey Re Holdings 8,747 341,745 Platinum Underwriters Holdings 14,487(c) 522,981 Presidential Life 6,153 98,694 Safety Insurance Group 5,174 219,740 Selective Insurance Group 12,577 271,663 Stewart Information Services 2,559 44,680 Zenith Natl Insurance 10,693 367,946 --------------- Total 4,197,465 - ------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES (1.6%) CMGI 13,156(b) 161,030 InfoSpace 10,999 103,831 Interwoven 7,901(b) 111,246 RealNetworks 19,066(b) 130,983 SonicWALL 13,937(b) 81,392 --------------- Total 588,482 - ------------------------------------------------------------------------------------- IT SERVICES (1.2%) Perot Systems Cl A 7,536(b) 126,002 SAIC 8,441(b) 159,450 TNS 6,981(b) 159,167 --------------- Total 444,619 - ------------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS (0.6%) JAKKS Pacific 8,259(b) 181,533 RC2 2,065(b) 47,412 --------------- Total 228,945 - ------------------------------------------------------------------------------------- LIFE SCIENCES TOOLS & SERVICES (0.1%) PharmaNet Development Group 1,149(b) 27,725 - ------------------------------------------------------------------------------------- MACHINERY (4.5%) Ampco-Pittsburgh 1,452 63,133 Badger Meter 4,294 241,881 CIRCOR Intl 4,130 245,983 Commercial Vehicle Group 3,154(b) 30,499 FreightCar America 1,629 62,049 LB Foster Cl A 3,904(b) 150,187 Lydall 7,346(b) 114,304 Miller Inds 8,759(b) 75,327 Mueller Inds 4,815 123,601 NACCO Inds Cl A 1,424 143,824 Robbins & Myers 5,328 270,502 Twin Disc 4,553 91,561 --------------- Total 1,612,851 - ------------------------------------------------------------------------------------- MARINE (0.8%) Genco Shipping & Trading 2,694 183,677 TBS Intl Series A 2,771(b,c) 101,252 --------------- Total 284,929 - ------------------------------------------------------------------------------------- MEDIA (0.1%) Scholastic 1,513 39,020 - ------------------------------------------------------------------------------------- METALS & MINING (1.8%) AM Castle & Co 2,574 52,098 AMCOL Intl 2,990 95,441 Compass Minerals Intl 2,704 204,422 Kaiser Aluminum 411 21,680 Olympic Steel 2,861 145,482 Schnitzer Steel Inds Cl A 1,533 138,338 --------------- Total 657,461 - ------------------------------------------------------------------------------------- MULTILINE RETAIL (0.8%) Dillard's Cl A 16,892 170,778 Fred's Cl A 8,050 103,523 --------------- Total 274,301 - -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) MULTI-UTILITIES (0.3%) NorthWestern 2,756 $68,266 PNM Resources 2,956 34,615 --------------- Total 102,881 - ------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS (4.7%) Berry Petroleum Cl A 2,980 128,259 Bill Barrett 3,567(b) 146,746 Brigham Exploration 4,519(b) 63,266 Callon Petroleum 6,989(b) 160,677 EXCO Resources 4,670(b) 121,654 Golar LNG 1,158(c) 21,296 PetroQuest Energy 7,156(b) 149,346 Stone Energy 3,687(b) 188,111 Swift Energy 8,753(b) 444,826 USEC 20,945(b) 109,333 Whiting Petroleum 1,656(b) 155,118 --------------- Total 1,688,632 - ------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS (0.1%) Schweitzer-Mauduit Intl 1,130 21,029 - ------------------------------------------------------------------------------------- PERSONAL PRODUCTS (0.5%) Chattem 2,682(b) 172,909 - ------------------------------------------------------------------------------------- PHARMACEUTICALS (1.1%) Par Pharmaceutical Companies 3,737(b) 64,650 Perrigo 4,759 167,659 ViroPharma 13,273(b) 163,391 --------------- Total 395,700 - ------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS (REITS) (5.2%) Annaly Capital Management 7,854 118,360 Anworth Mtge Asset 22,989 136,785 BRT Realty Trust 3,773 45,087 Capstead Mtge 12,700 138,684 EastGroup Properties 1,612 74,797 Entertainment Properties Trust 2,281 122,353 Extra Space Storage 3,097 43,884 Inland Real Estate 3,299 49,320 LTC Properties 5,508 160,999 MFA Mtge Investments 22,287 143,751 Nationwide Health Properties 4,557 169,109 Natl Health Investors 5,004 154,574 NorthStar Realty Finance 3,020 25,308 Omega Healthcare Investors 8,276 142,927 Redwood Trust 2,266 49,467 Saul Centers 2,347 113,759 Senior Housing Properties Trust 7,888 166,042 --------------- Total 1,855,206 - ------------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT & DEVELOPMENT (0.1%) Avatar Holdings 1,620(b) 51,273 - ------------------------------------------------------------------------------------- ROAD & RAIL (1.4%) Arkansas Best 7,055 262,023 Saia 3,835(b) 67,113 Werner Enterprises 7,719 183,789 --------------- Total 512,925 - ------------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (1.9%) Amkor Technology 10,109(b) 88,555 Brooks Automation 6,585(b) 51,429 MKS Instruments 9,771(b) 201,282 OmniVision Technologies 10,734(b) 117,537 Silicon Storage Technology 9,903(b) 31,591 Skyworks Solutions 10,620(b) 100,465 Spansion Cl A 24,847(b) 56,900 Zoran 3,933(b) 32,526 --------------- Total 680,285 - ------------------------------------------------------------------------------------- SOFTWARE (0.1%) Blackbaud 2,165 38,667 - ------------------------------------------------------------------------------------- SPECIALTY RETAIL (6.8%) Asbury Automotive Group 10,056 99,655 Blockbuster Cl A 42,737(b) 119,236 Borders Group 5,556 27,224 Brown Shoe 7,589 122,486 Cato Cl A 3,358 60,075 Charming Shoppes 23,124(b) 126,026 Children's Place Retail Stores 3,739(b) 142,269 Collective Brands 9,274(b) 119,449 Conn's 6,515(b) 102,286 Dress Barn 4,475(b) 72,182 Finish Line Cl A 13,512(b) 146,605 Group 1 Automotive 6,948 136,528 Haverty Furniture Companies 4,131 47,176 Hot Topic 10,579(b) 66,542 Jo-Ann Stores 4,007(b) 88,034 MarineMax 3,266(b) 21,490
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 19
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) SPECIALTY RETAIL (CONT.) Men's Wearhouse 5,680 $113,089 Rent-A-Center 14,162(b) 300,235 Shoe Carnival 2,763(b) 42,274 Sonic Automotive Cl A 8,562 86,219 Stage Stores 10,999 163,005 Systemax 6,489 106,484 Zale 6,388(b) 141,303 --------------- Total 2,449,872 - ------------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS (0.3%) Perry Ellis Intl 4,870(b) 105,923 - ------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE (1.1%) Abington Bancorp 7,585 75,697 Corus Bankshares 12,404 48,500 Flushing Financial 2,510 44,251 MASSBANK 1,894 75,419 Ocwen Financial 6,989(b) 42,214 PMI Group 18,121 45,484 Westfield Financial 7,148 70,408 --------------- Total 401,973 - ------------------------------------------------------------------------------------- TOBACCO (0.3%) Universal 1,777 91,729 - ------------------------------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS (0.2%) Rush Enterprises Cl A 6,739(b) 76,083 - ------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES (0.2%) Rural Cellular Cl A 599(b) 26,931 USA Mobility 5,544(b) 45,017 --------------- Total 71,948 - ------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $38,903,001) $35,162,619 - ------------------------------------------------------------------------------------- MONEY MARKET FUND (--%) ISSUER SHARES VALUE(a) RiverSource Short-Term Cash Fund, 2.54% 1(d) $1 - ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $1) $1 - ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $38,903,002)(e) $35,162,620 =====================================================================================
INVESTMENTS IN DERIVATIVES At July 31, 2008, $37,800 was held in a margin deposit account as collateral to cover initial margin deposits on open stock index futures contracts. FUTURES CONTRACTS OUTSTANDING AT JULY 31, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - ------------------------------------------------------------------------------------ Mini Russell 2000 Index 10 $715,500 Sept. 2008 $6,156
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At July 31, 2008, the value of foreign securities represented 8.6% of net assets. (d) Affiliated Money Market Fund -- See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at July 31, 2008. - -------------------------------------------------------------------------------- 20 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (e) At July 31, 2008, the cost of securities for federal income tax purposes was $38,936,246 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,754,439 Unrealized depreciation (6,528,065) - ---------------------------------------------------------- Net unrealized depreciation $3,773,626 - ----------------------------------------------------------
The sectors identified above are based on the Global Industry Classification Standard (GICS), which 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 riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 21 FINANCIAL STATEMENTS ----------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JULY 31, 2008
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $38,903,001) $35,162,619 Affiliated money market fund (identified cost $1) 1 - -------------------------------------------------------------------------- Total investments in securities (identified cost $38,903,002) 35,162,620 Capital shares receivable 14,997 Dividends and accrued interest receivable 29,283 Receivable for investment securities sold 2,565,357 Margin deposits on futures contracts 37,800 - -------------------------------------------------------------------------- Total assets 37,810,057 - -------------------------------------------------------------------------- LIABILITIES Bank overdraft 503 Capital shares payable 26,927 Payable for investment securities purchased 1,777,178 Variation margin payable 2,070 Accrued investment management services fees 841 Accrued distribution fees 98 Accrued transfer agency fees 24 Accrued administrative services fees 79 Other accrued expenses 50,365 - -------------------------------------------------------------------------- Total liabilities 1,858,085 - -------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $35,951,972 - -------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 40,997 Additional paid-in capital 43,267,724 Undistributed net investment income 248,710 Accumulated net realized gain (loss) (3,871,233) Unrealized appreciation (depreciation) on investments (3,734,226) - -------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $35,951,972 - --------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 22 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) JULY 31, 2008
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $12,703,109 1,450,722 $8.76(1) Class B $ 347,557 40,165 $8.65 Class C $ 54,959 6,351 $8.65 Class I $22,825,612 2,600,072 $8.78 Class R2 $ 3,982 455 $8.75 Class R3 $ 3,987 455 $8.76 Class R4 $ 8,777 1,000 $8.78 Class R5 $ 3,989 455 $8.77 - -------------------------------------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $9.29. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 5.75%. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 23 STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 2008
INVESTMENT INCOME Income: Dividends $ 616,548 Interest 245 Income distributions from affiliated money market fund 34,221 Less foreign taxes withheld (1,734) - -------------------------------------------------------------------------- Total income 649,280 - -------------------------------------------------------------------------- Expenses: Investment management services fees 286,759 Distribution fees Class A 31,837 Class B 4,226 Class C 546 Class R2 20 Class R3 11 Transfer agency fees Class A 8,441 Class B 329 Class C 40 Class R2 3 Class R3 3 Class R4 4 Class R5 3 Administrative services fees 30,592 Plan administration services fees Class R2 11 Class R3 11 Class R4 23 Compensation of board members 720 Custodian fees 31,410 Printing and postage 21,490 Registration fees 65,191 Professional fees 26,189 Other 4,246 - -------------------------------------------------------------------------- Total expenses 512,105 Expenses waived/reimbursed by the Investment Manager and its affiliates (115,376) Earnings and bank fee credits on cash balances (2) - -------------------------------------------------------------------------- Total net expenses 396,727 - -------------------------------------------------------------------------- Investment income (loss) -- net 252,553 - --------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 24 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT STATEMENT OF OPERATIONS (CONTINUED) JULY 31, 2008
REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions $(3,845,656) Futures contracts (18,579) - -------------------------------------------------------------------------- Net realized gain (loss) on investments (3,864,235) Net change in unrealized appreciation (depreciation) on investments (418,356) - -------------------------------------------------------------------------- Net gain (loss) on investments (4,282,591) - -------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(4,030,038) - --------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 25 STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 252,553 $ 346,396 Net realized gain (loss) on investments (3,864,235) 943,233 Net change in unrealized appreciation (depreciation) on investments (418,356) (2,467,303) - --------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (4,030,038) (1,177,674) - --------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (83,613) (22,789) Class C (16) -- Class I (249,572) (22,690) Class R2 (12) (17) Class R3 (23) (17) Class R4 (77) (58) Class R5 (38) (18) Net realized gain Class A (316,596) (234,913) Class B (9,723) (7,684) Class C (1,289) (463) Class I (625,909) (106,528) Class R2 (99) (84) Class R3 (99) (84) Class R4 (216) (337) Class R5 (99) (84) - --------------------------------------------------------------------------------------- Total distributions (1,287,381) (395,766) - ---------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 26 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED JULY 31, 2008 2007 CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares $ 2,340,112 $ 3,183,242 Class B shares 151,479 600,360 Class C shares 43,142 23,355 Class I shares 4,520,154 23,678,701 Class R2 shares -- 5,000 Class R3 shares -- 5,000 Class R4 shares -- 8,003 Class R5 shares -- 5,000 Reinvestment of distributions at net asset value Class A shares 127,449 55,291 Class B shares 9,506 7,499 Class C shares 1,086 278 Class I shares 875,178 128,993 Class R4 shares -- 178 Payments for redemptions Class A shares (1,630,280) (1,077,624) Class B shares (300,352) (269,435) Class C shares (26,754) (4,930) Class I shares (4,247,823) (115,893) Class R4 shares -- (9,200) - --------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 1,862,897 26,223,818 - --------------------------------------------------------------------------------------- Total increase (decrease) in net assets (3,454,522) 24,650,378 Net assets at beginning of year 39,406,494 14,756,116 - --------------------------------------------------------------------------------------- Net assets at end of year $35,951,972 $39,406,494 - --------------------------------------------------------------------------------------- Undistributed net investment income $ 248,710 $ 333,335 - ---------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 27 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Disciplined Small Cap Value Fund (the Fund) is a series of RiverSource Dimensions Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Dimensions Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund invests primarily in small capitalization equity securities of companies with market capitalizations that fall within the range of companies that comprise the Russell 2000 Value Index at the time of investment. The Fund offers Class A, Class B, Class C, Class I, Class R2, Class R3, Class R4 and Class R5 shares. - - Class A shares are sold with a front-end sales charge. - - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - - Class C shares may be subject to a CDSC. - - Class I, Class R2, Class R3, Class R4 and Class R5 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. At July 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager), and the affiliated funds-of-funds owned 100% of Class I shares, and the Investment Manager owned 100% of Class R2, Class R3, Class R4 and Class R5 shares. The Investment Manager and the affiliated funds-of-funds owned approximately 63% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - -------------------------------------------------------------------------------- 28 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 29 The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At July 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing - -------------------------------------------------------------------------------- 30 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. At July 31, 2008, the Fund had no outstanding forward foreign currency contracts. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than- not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of futures, re- characterization of REIT distributions, post-October losses and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $3,827 and accumulated net realized loss has been decreased by $3,771 resulting in a net reclassification adjustment to increase paid-in capital by $56. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 31 The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED JULY 31, 2008 2007* - --------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income....................... $329,192 $232,895 Long-term capital gain................ 71,017 24,807 CLASS B Distributions paid from: Ordinary income....................... 7,542 6,873 Long-term capital gain................ 2,181 811 CLASS C Distributions paid from: Ordinary income....................... 1,016 414 Long-term capital gain................ 289 49 CLASS I Distributions paid from: Ordinary income....................... 735,081 117,968 Long-term capital gain................ 140,400 11,250 CLASS R2 Distributions paid from: Ordinary income....................... 89 92 Long-term capital gain................ 22 9 CLASS R3 Distributions paid from: Ordinary income....................... 100 92 Long-term capital gain................ 22 9 CLASS R4 Distributions paid from: Ordinary income....................... 244 359 Long-term capital gain................ 49 36 CLASS R5 Distributions paid from: Ordinary income....................... 115 93 Long-term capital gain................ 22 9
* Class R2, Class R3 and Class R5 are for the period from Dec. 11, 2006 (inception date) to July 31, 2007. At July 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income................... $ 249,138 Undistributed accumulated long-term gain........ $ -- Accumulated realized loss....................... $(3,831,834) Unrealized appreciation (depreciation).......... $(3,774,053)
- -------------------------------------------------------------------------------- 32 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after Nov. 15, 2008. As of July 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Aug. 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 33 is a percentage of the Fund's average daily net assets that declines from 0.85% to 0.725% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment determined monthly by measuring the percentage difference over a rolling 12-month period between the annualized performance of one Class A share of the Fund and the annualized performance of the Lipper Small-Cap Value Funds Index. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment decreased the fee by $38,280 for the year ended July 31, 2008. The management fee for the year ended July 31, 2008, was 0.75% of the Fund's average daily net assets, including the adjustment under the terms of the performance incentive arrangement. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.08% to 0.05% annually as the Fund's assets increase. The fee for the year ended July 31, 2008 was 0.08% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended July 31, 2008, other expenses paid to this company were $212. COMPENSATION OF BOARD MEMBERS Compensation of Board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $19.50 for Class A, $20.50 for Class B and $20.00 for Class C for this service. The Fund also pays - -------------------------------------------------------------------------------- 34 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R2, Class R3, Class R4 and Class R5 shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as a principal underwriter and distributor to the Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A and Class R3 shares, a fee at an annual rate of up to 0.50% of the Fund's average daily net assets attributable to Class R2 shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $13,000 and $1,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of July 31, 2008 and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $5,847 for Class A, $792 for Class B and $8 for Class C for the year ended July 31, 2008. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 35 EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended July 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A............................................. 1.24% Class B............................................. 2.00 Class C............................................. 2.00 Class I............................................. 0.92 Class R2............................................ 1.46 Class R3............................................ 1.21 Class R4............................................ 0.97 Class R5............................................ 0.97
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class R2............................................. $1 Class R3............................................. 2 Class R5............................................. 1
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R2............................................ $11 Class R3............................................ 11 Class R4............................................ 22
The management fees waived/reimbursed at the Fund level were $115,328. Under an agreement which was effective until July 31, 2008, the Investment Manager and its affiliates contractually agreed to waive certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any performance incentive adjustment, would not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 1.40% Class B............................................. 2.16 Class C............................................. 2.15 Class I............................................. 1.02 Class R2............................................ 1.82 Class R3............................................ 1.57 Class R4............................................ 1.32 Class R5............................................ 1.07
Effective Aug. 1, 2008, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until July 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any - -------------------------------------------------------------------------------- 36 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT performance incentive adjustment, will not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 1.43% Class B............................................. 2.19 Class C............................................. 2.19 Class I............................................. 1.04 Class R2............................................ 1.84 Class R3............................................ 1.59 Class R4............................................ 1.34 Class R5............................................ 1.09
()* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS CREDITS AND CUSTODIAN FEES During the year ended July 31, 2008, the Fund's custodian fees were reduced by $2 as a result of earnings credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $32,656,834 and $32,391,306, respectively, for the year ended July 31, 2008. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
YEAR ENDED JULY 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - --------------------------------------------------------------------------------- Class A 257,256 14,450 (182,613) 89,093 Class B 16,842 1,085 (33,441) (15,514) Class C 4,661 124 (3,091) 1,694 Class I 474,035 99,227 (482,981) 90,281 - ---------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 37
YEAR ENDED JULY 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - --------------------------------------------------------------------------------- Class A 299,874 5,134 (99,517) 205,491 Class B 56,474 700 (25,366) 31,808 Class C 2,131 26 (466) 1,691 Class I 2,182,119 11,966 (10,620) 2,183,465 Class R2* 455 -- -- 455 Class R3* 455 -- -- 455 Class R4 822 17 (839) -- Class R5* 455 -- -- 455 - ---------------------------------------------------------------------------------
()* For the period from Dec. 11, 2006 (inception date) to July 31, 2007. 5. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $11,229,092 and $12,735,343, respectively, for the year ended July 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short- Term Cash Fund at July 31, 2008, can be found in the Portfolio of Investments. 6. BANK BORROWINGS The Fund has entered into a revolving credit facility 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 credit facility became effective on Oct. 18, 2007, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Under the prior credit facility, a Fund paid interest on its outstanding 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. The Fund had no borrowings during the year ended July 31, 2008. - -------------------------------------------------------------------------------- 38 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 7. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, the Fund had a capital loss carry-over of $554,680 at July 31, 2008, that if not offset by capital gains will expire in 2016. Because the measurement periods for a regulated investment company's income are different for excise tax purposes versus income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the Fund is permitted to treat net capital losses realized between Nov. 1, 2007 and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At July 31, 2008, the Fund had a post-October loss of $3,277,154 that is treated for income tax purposes as occurring on Aug. 1, 2008. 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. 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 39 developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. - -------------------------------------------------------------------------------- 40 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 9. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended July 31, 2008 2007 2006(b) Net asset value, beginning of period $10.00 $9.77 $10.22 - ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04(c) .14(c) .02 Net gains (losses) (both realized and unrealized) (1.01) .29 (.47) - ------------------------------------------------------------------------------------ Total from investment operations (.97) .43 (.45) - ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.05) (.01) -- Distributions from realized gains (.22) (.19) -- - ------------------------------------------------------------------------------------ Total distributions (.27) (.20) -- - ------------------------------------------------------------------------------------ Net asset value, end of period $8.76 $10.00 $9.77 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $13 $14 $11 - ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.54% 1.73% 3.27%(f) - ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 1.24% 1.35% 1.40%(f) - ------------------------------------------------------------------------------------ Net investment income (loss) .44% 1.30% .55%(f) - ------------------------------------------------------------------------------------ Portfolio turnover rate 87% 127% 40% - ------------------------------------------------------------------------------------ Total return(i) (9.67%) 4.29% (4.40%)(j) - ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 41 CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended July 31, 2008 2007 2006(b) Net asset value, beginning of period $9.90 $9.73 $10.22 - ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.02)(c) .05(c) -- Net gains (losses) (both realized and unrealized) (1.01) .31 (.49) - ------------------------------------------------------------------------------------ Total from investment operations (1.03) .36 (.49) - ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Distributions from realized gains (.22) (.19) -- - ------------------------------------------------------------------------------------ Net asset value, end of period $8.65 $9.90 $9.73 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $1 $-- - ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 2.29% 2.38% 4.05%(f) - ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 2.00% 2.11% 2.18%(f) - ------------------------------------------------------------------------------------ Net investment income (loss) (.27%) .49% (.17%)(f) - ------------------------------------------------------------------------------------ Portfolio turnover rate 87% 127% 40% - ------------------------------------------------------------------------------------ Total return(i) (10.47%) 3.51% (4.79%)(j) - ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 42 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended July 31, 2008 2007 2006(b) Net asset value, beginning of period $9.90 $9.73 $10.22 - ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.03)(c) .05(c) -- Net gains (losses) (both realized and unrealized) (1.00) .31 (.49) - ------------------------------------------------------------------------------------ Total from investment operations (1.03) .36 (.49) - ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.00)(d) -- -- Distributions from realized gains (.22) (.19) -- - ------------------------------------------------------------------------------------ Total distributions (.22) (.19) -- - ------------------------------------------------------------------------------------ Net asset value, end of period $8.65 $9.90 $9.73 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- - ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) 2.29% 2.47% 4.05%(g) - ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) 2.00% 2.11% 2.18%(g) - ------------------------------------------------------------------------------------ Net investment income (loss) (.29%) .43% (.22%)(g) - ------------------------------------------------------------------------------------ Portfolio turnover rate 87% 127% 40% - ------------------------------------------------------------------------------------ Total return(j) (10.43%) 3.51% (4.79%)(k) - ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (i) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 43 CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended July 31, 2008 2007 2006(b) Net asset value, beginning of period $10.03 $9.78 $10.22 - ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07(c) .15(c) .03 Net gains (losses) (both realized and unrealized) (1.02) .32 (.47) - ------------------------------------------------------------------------------------ Total from investment operations (.95) .47 (.44) - ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.03) -- Distributions from realized gains (.22) (.19) -- - ------------------------------------------------------------------------------------ Total distributions (.30) (.22) -- - ------------------------------------------------------------------------------------ Net asset value, end of period $8.78 $10.03 $9.78 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $23 $25 $3 - ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.22% 1.19% 3.00%(f) - ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) .92% 1.05% 1.13%(f) - ------------------------------------------------------------------------------------ Net investment income (loss) .79% 1.43% .91%(f) - ------------------------------------------------------------------------------------ Portfolio turnover rate 87% 127% 40% - ------------------------------------------------------------------------------------ Total return (9.46%) 4.69% (4.31%)(i) - ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- 44 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended July 31, 2008 2007(b) Net asset value, beginning of period $9.97 $10.99 - ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .02 .06 Net gains (losses) (both realized and unrealized) (1.00) (.86) - ------------------------------------------------------------------------------------ Total from investment operations (.98) (.80) - ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.02) (.03) Distributions from realized gains (.22) (.19) - ------------------------------------------------------------------------------------ Total distributions (.24) (.22) - ------------------------------------------------------------------------------------ Net asset value, end of period $8.75 $9.97 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 2.03% 1.85%(f) - ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 1.46% 1.80%(f) - ------------------------------------------------------------------------------------ Net investment income (loss) .23% .77%(f) - ------------------------------------------------------------------------------------ Portfolio turnover rate 87% 127% - ------------------------------------------------------------------------------------ Total return (9.82%) (7.40%)(i) - ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to July 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 45 CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended July 31, 2008 2007(b) Net asset value, beginning of period $9.99 $10.99 - ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .04 .07 Net gains (losses) (both realized and unrealized) (1.00) (.85) - ------------------------------------------------------------------------------------ Total from investment operations (.96) (.78) - ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.05) (.03) Distributions from realized gains (.22) (.19) - ------------------------------------------------------------------------------------ Total distributions (.27) (.22) - ------------------------------------------------------------------------------------ Net asset value, end of period $8.76 $9.99 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.79% 1.58%(f) - ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 1.21% 1.55%(f) - ------------------------------------------------------------------------------------ Net investment income (loss) .48% 1.02%(f) - ------------------------------------------------------------------------------------ Portfolio turnover rate 87% 127% - ------------------------------------------------------------------------------------ Total return (9.65%) (7.21%)(i) - ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to July 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- 46 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended July 31, 2008 2007 2006(b) Net asset value, beginning of period $10.00 $9.77 $10.22 - ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07(c) .17(c) .02 Net gains (losses) (both realized and unrealized) (1.00) .28 (.47) - ------------------------------------------------------------------------------------ Total from investment operations (.93) .45 (.45) - ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.03) -- Distributions from realized gains (.22) (.19) -- - ------------------------------------------------------------------------------------ Total distributions (.29) (.22) -- - ------------------------------------------------------------------------------------ Net asset value, end of period $8.78 $10.00 $9.77 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- - ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.52% 1.83% 3.12%(f) - ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) .97% 1.26% 1.25%(f) - ------------------------------------------------------------------------------------ Net investment income (loss) .73% 1.60% .69%(f) - ------------------------------------------------------------------------------------ Portfolio turnover rate 87% 127% 40% - ------------------------------------------------------------------------------------ Total return (9.27%) 4.42% (4.40%)(i) - ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 47 CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended July 31, 2008 2007(b) Net asset value, beginning of period $10.02 $10.99 - ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .07 .11 Net gains (losses) (both realized and unrealized) (1.02) (.86) - ------------------------------------------------------------------------------------ Total from investment operations (.95) (.75) - ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.03) Distributions from realized gains (.22) (.19) - ------------------------------------------------------------------------------------ Total distributions (.30) (.22) - ------------------------------------------------------------------------------------ Net asset value, end of period $8.77 $10.02 - ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.28% 1.09%(f) - ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) .97% 1.05%(f) - ------------------------------------------------------------------------------------ Net investment income (loss) .72% 1.53%(f) - ------------------------------------------------------------------------------------ Portfolio turnover rate 87% 127% - ------------------------------------------------------------------------------------ Total return (9.50%) (6.93%)(i) - ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to July 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended July 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- 48 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of RiverSource Disciplined Small Cap Value Fund (the Fund) (one of the portfolios constituting the RiverSource Dimensions Series, Inc.) as of July 31, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets, and the financial highlights for each of the years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the period presented through July 31, 2006, were audited by other auditors whose report dated September 20, 2006, expressed an unqualified opinion on those financial highlights. 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 financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 49 In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of RiverSource Disciplined Small Cap Value Fund of the RiverSource Dimensions Series, Inc. at July 31, 2008, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota September 22, 2008 - -------------------------------------------------------------------------------- 50 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 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. Fiscal year ended July 31, 2008 INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions:
Qualified Dividend Income for individuals.................... 100.00% Dividends Received Deduction for corporations................ 100.00% U.S. Government Obligations.................................. 0.00%
CAPITAL GAIN DISTRIBUTION - the Fund designates $214,002 to be taxed as long- term capital gain. The Fund also designates as distributions of long-term gains, to the extent necessary to fully distribute such capital gains, earnings and profits distributed to shareholders on the redemption of shares. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 51 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 104 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, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ------------------------------------------------------------------------------------------------------------------------------ Kathleen Blatz Board member since Chief Justice, Minnesota Supreme Court, 1998-2006; None 901 S. Marquette Ave. 2006 Attorney Minneapolis, MN 55402 Age 54 - ------------------------------------------------------------------------------------------------------------------------------ Arne H. Carlson Board member since Chair, RiverSource Funds, 1999-2006; former Governor of None 901 S. Marquette Ave. 1999 Minnesota Minneapolis, MN 55402 Age 73 - ------------------------------------------------------------------------------------------------------------------------------ Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None 901 S. Marquette Ave. 2007 Leadership (consulting company) Minneapolis, MN 55402 Age 53 - ------------------------------------------------------------------------------------------------------------------------------ Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None 901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of Minneapolis, MN 55402 Business, Bentley College Age 57 - ------------------------------------------------------------------------------------------------------------------------------ Anne P. Jones Board member since Attorney and Consultant None 901 S. Marquette Ave. 1985 Minneapolis, MN 55402 Age 73 - ------------------------------------------------------------------------------------------------------------------------------ Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive 901 S. Marquette Ave. 2005 Insurance Minneapolis, MN 55402 Age 72 - ------------------------------------------------------------------------------------------------------------------------------ Stephen R. Lewis, Jr. Board member since President Emeritus and Professor of Economics, Carleton Valmont Industries, 901 S. Marquette Ave. 2002 and Chair of College Inc. (manufactures Minneapolis, MN 55402 the Board since 2007 irrigation systems) Age 69 - ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 52 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT INDEPENDENT BOARD MEMBERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ------------------------------------------------------------------------------------------------------------------------------ Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None 901 S. Marquette Ave. 2004 real estate and asset management company) Minneapolis, MN 55402 Age 55 - ------------------------------------------------------------------------------------------------------------------------------ Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera 901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceutical, Inc. Minneapolis, MN 55402 Biotech (biotechnology); Age 64 Healthways, Inc. (health management programs) - ------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ------------------------------------------------------------------------------------------------------------------------------ William F. Truscott Board member since President -- U.S. Asset Management and Chief Investment None 53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. and President, Financial Center Vice President since Chairman of the Board and Chief Investment Officer, Minneapolis, MN 55474 2002 RiverSource Investments, LLC since 2005; Director, Age 47 President and Chief Executive Officer, Ameriprise Certificate Company since 2006; Chairman of the Board, Chief Executive Officer and President, RiverSource Distributors, Inc. since 2006; Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001- 2005 - ------------------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. The SAI has additional information about the Fund's Board members and is available, without charge, upon request by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; or visiting riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 53 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, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------- Patrick T. Bannigan President since 2006 Director and Senior Vice President -- Asset Management, 172 Ameriprise Financial Products and Marketing, RiverSource Investments, LLC Center since 2006; Director and Vice President -- Asset Minneapolis, MN 55474 Management, Products and Marketing, RiverSource Age 42 Distributors, Inc. since 2006; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004 - -------------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income, 172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments, Center LLC since 2006; Vice President -- Investments, Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice Age 44 President -- Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 - -------------------------------------------------------------------------------------------------------- Amy K. Johnson Vice President since Vice President -- Asset Management and Trust Company 5228 Ameriprise Financial 2006 Services, RiverSource Investments, LLC since 2006; Vice Center President -- Operations and Compliance, RiverSource Minneapolis, MN 55474 Investments, LLC, 2004-2006; Director of Product Age 42 Development -- Mutual Funds, Ameriprise Financial, Inc., 2001-2004 - -------------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise 105 Ameriprise Financial Financial, Inc. since 2002; Chief Financial Officer, Center RiverSource Distributors, Inc. since 2006 Minneapolis, MN 55474 Age 53 - -------------------------------------------------------------------------------------------------------- Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management, 5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel, Center Secretary since 2006 RiverSource Distributors, Inc. since 2006; Vice Minneapolis, MN 55474 President, General Counsel and Secretary, Ameriprise Age 49 Certificate Company since 2005; Vice President -- Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002-2004 - -------------------------------------------------------------------------------------------------------- Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance Officer, 172 Ameriprise Financial Officer since 2006 RiverSource Investments, LLC since 2006; Center Director -- Mutual Funds, Voyageur Asset Management, Minneapolis, MN 55474 2003-2006; Director of Finance, Voyageur Asset Age 47 Management, 2000-2003 - -------------------------------------------------------------------------------------------------------- Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering Officer, 2934 Ameriprise Financial Prevention Officer Ameriprise Financial, Inc. since 2004; Manager Anti- Center since 2004 Money Laundering, Ameriprise Financial, Inc., 2003- Minneapolis, MN 55474 2004; Compliance Director and Bank Secrecy Act Officer, Age 44 American Express Centurion Bank, 2000-2003
- -------------------------------------------------------------------------------- 54 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT ---------------------------------------------------------------------- RiverSource Investments, LLC ("RiverSource Investments" or the "investment manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), serves as the investment manager to the Fund. Under an investment management services agreement (the "IMS Agreement") RiverSource Investments provides investment advice and other services to the Fund and all RiverSource funds (collectively, the "Funds"). On an annual basis, the Fund's Board of Directors (the "Board"), including the independent Board members (the "Independent Directors"), considers renewal of the IMS Agreement. RiverSource Investments prepared detailed reports for the Board and its Contracts Committee in March and April 2008, including reports based on data provided by independent organizations to assist the Board in making this determination. In addition, throughout the year, the Board (or its committees) reviews information prepared by RiverSource Investments addressing the services RiverSource Investments provides and Fund performance. The Board accords particular weight to the work, deliberations and conclusions of the Contracts, Investment Review and Compliance Committees in determining whether to continue the IMS Agreement. At the April 9-10, 2008 in-person Board meeting, independent legal counsel to the Independent Directors reviewed with the Independent Directors various factors relevant to the Board's consideration of advisory agreements and the Board's legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Directors, approved renewal of the IMS Agreement. Nature, Extent and Quality of Services Provided by RiverSource Investments: The Board analyzed various reports and presentations it had received detailing the services performed by RiverSource Investments, as well as its expertise, resources and capabilities. The Board specifically considered many developments during the past year concerning the services provided by RiverSource Investments, including, in particular, the continued investment in, and resources dedicated to, the Fund's operations, particularly in the areas of trading systems, new product initiatives, legal and compliance. Further, in connection with the Board's evaluation of the overall package of services provided by RiverSource Investments, the Board considered the quality of the administrative and transfer agency services provided by RiverSource Investments' affiliates to the Fund. The Board also reviewed the financial condition of RiverSource Investments (and its affiliates) and each entity's ability to carry out its responsibilities under the IMS Agreement. The Board also discussed the acceptability of the terms of the IMS Agreement (including the relatively broad scope of services required to be performed by RiverSource Investments). The Board concluded that the services being performed under the IMS Agreement were of a reasonably high quality, particularly in light of recent market conditions. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 55 APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT (continued) ---------------------------------------------------------- Based on the foregoing, and based on other information received (both oral and written, including the information on investment performance referenced below) and other considerations, the Board concluded that RiverSource Investments and its affiliates were in a position to continue to provide a high quality and level of services to the Fund. Investment Performance: For purposes of evaluating the nature, extent and quality of services provided under the IMS Agreement, the Board carefully reviewed the investment performance of the Fund. In this regard, the Board considered: (i) detailed reports containing data prepared by an independent organization showing, for various periods, the performance of the Fund, the performance of a benchmark index, the percentage ranking of the Fund among its comparison group and the net assets of the Fund; and (ii) a report detailing the Fund's performance over various periods (including since inception), recent Fund inflows (and outflows) and a comparison of the Fund's net assets from December 2006 to December 2007. The Board observed that the Fund's investment performance, although somewhat weaker than previous years, reflected the interrelationship of particularly volatile market conditions with the investment strategies employed by the portfolio management team. Further, the Board noted that appropriate measures have been taken to adjust certain proprietary models. Comparative Fees, Costs of Services Provided and the Profits Realized By RiverSource Investments and its Affiliates from their Relationships with the Fund: The Board reviewed comparative fees and the costs of services to be provided under the IMS Agreement. The Board members considered detailed comparative information set forth in an annual report on fees and expenses, including, among other things, data (prepared by an independent organization) showing a comparison of the Fund's expenses with median expenses paid by funds in its peer group, as well as data showing the Fund's contribution to RiverSource Investments' profitability. The Board accorded particular weight to the notion that the level of fees should reflect a rational pricing model applied consistently across the various product lines in the Funds' family, while assuring that the overall fees for each fund are generally in line with the "pricing philosophy" (i.e., that the total expense ratio of each fund, with few exceptions, is at or below the median expense ratio of funds in the same comparison group). The Board took into account that the Fund's total expense ratio (after considering proposed expense caps/waivers) was slightly below the peer group's median expense ratio shown in the reports. The Board also considered the Fund's performance incentive adjustment and noted its continued appropriateness. - -------------------------------------------------------------------------------- 56 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- Based on its review, the Board concluded that the Fund's management fee was fair and reasonable in light of the extent and quality of services that the Fund receives. The Board also considered the expected profitability of RiverSource Investments and its affiliates in connection with RiverSource Investments providing investment management services to the Fund. In this regard, the Board referred to a detailed profitability report, discussing the profitability to RiverSource Investments and Ameriprise Financial from managing and operating the Fund, including data showing comparative profitability since inception. The Board also considered the services acquired by the investment manager through the use of commission dollars paid by the Funds on portfolio transactions. The Board noted that the fees paid by the Fund should permit the investment manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. The Board concluded that profitability levels were reasonable. Economies of Scale to be Realized: The Board also considered the economies of scale that might be realized by RiverSource Investments as the Fund grows and took note of the extent to which Fund shareholders might also benefit from such growth. The Board considered that the IMS Agreement provides for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. Based on the foregoing, the Board, including all of the Independent Directors, concluded that the investment management service fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was determinative. On April 10, 2008, the Board, including all of the Independent Directors, approved the renewal of the IMS Agreement. 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 RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006 is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2008 ANNUAL REPORT 57 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND 734 Ameriprise Financial Center Minneapolis, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource(R) mutual funds are distributed by RiverSource Distributors, Inc., Member FINRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. (RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6397 E (9/08)
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 Pamela G. Carlton, Jeffrey Laikind 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 for the year ended July 31, to Ernst & Young LLP for professional services rendered for the audits of the annual financial statements for RiverSource Dimensions Series, Inc. were as follows: 2008 - $39,530 2007 - $37,300 (b) Audit - Related Fees. The fees for the year ended July 31, to Ernst & Young LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 and the semiannual financial statement reviews for RiverSource Dimensions Series, Inc. were as follows: 2008 - $1,750 2007 - $1,590 (c) Tax Fees. The fees for the year ended July 31, to Ernst & Young LLP for tax compliance related services for RiverSource Dimensions Series, Inc. were as follows: 2008 - $6,360 2007 - $6,000 (d) All Other Fees. The fees for the year ended July 31, to Ernst & Young LLP for additional professional services rendered for RiverSource Dimensions Series, Inc. were as follows: 2008 - $0 2007 - $0 (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by Ernst & Young 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 2008 and 2007 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees for the year ended July 31, to Ernst & Young LLP by the registrant for non-audit fees and 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: 2008 - $621,310 2007 - $239,670 (h) 100% of the services performed in item (g) above during 2008 and 2007 were pre-approved by the Ameriprise Financial Audit Committee and/or the RiverSource Mutual Funds Audit Committee. 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) RiverSource Dimensions Series, Inc. By /s/ Patrick T. Bannigan ----------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date October 3, 2008 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/ Patrick T. Bannigan ----------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date October 3, 2008 By /s/ Jeffrey P. Fox ----------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date October 3, 2008 EX-99.CODEETH 2 c35053exv99wcodeeth.txt CODE OF ETHICS RIVERSOURCE FUNDS' CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS PURPOSE OF THE CODE; COVERED OFFICERS This code of ethics ("Code") for the RiverSource Funds (collectively, "Funds," and each, "Fund") applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers," each of whom is identified in Exhibit A) for the purpose of promoting, in connection with his or her duties: honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; compliance with laws and governmental rules and regulations applicable to the conduct of the Funds' business and their financial reporting; the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions, such as the purchase or sale of securities or other property, with the Funds because of their status as "affiliated persons" of the Funds. The compliance programs and procedures of the Funds and of Ameriprise Financial, Inc. and its affiliates ("Ameriprise") are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and Ameriprise, of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, whether formally for the Funds or for Ameriprise, or for both, be involved in establishing policies and implementing decisions that will have different effects on Ameriprise and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and Ameriprise and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds. Each Covered Officer must: not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds; not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Funds; and not use material non-public knowledge of portfolio transactions made or contemplated for the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. DISCLOSURE AND COMPLIANCE Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including any member of the Board of Directors or Board of Trustees of any Fund ("Boards"), auditors, governmental regulators, and representatives of self-regulatory organizations; should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and Ameriprise with the goal of promoting full, fair, accurate, timely, and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules, and regulations. REPORTING AND ACCOUNTABILITY Each Covered Officer must: i. upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he or she has received, read, and understands the Code; ii. annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code; iii. not retaliate against any other Covered Officer or any employee of Ameriprise for reports of potential violations that are made in good faith; and - notify the Funds' General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. APPLYING THE CODE The Funds' General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. Any approvals or waivers sought by a Covered Officers will be considered by each Board or appropriate committee of the Board. The Funds' General Counsel iv. shall notify the Boards whenever any evidence of a material violation has been reported, it being understood that the Funds' General Counsel may determine whether to provide such notice immediately or at the next meetings of the Boards based on the nature of the violation; v. will take all appropriate action to investigate such reported violations; vi. shall make a determination after the investigation and if the Funds' General Counsel believes that no violation has occurred, the Boards will be so notified and no further action is required; if the Funds' General Counsel believes a violation has occurred, the matter shall be reported to the Boards or the committees of the Funds affected by the potential violation for further determination; if the Boards or the committees determine that a violation has occurred the Boards will consider appropriate action, which may include: a review of applicable policies and procedures; the appropriate modifications to such policies and procedures; the notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; will cause to be made such disclosures as are required by SEC rules if any changes to or waivers of this Code is made by the Boards; and shall maintain a record of each reported evidence of material violation, the response thereto, and all related correspondence for a period of not less than 10 years. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds or Ameriprise govern or purport to govern the activities of the Covered Officers, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. Ameriprise's code of ethics under Rule 17j-1 under the Investment Company Act is a separate requirement applying to the Covered Officers and others, and is not part of this Code. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Fund's Board, including a majority of its independent directors. Adopted: July 9, 2003; Amended: April 12, 2006 EXHIBIT A Persons Covered by this Code of Ethics: Patrick T. Bannigan President Jeffrey P. Fox Treasurer EX-99.CERT 3 c35053exv99wcert.txt CERTIFICATION Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Patrick T. Bannigan, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Dimensions Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 22, 2008 /s/ Patrick T. Bannigan - ------------------------------------- Name: Patrick T. Bannigan Title: President and Principal Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey P. Fox, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Dimensions Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 22, 2008 /s/ Jeffrey P. Fox - ------------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Principal Financial Officer EX-99.906CERT 4 c35053exv99w906cert.txt SECTION 906 CERTIFICATION CERTIFICATION RIVERSOURCE DIMENSIONS SERIES, INC. (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: September 22, 2008 /s/ Patrick T. Bannigan ----------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date: September 22, 2008 /s/ Jeffrey P. Fox ----------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----