-----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, V0zKmdd8noaX/Eb9Li0xYQTIjWXCRmBwjb933+xfHuL0/Du5i22FNdhz0jAtitF1 +0R20pZdpioB40fEg9hAQA== 0000950137-07-015041.txt : 20071003 0000950137-07-015041.hdr.sgml : 20071003 20071003162930 ACCESSION NUMBER: 0000950137-07-015041 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20070731 FILED AS OF DATE: 20071003 DATE AS OF CHANGE: 20071003 EFFECTIVENESS DATE: 20071003 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: 071153919 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 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 c18113nvcsr.txt CERTIFIED SHAREHOLDER REPORT 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(R) DISCIPLINED SMALL AND MID CAP EQUITY FUND ANNUAL REPORT FOR THE PERIOD ENDED JULY 31, 2007 (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. TABLE OF CONTENTS Fund Snapshot....................... 3 Performance Summary................. 5 Questions & Answers with Portfolio Management........ 7 The Fund's Long-term Performance ... 12 Fund Expenses Example............... 14 Investments in Securities........... 16 Financial Statements................ 24 Notes to Financial Statements....... 28 Report of Independent Registered Public Accounting Firm........... 46 Federal Income Tax Information...... 47 Board Members and Officers.......... 49 Approval of Investment Management Services Agreement............... 53 Proxy Voting........................ 55 Change in Independent Registered Public Accounting Firm........... 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. - -------------------------------------------------------------------------------- 2 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT FUND SNAPSHOT AT JULY 31, 2007 FUND OBJECTIVE RiverSource Disciplined Small and Mid Cap Equity Fund seeks to provide shareholders with long-term capital growth. SECTOR BREAKDOWN* Percentage of portfolio assets (PIE CHART) CONSUMER DISCRETIONARY 20.0% FINANCIALS 14.9% INDUSTRIALS 14.6% INFORMATION TECHNOLOGY 13.1% MATERIALS 10.4% ENERGY 9.3% OTHER(1) 17.7%
* Sectors can be comprised of several industries. Please refer to the section entitled "Investments in Securities" for a complete listing. No single industry exceeds 25% of portfolio assets. (1) Includes Health Care 8.1%, Consumer Staples 4.3%, Utilities 1.9%, Telecommunication Services 1.8% and Cash & Cash Equivalents 1.6%. TOP TEN HOLDINGS Percentage of portfolio assets First American 0.9% PMI Group 0.9% Fidelity Natl Financial Cl A 0.9% Avnet 0.9% Goodyear Tire & Rubber 0.8% Ashland 0.8% Arrow Electronics 0.8% Western Digital 0.8% Commercial Metals 0.8% Intuitive Surgical 0.8%
For further detail about these holdings, please refer to the section entitled "Investments in Securities." The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. 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. 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 -- 2007 ANNUAL REPORT 3 FUND SNAPSHOT AT JULY 31, 2007 STYLE MATRIX
STYLE VALUE BLEND GROWTH LARGE X MEDIUM SIZE X SMALL
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGERS
YEARS IN INDUSTRY Dimitris Bertsimas, Ph.D. 14 Gina Mourtzinou, Ph.D. 11 Steve Kokkotos, Ph.D. 9
FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A -- 05/18/06 Class B -- 05/18/06 Class C -- 05/18/06 Class I RDSIX 05/18/06 Class R4(1) -- 05/18/06 Class W RSEWX 12/01/06 (1) Effective Dec. 11, 2006, Class Y was renamed Class R4. Total net assets $115.8 million Number of holdings 400
- -------------------------------------------------------------------------------- 4 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT PERFORMANCE SUMMARY PERFORMANCE COMPARISON For the year ended July 31, 2007 (BAR CHART) RiverSource Disciplined Small and Mid Cap Equity Fund Class A (excluding sales charge) +7.12% Russell 2500 Index (unmanaged) +15.55% Lipper Mid-Cap Core Funds Index +18.28%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 1.67% 1.32% Class B 2.12% 2.08% Class C 2.16% 2.08% Class I 0.96% 0.92% Class R4(b) 1.74% 1.19% Class W(c) 1.60% 1.37%
(a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment (that decreased the management fee by 0.04%), will not exceed 1.36% for Class A, 2.12% for Class B, 2.12% for Class C, 0.96% for Class I, 1.23% for Class R4 and 1.41% for Class W. (b) Effective Dec. 11, 2006, Class Y was renamed Class R4. (c) Inception date for Class W was Dec. 1, 2006. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 5 PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS
AT JULY 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 5/18/06) +7.12% +0.94% Class B (inception 5/18/06) +6.43% +0.21% Class C (inception 5/18/06) +6.37% +0.16% Class I (inception 5/18/06) +7.48% +1.23% Class R4* (inception 5/18/06) +7.30% +1.08% Class W (inception 12/1/06) N/A -2.06%** WITH SALES CHARGE Class A (inception 5/18/06) +0.96% -3.90% Class B (inception 5/18/06) +1.43% -3.12% Class C (inception 5/18/06) +5.37% +0.16%
AT JUNE 30, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 5/18/06) +10.94% +9.11% Class B (inception 5/18/06) +10.17% +8.33% Class C (inception 5/18/06) +10.11% +8.28% Class I (inception 5/18/06) +11.41% +9.52% Class R4* (inception 5/18/06) +11.12% +9.27% Class W (inception 12/1/06) N/A +6.87%** WITH SALES CHARGE Class A (inception 5/18/06) +4.56% +3.49% Class B (inception 5/18/06) +5.17% +4.78% Class C (inception 5/18/06) +9.11% +8.28%
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. * Effective Dec. 11, 2006, Class Y was renamed Class R4. ** Not annualized. - -------------------------------------------------------------------------------- 6 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, portfolio managers Dimitris Bertsimas, Gina Mourtzinou and Steve Kokkotos discuss RiverSource Disciplined Small and Mid Cap Equity Fund's positioning and results for the 12-month period ended July 31, 2007. At July 31, 2007, approximately 34% 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 33. Q: How did RiverSource Disciplined Small and Mid Cap Equity Fund perform for the annual period? A: RiverSource Disciplined Small and Mid Cap Equity Fund's Class A shares (excluding sales charge) returned 7.12% for the 12-month period ended July 31, 2007. The Fund underperformed its benchmark, the Russell 2500(TM) Index (Russell Index), which returned 15.55%, as well as the Lipper Mid-Cap Core Funds Index, representing the Fund's peer group, which returned 18.28%, for the same period. DURING THE REPORTING PERIOD, ALL THREE QUANTITATIVE INVESTMENT MODELS UNDERPERFORMED THE RUSSELL INDEX. Q: What factors most significantly affected the Fund's performance? A: The Fund's underperformance resulted from the three quantitative investment models -- momentum, value and quality-adjusted value -- we employ in selecting stocks for the Fund's portfolio. The momentum model singles out groups of companies that appear to be having improving prospects based on the pattern of stock returns observed over history. The value model selects undervalued stocks based on proprietary estimates of future corporate earnings. The quality-adjusted value model selects undervalued securities by adjusting the valuations of stocks to take into account each stock's historical earnings - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 7 QUESTIONS & ANSWERS stability and debt load. Under the Fund's investment process, the three 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 reporting period, all three quantitative investment models underperformed the Russell Index. The quality-adjusted value model performed worst, followed by value and then momentum. While the Fund may experience underperformance in the short term, our research has indicated that the style diversification provided by the three very different quantitative models is a significant investment advantage, which may lead to long-term outperformance. The Fund's greater-than-Russell Index positions in energy and materials and its lesser-than-Russell Index allocation to utilities contributed most positively to its results relative to the Russell Index for the annual period. To a more moderate degree, the Fund's significant exposure to the consumer discretionary and consumer staples sectors and its modest position in health care also helped. Moving from a sizable exposure to financials to a modest position in the sector over the period proved prudent as well. From a sector allocation perspective, the only detractors were the Fund's modest exposure to the strongly-performing information technology and industrials sectors. Because of our investment process, most of the Fund's underperformance was the result of stock selection. In the telecommunication services and consumer staples sectors, stock selection helped performance. However, these positives were not enough to offset our selections within financials, consumer discretionary, industrials and health care, which detracted from Fund performance. Among individual holdings, the stocks that detracted most from the Fund's results were in the financials sectors. These included American Home Mtge Investment (selected by the value and quality-adjusted value models), W Holding (value and quality-adjusted value models), Radian Group (value and quality-adjusted value models), PMI Group (quality-adjusted value and value models) and People's United Financial (momentum model). On the positive side, stocks that contributed favorably to the Fund's return included financial commercial services and supply company Deluxe (selected by the value model), materials companies CF Industries Holdings (value and quality-adjusted value models) and Quanex (quality-adjusted value and value - -------------------------------------------------------------------------------- 8 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT QUESTIONS & ANSWERS models) and food and staples retailer Supervalu (quality-adjusted value and value models). At the end of July, the Fund's largest individual stock holdings included several financial companies, including PMI Group, First American (selected by quality-adjusted value and value models), Fidelity National Financial (quality-adjusted value and value models) and Radian Group. Another top holding at the end of the period was information technology company Avnet (all three models). 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 to reduce the expected risk of the portfolio and to avoid large deviations from the Index. Q: What changes did you make to the Fund's portfolio during the period? A: Based on an extensive look we took at our quantitative models, in March 2007, we expanded and improved the valuation measures we use in our value model. Also, because diversification is an effective element of risk management, we increased the number of holdings in the portfolio over the annual period from 310 to 400. Finally, as a result of quantitative models-driven stock selection during the period, the portfolio's sector allocations changed somewhat. For example, as indicated, the Fund's exposure to financials relative to the Russell Index decreased. Conversely, the Fund's relative position in energy increased. Overall portfolio turnover was 84% for the 12 months. WE BELIEVE OUR USE OF MULTIPLE INVESTMENT DISCIPLINES SERVES THE FUND WELL IN ALL INVESTMENT ENVIRONMENTS OVER THE LONG TERM, AND THE DIVERSIFIED PORTFOLIO MAY BE WELL POSITIONED FOR ANY POTENTIAL MARKET CONDITIONS. Q: How do you intend to manage the Fund in the coming months? A: 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 any potential market conditions. Whether there is a surge in - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 9 QUESTIONS & ANSWERS 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 equally convinced of the merit of our multifaceted, disciplined approach to managing risk in the portfolio. We believe this combination of style diversification and rigorous risk control will allow us to maintain the high quality of the Fund's portfolio in whatever market conditions lie ahead. 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 -- 2007 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 7/31/07)* 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, Russell 3000 Index and Lipper peer group data is from June 1, 2006. COMPARATIVE RESULTS
SINCE Results at July 31, 2007 1 YEAR INCEPTION(3) RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $10,096 $9,533 Average annual total return +0.96% -3.90% RUSSELL 2500 INDEX(1) Cumulative value of $10,000 $11,555 $11,197 Average annual total return +15.55% +10.18% LIPPER MID-CAP CORE FUNDS INDEX(2) Cumulative value of $10,000 $11,828 $11,564 Average annual total return +18.28% +13.27%
Results for other share classes can be found on page 6. - -------------------------------------------------------------------------------- 12 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE DISCIPLINED AND MID CAP EQUITY FUND LINE GRAPH)
RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND CLASS A (INCLUDES SALES RUSSELL 2500 INDEX(1) LIPPER MID-CAP CORE CHARGE) ($9,533) ($11,197) FUNDS INDEX(2) ($11,564) ---------------------------- --------------------- ------------------------ 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) 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, Russell 3000 Index and Lipper peer group data is from June 1, 2006. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 13 FUND EXPENSES EXAMPLE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds expense ratio as of the most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended July 31, 2007. ACTUAL EXPENSES The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 14 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED FEB. 1, 2007 JULY 31, 2007 THE PERIOD(A) EXPENSE RATIO Class A Actual(b) $1,000 $ 935.40 $ 6.29(c) 1.31% Hypothetical (5% return before expenses) $1,000 $1,018.30 $ 6.56(c) 1.31% Class B Actual(b) $1,000 $ 932.10 $ 9.96(c) 2.08% Hypothetical (5% return before expenses) $1,000 $1,014.48 $10.39(c) 2.08% Class C Actual(b) $1,000 $ 932.10 $ 9.96(c) 2.08% Hypothetical (5% return before expenses) $1,000 $1,014.48 $10.39(c) 2.08% Class I Actual(b) $1,000 $ 936.40 $ 4.61(c) .96% Hypothetical (5% return before expenses) $1,000 $1,020.03 $ 4.81(c) .96% Class R4* Actual(b) $1,000 $ 936.30 $ 5.47(c) 1.14% Hypothetical (5% return before expenses) $1,000 $1,019.14 $ 5.71(c) 1.14% Class W Actual(b) $1,000 $ 935.30 $ 6.33(c) 1.32% Hypothetical (5% return before expenses) $1,000 $1,018.25 $ 6.61(c) 1.32%
* Effective Dec. 11, 2006, Class Y was renamed Class R4. (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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended July 31, 2007: -6.46% for Class A, -6.79% for Class B, -6.79% for Class C, -6.36% for Class I, -6.37% for Class R4 and -6.47% 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, 2008, unless sooner terminated at the discretion of the Fund's Board, such that net expenses, (excluding fees and expenses of acquired funds) before giving effect to any performance incentive adjustment, will not exceed 1.36% for Class A, 2.12% for Class B, 2.12% for Class C, 0.96% for Class I, 1.23% for Class R4 and 1.41% for Class W. Any amounts waived will not be reimbursed by the Fund. This change was effective Aug. 1, 2007. If this change had been in place for the entire six month period ended July 31, 2007, the actual expenses paid would have been $9.92 for Class B, $9.92 for Class C, $4.37 for Class I, $5.67 for Class R4 and $6.57 for Class W; the hypothetical expenses paid would have been $10.34 for Class B, $10.34 for Class C, $4.56 for Class I, $5.91 for Class R4 and $6.85 for Class W; the actual and hypothetical expenses paid for Class A would have been the same as those expenses in the table above. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 15 INVESTMENTS IN SECURITIES JULY 31, 2007 (Percentages represent value of investments compared to net assets)
COMMON STOCKS (96.3%) ISSUER SHARES VALUE(A) AEROSPACE & DEFENSE (0.7%) Armor Holdings 5,210(b) $458,376 BE Aerospace 5,157(b) 209,168 Innovative Solutions & Support 8,009(b) 142,800 --------------- Total 810,344 - ----------------------------------------------------------------------------------- AIR FREIGHT & LOGISTICS (0.1%) Park-Ohio Holdings 6,076(b) 150,928 - ----------------------------------------------------------------------------------- AIRLINES (1.4%) Alaska Air Group 11,296(b) 263,536 Continental Airlines Cl B 10,307(b) 324,774 Copa Holdings Cl A 1,965(c) 107,898 Midwest Air Group 14,919(b) 207,971 Pinnacle Airlines 10,347(b,d) 166,794 UAL 4,443(b) 196,114 US Airways Group 12,841(b) 398,198 --------------- Total 1,665,285 - ----------------------------------------------------------------------------------- AUTO COMPONENTS (3.9%) Aftermarket Technology 5,250(b) 159,338 American Axle & Mfg Holdings 16,804 406,657 Amerigon 10,957(b) 176,079 ArvinMeritor 13,543 268,558 Autoliv 1,997(c) 111,692 BorgWarner 5,875 507,894 Cooper Tire & Rubber 15,387 353,747 Goodyear Tire & Rubber 33,198(b) 953,446 Hayes Lemmerz Intl 41,436(b) 198,893 Modine Mfg 7,571 193,818 Spartan Motors 15,601 190,488 Standard Motor Products 12,908 160,705 Tenneco 3,143(b) 110,948 TRW Automotive Holdings 20,388(b) 670,153 Visteon 15,289(b) 98,155 --------------- Total 4,560,571 - ----------------------------------------------------------------------------------- BIOTECHNOLOGY (0.9%) ArQule 28,390(b) 161,255 CytRx 52,679(b) 159,617
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) BIOTECHNOLOGY (CONT.) GTx 10,729(b) $164,905 Immunomedics 55,560(b) 160,013 Incyte 24,435(b) 129,994 Seattle Genetics 25,360(b) 241,681 --------------- Total 1,017,465 - ----------------------------------------------------------------------------------- BUILDING PRODUCTS (1.3%) Apogee Enterprises 5,744 147,965 Builders FirstSource 6,596(b) 96,697 Lennox Intl 9,372 358,948 Owens Corning 16,253(b) 494,580 Universal Forest Products 2,365 93,559 USG 8,102(b) 336,314 --------------- Total 1,528,063 - ----------------------------------------------------------------------------------- CAPITAL MARKETS (1.6%) Allied Capital 3,725 105,492 American Capital Strategies 8,546 324,492 Eaton Vance 10,894 456,022 Epoch Holding 11,639(b) 183,780 Knight Capital Group Cl A 23,225(b) 328,402 Raymond James Financial 7,599 233,061 SWS Group 9,811 173,164 --------------- Total 1,804,413 - ----------------------------------------------------------------------------------- CHEMICALS (4.0%) Albemarle 4,216 169,610 Ashland 14,950 912,846 Celanese Series A 11,638 436,425 CF Inds Holdings 6,239 358,618 Eastman Chemical 7,127 490,480 Flotek Inds 7,631(b) 226,946 Georgia Gulf 5,521 89,385 Huntsman 4,274 108,816 Innospec 9,454(c) 260,269 Landec 7,706(b) 88,696 Olin 17,507 365,371 PolyOne 16,276(b) 122,396 Terra Inds 14,219(b) 348,792
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 16 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) CHEMICALS (CONT.) Westlake Chemical 9,437 $235,736 WR Grace & Co 19,880(b) 410,522 --------------- Total 4,624,908 - ----------------------------------------------------------------------------------- COMMERCIAL BANKS (1.3%) First BanCorp 19,221(c) 176,833 First Horizon Natl 3,620 114,826 Trustmark 13,476 337,304 UMB Financial 14,385 537,137 W Holding 134,945(c) 298,228 --------------- Total 1,464,328 - ----------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES (1.3%) ABM Inds 8,805 221,534 Deluxe 11,656 440,131 Huron Consulting Group 2,225(b) 151,144 Labor Ready 3,843(b) 90,541 M&F Worldwide 7,139(b) 416,489 TeleTech Holdings 8,163(b) 239,421 --------------- Total 1,559,260 - ----------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT (1.6%) ADC Telecommunications 9,510(b) 177,742 Blue Coat Systems 5,350(b) 260,706 C-COR 10,010(b) 134,635 CommScope 6,319(b) 343,943 Dycom Inds 6,131(b) 171,361 Loral Space & Communications 3,875(b) 160,386 Network Equipment Technologies 14,328(b) 135,256 Polycom 5,506(b) 170,521 Sonus Networks 28,257(b) 193,278 Tellabs 13,735(b) 155,892 --------------- Total 1,903,720 - ----------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS (1.8%) Imation 13,025 407,422 Immersion 8,418(b) 131,237 Lexmark Intl Cl A 4,591(b,d) 181,528 Novatel Wireless 8,667(b) 186,601 Palm 8,323(b) 124,179 Stratasys 4,453(b) 195,977 Western Digital 41,979(b) 896,251 --------------- Total 2,123,195 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) CONSTRUCTION & ENGINEERING (1.0%) Infrasource Services 8,951(b) $309,884 Michael Baker 3,765(b) 135,728 Perini 4,007(b) 246,070 Quanta Services 9,052(b) 257,348 Shaw Group 4,117(b) 219,107 --------------- Total 1,168,137 - ----------------------------------------------------------------------------------- CONSTRUCTION MATERIALS (0.4%) Martin Marietta Materials 3,692 505,804 - ----------------------------------------------------------------------------------- CONSUMER FINANCE (0.4%) First Marblehead 13,973 460,550 - ----------------------------------------------------------------------------------- CONTAINERS & PACKAGING (0.8%) Crown Holdings 5,993(b) 147,188 Owens-Illinois 11,228(b) 448,896 Rock-Tenn Cl A 4,781 146,872 Silgan Holdings 3,203 165,339 --------------- Total 908,295 - ----------------------------------------------------------------------------------- DIVERSIFIED CONSUMER SERVICES (0.5%) Career Education 8,196(b) 243,257 INVESTools 14,565(b) 144,485 Service Corp Intl 16,239 196,817 --------------- Total 584,559 - ----------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES (1.1%) CenturyTel 4,155 190,590 Cogent Communications Group 9,062(b) 259,898 Golden Telecom 6,470(c) 417,638 Premiere Global Services 15,464(b) 180,001 SureWest Communications 6,324 170,685 --------------- Total 1,218,812 - ----------------------------------------------------------------------------------- ELECTRIC UTILITIES (0.5%) Central Vermont Public Service 4,554 154,836 ITC Holdings 2,849 119,800 Reliant Energy 10,718(b) 275,239 --------------- Total 549,875 - ----------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT (1.5%) AZZ 7,678(b) 272,569 Baldor Electric 3,847 175,577 Belden 2,563 140,401 Encore Wire 3,198 97,699 General Cable 5,359(b) 426,041
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 17
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) ELECTRICAL EQUIPMENT (CONT.) GrafTech Intl 11,610(b) $179,839 II-VI 6,194(b) 153,797 SunPower Cl A 2,204(b) 155,448 Woodward Governor 2,392 138,138 --------------- Total 1,739,509 - ----------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS (4.4%) Agilysys 9,973 191,581 Arrow Electronics 23,569(b) 900,807 Avnet 25,899(b) 981,053 Benchmark Electronics 21,164(b) 469,841 FARO Technologies 6,375(b) 237,341 Ingram Micro Cl A 35,113(b) 704,016 Insight Enterprises 10,848(b) 244,731 Mettler Toledo Intl 1,976(b,c) 188,036 OSI Systems 4,368(b) 108,152 PC Connection 8,545(b) 114,845 Plexus 5,898(b) 143,027 Solectron 142,419(b) 535,495 SYNNEX 12,111(b) 246,096 --------------- Total 5,065,021 - ----------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (3.2%) Dawson Geophysical 2,355(b) 128,607 Dresser-Rand Group 10,527(b) 390,552 Global Inds 7,229(b) 187,231 Grey Wolf 30,112(b) 223,130 GulfMark Offshore 2,088(b) 98,094 Helmerich & Payne 9,874 319,621 Matrix Service 11,312(b) 261,194 Oil States Intl 3,933(b) 172,029 Parker Drilling 16,887(b) 159,076 Patterson-UTI Energy 20,243 463,565 Pioneer Drilling 8,358(b) 105,144 SEACOR Holdings 2,219(b) 193,541 Tidewater 5,868 401,489 Unit 9,305(b) 512,332 Willbros Group 4,454(b,c) 140,390 --------------- Total 3,755,995 - ----------------------------------------------------------------------------------- FOOD & STAPLES RETAILING (1.6%) BJ's Wholesale Club 6,052(b) 205,526 Great Atlantic & Pacific Tea 5,721(b) 166,767 Ingles Markets Cl A 4,866 142,525 Nash Finch 8,543 344,027 Rite Aid 58,957(b) 324,853 Ruddick 4,452 123,766
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) FOOD & STAPLES RETAILING (CONT.) SUPERVALU 10,466 $436,117 Weis Markets 3,545 139,319 --------------- Total 1,882,900 - ----------------------------------------------------------------------------------- FOOD PRODUCTS (1.5%) Cal-Maine Foods 7,002 127,156 Fresh Del Monte Produce 4,086(c) 104,806 Pilgrim's Pride 5,825 196,186 Sanderson Farms 6,016 239,858 Seaboard 416 832,000 Smithfield Foods 5,983(b) 185,832 --------------- Total 1,685,838 - ----------------------------------------------------------------------------------- GAS UTILITIES (0.6%) Nicor 10,078 397,173 ONEOK 5,434 275,776 --------------- Total 672,949 - ----------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT & SUPPLIES (1.7%) Conceptus 7,944(b) 128,693 Cytyc 16,170(b) 680,757 Intuitive Surgical 4,001(b) 850,652 Regeneration Technologies 9,138(b) 97,959 Sonic Innovations 27,111(b) 228,275 --------------- Total 1,986,336 - ----------------------------------------------------------------------------------- HEALTH CARE PROVIDERS & SERVICES (3.4%) American Dental Partners 4,037(b) 103,630 AMERIGROUP 21,574(b) 597,168 Apria Healthcare Group 6,854(b) 179,712 Chemed 5,973 377,971 CorVel 6,283(b) 167,128 CryoLife 18,785(b) 179,397 Emeritus 9,690(b) 237,405 HMS Holdings 7,331(b) 139,509 Kindred Healthcare 15,719(b) 420,955 LHC Group 6,038(b) 146,240 Magellan Health Services 3,499(b) 146,328 Molina Healthcare 16,427(b) 515,644 Sunrise Senior Living 4,198(b) 166,912 WellCare Health Plans 5,306(b) 537,286 --------------- Total 3,915,285 - ----------------------------------------------------------------------------------- HEALTH CARE TECHNOLOGY (0.2%) Emageon 23,357(b) 214,651 - -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 18 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) HOTELS, RESTAURANTS & LEISURE (0.5%) Ameristar Casinos 4,332 $137,238 Premier Exhibitions 13,453(b) 222,781 Vail Resorts 3,840(b) 205,632 --------------- Total 565,651 - ----------------------------------------------------------------------------------- HOUSEHOLD DURABLES (4.1%) American Greetings Cl A 7,207 178,229 Avatar Holdings 3,573(b) 231,995 Beazer Homes USA 9,284 129,883 Brookfield Homes 5,323 112,848 Champion Enterprises 9,855(b) 115,501 Hooker Furniture 6,741 136,505 Hovnanian Enterprises Cl A 11,535(b) 152,723 KB HOME 18,813 598,442 Libbey 7,193 143,500 MDC Holdings 10,245 471,270 Meritage Homes 6,650(b) 129,675 NVR 1,287(b) 744,503 Ryland Group 9,983 331,935 Standard-Pacific 13,759(d) 203,771 Tempur-Pedic Intl 6,206 193,317 Toll Brothers 31,702(b) 695,225 Tupperware Brands 6,338 164,851 --------------- Total 4,734,173 - ----------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (0.3%) Energizer Holdings 3,135(b) 316,322 - ----------------------------------------------------------------------------------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%) Dynegy Cl A 20,867(b) 185,925 - ----------------------------------------------------------------------------------- INSURANCE (7.6%) American Financial Group 15,981 448,906 Arch Capital Group 9,623(b,c) 670,338 Aspen Insurance Holdings 20,926(c) 511,641 Axis Capital Holdings 16,855(c) 621,107 Commerce Group 8,910 255,984 Conseco 29,984(b) 545,409 Fidelity Natl Financial Cl A 48,429 1,011,682 First American 22,940 1,061,894 Hanover Insurance Group 4,833 212,120 LandAmerica Financial Group 4,604(d) 352,620 Natl Western Life Insurance Cl A 812 191,405
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) INSURANCE (CONT.) Odyssey Re Holdings 12,791 $450,243 Ohio Casualty 10,906 473,429 Old Republic Intl 28,750 527,850 PartnerRe 8,003(c) 568,453 Reinsurance Group of America 10,887 580,386 Transatlantic Holdings 4,972 363,702 --------------- Total 8,847,169 - ----------------------------------------------------------------------------------- INTERNET & CATALOG RETAIL (0.6%) 1-800-FLOWERS.com 28,521(b) 265,530 Blue Nile 2,401(b) 181,540 Systemax 11,693 243,799 --------------- Total 690,869 - ----------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES (1.2%) Chordiant Software 12,282(b) 175,633 CMGI 66,663(b) 105,328 EarthLink 21,937(b) 152,462 Greenfield Online 8,927(b) 144,974 Interwoven 13,983(b) 193,665 On2 Technologies 76,615(b) 134,842 RealNetworks 46,107(b) 328,282 ValueClick 6,927(b) 148,099 --------------- Total 1,383,285 - ----------------------------------------------------------------------------------- IT SERVICES (1.3%) Gartner 8,927(b) 186,842 MAXIMUS 2,860 119,519 SAIC 39,221(b) 657,344 Syntel 4,622 166,438 Total System Services 6,681 187,937 Unisys 28,462(b) 230,258 --------------- Total 1,548,338 - ----------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS (1.1%) Brunswick 20,891 584,112 Hasbro 6,273 175,769 JAKKS Pacific 10,213(b) 242,150 Polaris Inds 3,416(d) 168,614 Sturm, Ruger & Co 6,701(b) 130,871 --------------- Total 1,301,516 - -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 19
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) LIFE SCIENCES TOOLS & SERVICES (0.6%) AMAG Pharmaceuticals 2,572(b) $138,091 eResearch Technology 10,836(b) 104,026 PAREXEL Intl 11,542(b) 466,642 --------------- Total 708,759 - ----------------------------------------------------------------------------------- MACHINERY (3.4%) AGCO 4,691(b) 180,275 Astec Inds 5,603(b) 292,309 Barnes Group 9,712 303,014 Briggs & Stratton 6,333(d) 179,604 Cascade 3,515 238,282 FreightCar America 3,790 179,153 Gorman-Rupp 4,254 122,047 Hardinge 5,547 182,607 Hurco Companies 4,833(b) 225,121 Manitowoc 4,187 325,204 Middleby 2,406(b) 149,196 Mueller Inds 9,360 345,197 Sun Hydraulics 4,776 141,943 Terex 2,939(b) 253,489 Timken 14,510 484,634 Titan Intl 6,476 191,301 Twin Disc 2,113 113,870 --------------- Total 3,907,246 - ----------------------------------------------------------------------------------- MARINE (0.8%) Eagle Bulk Shipping 4,579 120,519 Genco Shipping & Trading 6,958 391,944 TBS Intl Cl A 10,238(b,c) 392,832 --------------- Total 905,295 - ----------------------------------------------------------------------------------- MEDIA (1.1%) Charter Communications Cl A 33,723(b) 136,915 Crown Media Holdings Cl A 25,694(b) 176,775 DG FastChannel 9,611(b) 170,691 Interactive Data 5,852 160,052 LIN TV Cl A 15,954(b) 241,545 Nexstar Broadcasting Group Cl A 20,605(b) 211,201 Sinclair Broadcast Group Cl A 13,308 173,536 --------------- Total 1,270,715 - ----------------------------------------------------------------------------------- METALS & MINING (4.2%) AK Steel Holding 7,011(b) 280,230 Century Aluminum 2,649(b) 136,529
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) METALS & MINING (CONT.) Chaparral Steel 6,091 $511,888 Cleveland-Cliffs 10,575 732,529 Commercial Metals 28,507 879,155 Haynes Intl 2,090(b) 187,703 Kaiser Aluminum 1,945 131,307 Metal Management 5,280 221,813 Quanex 9,743 439,020 Reliance Steel & Aluminum 7,427 390,215 RTI Intl Metals 1,890(b) 149,764 Ryerson 10,870 348,818 Schnitzer Steel Inds Cl A 4,948 268,132 Worthington Inds 11,581 239,727 --------------- Total 4,916,830 - ----------------------------------------------------------------------------------- MULTILINE RETAIL (1.0%) Big Lots 5,727(b) 148,100 Bon-Ton Stores 5,136 131,071 Dillard's Cl A 18,121 541,637 Dollar Tree Stores 4,136(b) 158,243 Saks 10,282 190,320 --------------- Total 1,169,371 - ----------------------------------------------------------------------------------- MULTI-UTILITIES (0.7%) CenterPoint Energy 21,493 354,205 Integrys Energy Group 8,212 406,412 --------------- Total 760,617 - ----------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS (5.9%) Alon USA Energy 3,183 113,538 Atlas America 2,802 136,065 Cimarex Energy 19,890 752,836 Delek US Holdings 4,507 119,345 Forest Oil 3,766(b) 152,410 Frontier Oil 15,136 586,217 Frontline 8,469(c) 389,913 General Maritime 7,067 183,742 Holly 4,984 335,872 MarkWest Hydrocarbon 2,343 127,108 Overseas Shipholding Group 7,385 573,002 Pogo Producing 12,038 641,144 Ship Finance Intl 14,479(c) 404,688 St. Mary Land & Exploration 4,693 156,230 Stone Energy 5,497(b,d) 178,653 Swift Energy 5,180(b) 221,393 Teekay 6,128(c) 343,597
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 20 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) OIL, GAS & CONSUMABLE FUELS (CONT.) Tesoro 7,184 $357,763 USEC 21,744(b) 365,082 W&T Offshore 7,186 168,296 Western Refining 6,539 362,915 Whiting Petroleum 2,778(b) 114,092 --------------- Total 6,783,901 - ----------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS (0.7%) Buckeye Technologies 12,169(b) 186,551 Domtar 14,792(b,c) 140,672 Louisiana-Pacific 21,286 394,217 Schweitzer-Mauduit Intl 3,727 85,087 --------------- Total 806,527 - ----------------------------------------------------------------------------------- PERSONAL PRODUCTS (0.6%) Alberto-Culver 10,053 236,446 American Oriental Bioengineering 17,358(b) 124,978 Chattem 3,361(b) 188,754 Elizabeth Arden 4,305(b) 92,730 --------------- Total 642,908 - ----------------------------------------------------------------------------------- PHARMACEUTICALS (1.2%) Beijing Med-Pharm 12,061(b) 107,343 Discovery Laboratories 57,786(b) 122,506 Javelin Pharmaceuticals 40,220(b) 178,979 King Pharmaceuticals 24,950(b) 424,399 Par Pharmaceutical Companies 17,411(b) 412,467 XenoPort 2,800(b) 119,532 --------------- Total 1,365,226 - ----------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS (REITS) (1.6%) Alexander's 455(b) 161,116 American Home Mtge Investment 34,413 35,790 Arbor Realty Trust 18,644 368,219 Digital Realty Trust 12,544 415,834 Nationwide Health Properties 4,799 114,360 RAIT Financial Trust 31,605 327,428 Redwood Trust 14,634 421,458 --------------- Total 1,844,205 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) ROAD & RAIL (2.4%) Arkansas Best 11,748 $423,280 Avis Budget Group 5,196(b) 133,381 Con-way 11,299 558,058 Kansas City Southern 2,831(b) 97,698 Ryder System 7,805 424,358 Werner Enterprises 24,866 483,395 YRC Worldwide 21,070(b) 676,768 --------------- Total 2,796,938 - ----------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (1.1%) Amkor Technology 18,620(b) 230,143 Monolithic Power Systems 14,117(b) 236,036 NetLogic Microsystems 5,821(b) 177,424 OmniVision Technologies 14,082(b) 241,788 Ultra Clean Holdings 10,067(b) 141,643 Varian Semiconductor Equipment Associates 4,365(b) 205,155 --------------- Total 1,232,189 - ----------------------------------------------------------------------------------- SOFTWARE (1.3%) Ansoft 6,113(b) 154,598 Compuware 17,716(b) 165,290 EPIQ Systems 10,869(b) 185,316 FalconStor Software 13,316(b) 138,353 Nuance Communications 12,137(b) 200,018 SPSS 4,253(b) 174,543 Taleo Cl A 10,391(b) 223,510 VASCO Data Security Intl 11,668(b) 308,853 --------------- Total 1,550,481 - ----------------------------------------------------------------------------------- SPECIALTY RETAIL (4.6%) Asbury Automotive Group 7,026 155,415 AutoNation 25,672(b) 500,091 Barnes & Noble 14,587 489,394 Blockbuster Cl A 61,392(b) 263,372 Borders Group 11,692 191,281 Cato Cl A 11,296 233,601 Conn's 7,739(b) 196,338 Foot Locker 34,650 643,104 Gander Mountain 25,712(b,d) 264,834 Genesco 3,779(b) 191,028 GUESS? 5,682 269,838 Jos A Bank Clothiers 3,270(b) 112,815 Pacific Sunwear of California 9,776(b) 176,164 RadioShack 13,994 351,669 Rent-A-Center 5,837(b) 113,296
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 21
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) SPECIALTY RETAIL (CONT.) Sonic Automotive Cl A 8,936 $244,846 Stage Stores 9,845 175,635 Talbots 5,499 126,422 Tiffany & Co 5,358 258,524 Urban Outfitters 8,743(b) 175,385 Zale 7,548(b) 160,244 --------------- Total 5,293,296 - ----------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS (2.1%) Deckers Outdoor 2,762(b) 284,762 G-III Apparel Group 6,608(b) 106,587 Hanesbrands 12,848(b) 398,416 Jones Apparel Group 18,856 470,646 Liz Claiborne 10,419 366,124 Perry Ellis Intl 7,600(b) 228,076 Phillips-Van Heusen 2,366 123,174 Timberland Cl A 13,518(b) 321,323 Warnaco Group 3,959(b) 142,959 --------------- Total 2,442,067 - ----------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE (2.1%) Corus Bankshares 28,181 458,223 Fremont General 31,501 181,761 PMI Group 30,283 1,031,741 Radian Group 23,715 799,433 --------------- Total 2,471,158 - ----------------------------------------------------------------------------------- TOBACCO (0.3%) Alliance One Intl 28,852(b,d) 249,570 Universal 2,670 147,411 --------------- Total 396,981 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) TRADING COMPANIES & DISTRIBUTORS (0.3%) Kaman 4,118 $137,912 Rush Enterprises Cl A 5,620(b) 157,079 --------------- Total 294,991 - ----------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES (0.7%) Centennial Communications 27,464(b) 280,957 Leap Wireless Intl 5,670(b) 501,228 --------------- Total 782,185 - ----------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $119,057,273) $111,442,130 - -----------------------------------------------------------------------------------
MONEY MARKET FUND (1.5%) SHARES VALUE(A) RiverSource Short-Term Cash Fund 1,759,787(e) $1,759,787 - ----------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $1,759,787) $1,759,787 - ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $120,817,060)(f) $113,201,917 ===================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At July 31, 2007, the value of foreign securities represented 5.1% of net assets. (d) Partially pledged as initial margin deposit on the following open stock index futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY CONTRACTS - ------------------------------------------------------------------------------ PURCHASE CONTRACTS E-Mini S&P MidCap 400 Index, Sept. 2007 15 Mini Russell 2000 Index, Sept. 2007 30
(e) Affiliated Money Market Fund -- See Note 6 to the financial statements. - -------------------------------------------------------------------------------- 22 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (f) At July 31, 2007, the cost of securities for federal income tax purposes was $120,860,745 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 3,737,185 Unrealized depreciation (11,396,013) - ------------------------------------------------------------------------------- Net unrealized depreciation $ (7,658,828) - -------------------------------------------------------------------------------
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 23 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES JULY 31, 2007 ASSETS Investments in securities, at value (Note 1) Unaffiliated issuers (identified cost $119,057,273) $111,442,130 Affiliated money market fund (identified cost $1,759,787) (Note 6) 1,759,787 - ---------------------------------------------------------------------------- Total investments in securities (identified cost $120,817,060) 113,201,917 Capital shares receivable 2,552,578 Dividends and accrued interest receivable 58,021 Receivable for investment securities sold 170,688 Variation margin receivable 21,530 - ---------------------------------------------------------------------------- Total assets 116,004,734 - ---------------------------------------------------------------------------- LIABILITIES Disbursements in excess of cash on demand deposit 48,050 Capital shares payable 110,550 Payable for investment securities purchased 9,024 Accrued investment management services fee 2,235 Accrued distribution fee 560 Accrued transfer agency fee 331 Accrued administrative services fee 192 Other accrued expenses 48,913 - ---------------------------------------------------------------------------- Total liabilities 219,855 - ---------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $115,784,879 ============================================================================
- -------------------------------------------------------------------------------- 24 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) JULY 31, 2007 REPRESENTED BY Capital stock -- $.01 par value (Note 1) $ 121,204 Additional paid-in capital 123,355,267 Undistributed net investment income 88,863 Accumulated net realized gain (loss) (Note 8) (76,852) Unrealized appreciation (depreciation) on investments (Note 5) (7,703,603) - ---------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $115,784,879 ============================================================================
Net assets applicable to outstanding shares: Class A $ 18,372,667 Class B $ 1,365,013 Class C $ 183,734 Class I $ 38,785,276 Class R4 $ 15,157 Class W $ 57,063,032 Net asset value per share of outstanding capital stock: Class A shares(1) 1,924,399 $ 9.55 Class B shares 144,191 $ 9.47 Class C shares 19,407 $ 9.47 Class I shares 4,051,418 $ 9.57 Class R4 shares 1,586 $ 9.56 Class W shares 5,979,419 $ 9.54 - -------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A $10.13. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 5.75%. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 25 STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 2007 INVESTMENT INCOME Income: Dividends $ 598,628 Interest 775 Income distributions from affiliated money market fund (Note 6) 108,066 Less foreign taxes withheld (834) - ----------------------------------------------------------------------------- Total income 706,635 - ----------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 273,481 Distribution fee Class A 36,017 Class B 7,170 Class C 845 Class W 13,719 Transfer agency fee Class A 9,970 Class B 715 Class C 80 Class R4 6 Class W 10,976 Service fee -- Class R4 4 Administrative services fees and expenses 24,904 Plan administration services fee -- Class R4 22 Compensation of board members 692 Custodian fees 43,580 Printing and postage 20,814 Registration fees 72,057 Professional fees 27,124 Other 2,005 - ----------------------------------------------------------------------------- Total expenses 544,181 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (70,623) - ----------------------------------------------------------------------------- 473,558 Earnings and bank fee credits on cash balances (Note 2) (3,850) - ----------------------------------------------------------------------------- Total net expenses 469,708 - ----------------------------------------------------------------------------- Investment income (loss) -- net 236,927 - ----------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) 166,779 Futures contracts (165,054) - ----------------------------------------------------------------------------- Net realized gain (loss) on investments 1,725 Net change in unrealized appreciation (depreciation) on investments (6,728,788) - ----------------------------------------------------------------------------- Net gain (loss) on investments (6,727,063) - ----------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(6,490,136) =============================================================================
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED PERIOD ENDED JULY 31, 2007 JULY 31, 2006* OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 236,927 $ 246 Net realized gain (loss) on investments 1,725 (98,983) Net change in unrealized appreciation (depreciation) on investments (6,728,788) (444,386) - ------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations (6,490,136) (543,123) - ------------------------------------------------------------------------------------------ Distributions to shareholders from: Net investment income Class A (51,227) -- Class B (1,714) -- Class C (180) -- Class I (86,805) -- Class R4 (57) -- Class W (25) N/A - ------------------------------------------------------------------------------------------ Total distributions (140,008) -- - ------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) $ 9,526,024 $ 394,182 Class B shares 1,559,049 46,663 Class C shares 186,778 -- Class I shares 41,657,381 45,117 Class R4 shares 4,169 1,500 Class W shares 74,596,249 N/A Reinvestment of distributions at net asset value Class A shares 12,334 -- Class B shares 1,637 -- Class C shares 133 -- Class I shares 86,753 -- Class R4 shares 12 -- Payments for redemptions Class A shares (602,001) -- Class B shares (Note 2) (163,893) (17,521) Class C shares (Note 2) (1,577) -- Class I shares (1,367,934) (1,927) Class W shares (12,494,015) N/A - ------------------------------------------------------------------------------------------ Increase (decrease) in net assets from capital share transactions 113,001,099 468,014 - ------------------------------------------------------------------------------------------ Total increase (decrease) in net assets 106,370,955 (75,109) Net assets at beginning of year (Note 1) 9,413,924 9,489,033** - ------------------------------------------------------------------------------------------ Net assets at end of year $115,784,879 $9,413,924 ========================================================================================== Undistributed net investment income $ 88,863 $ 11,445 - ------------------------------------------------------------------------------------------
* For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. ** Initial capital of $10,012,040 was contributed on May 11, 2006. The Fund had a decrease in net assets resulting from operations of $523,007 during the period from May 11, 2006 to May 18, 2006 (when shares became publicly available). See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 27 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. 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. On May 11, 2006, Ameriprise Financial, Inc. (Ameriprise Financial), the parent company of RiverSource Investments, LLC (the Investment Manager), invested $10,012,040* in the Fund (996,000 shares for Class A, 1,000 shares for Class B, 1,000 shares for Class C, 2,204** shares for Class I and 1,000 shares for Class R4), which represented the initial capital for each class at $10 per share. Shares of the Fund were first offered to the public on May 18, 2006. The Fund offers Class A, Class B, Class C, Class I and Class R4 shares. - - Class A shares are sold with a front-end sales charge. - - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - - Class C shares may be subject to a CDSC. - - Class I and Class R4 shares have no sales charge and are offered only to qualifying institutional investors. Effective Dec. 11, 2006, the Board approved renaming Class Y as Class R4, terminating the shareholder servicing agreement, revising the fee structure under the transfer agent agreement from account-based to asset-based, and adopting a plan administration services agreement. At July 31, 2007, Ameriprise Financial and the affiliated funds-of-funds owned 100% of Class I shares. Effective Dec. 1, 2006, the Fund offers an additional class of shares, Class W, through qualifying discretionary accounts. Class W shares are sold without a front-end sales charge or CDSC. At July 31, 2007, Ameriprise Financial and the affiliated funds-of-funds owned approximately 34% of the total outstanding Fund shares. * Includes $12,040 invested by the RiverSource Retirement Plus Funds. ** Includes 1,204 shares purchased by the RiverSource Retirement Plus Funds. - -------------------------------------------------------------------------------- 28 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g. distribution and service fees, transfer agency fees, plan administration fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board of Directors of the funds generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign equities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial will fair value foreign equity securities pursuant to procedures adopted by the Board of Directors of the funds, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Swap transactions are valued through an authorized pricing service, broker, or an internal model. 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. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 29 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. 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, 2007, 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 - -------------------------------------------------------------------------------- 30 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. At July 31, 2007, 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. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $19,501 and accumulated net realized loss has been decreased by $19,501. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 31 The tax character of distributions paid for the periods indicated is as follows:
YEAR ENDED PERIOD ENDED JULY 31, 2007 JULY 31, 2006(A) - --------------------------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income.................... $51,227 $-- Long-term capital gain............. -- -- CLASS B Distributions paid from: Ordinary income.................... 1,714 -- Long-term capital gain............. -- -- CLASS C Distributions paid from: Ordinary income.................... 180 -- Long-term capital gain............. -- -- CLASS I Distributions paid from: Ordinary income.................... 86,805 -- Long-term capital gain............. -- -- CLASS R4(B) Distributions paid from: Ordinary income.................... 57 -- Long-term capital gain............. -- -- CLASS W(C) Distributions paid from: Ordinary income.................... 25 N/A Long-term capital gain............. -- N/A
(a) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (b) Effective Dec. 11, 2006, Class Y was renamed Class R4. (c) For the period from Dec. 1, 2006 (inception date) to July 31, 2007. At July 31, 2007, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.............................. $ 88,863 Undistributed accumulated long-term gain................... $ -- Accumulated realized loss.................................. $ (121,627) Unrealized appreciation (depreciation)..................... $(7,658,828)
RECENT ACCOUNTING PRONOUNCEMENTS On Sept. 20, 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of SFAS 157 is required for fiscal years - -------------------------------------------------------------------------------- 32 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT beginning after Nov. 15, 2007 and interim periods within those fiscal years. The impact of SFAS 157 on the Fund's financial statements is being evaluated. In June 2006, the FASB issued FASB Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after Dec. 15, 2006. Tax positions of the Fund are being evaluated to determine the impact, if any, to the Fund. The adoption of FIN 48 is not anticipated to have a material impact on the Fund. DIVIDENDS TO SHAREHOLDERS An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES Under an Investment Management Services Agreement, 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 based on a comparison of the performance of Class A shares of the Fund to 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 fee by $17,062 for the year ended July 31, 2007. The management fee for the year ended July 31, 2007, was 0.66% of the Fund's average daily net assets, including an adjustment under the terms of the performance incentive adjustment. Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 33 average daily net assets that declines from 0.06% to 0.03% annually as the Fund's assets increase. Other expenses in the amount of $863 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 Funds and the Board. 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. Professional fees include fees include fees paid by the Fund for legal services and independent registered public accounting firm services. Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: - - Class A $19.50 - - Class B $20.50 - - Class C $20.00 Effective Dec. 11, 2006, as part of the Board's approval to rename Class Y as Class R4, the fee structure under the Transfer Agency Agreement was revised from an account-based fee for Class Y to an asset-based fee for Class R4. The Fund pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R4 shares. Prior to Dec. 11, 2006, the Fund paid the Transfer Agent an annual account-based fee of $17.50 per shareholder account. In addition, the Fund pays the Transfer Agent an annual asset-based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. Prior to Dec. 11, 2006, Class I paid a transfer agency fee at an annual rate per shareholder account of $1. Effective Dec. 11, 2006, this fee was eliminated. - -------------------------------------------------------------------------------- 34 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 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. The Fund has agreements with Ameriprise Financial Services, Inc. and RiverSource Distributors, Inc. (collectively, the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A 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. Effective Dec. 11, 2006, a Plan Administration Services Agreement was adopted for the restructured Class R4. The fee is calculated at a rate of 0.25% of the Fund's average daily net assets attributable to Class R4 shares. Prior to Dec 11, 2006, under a Shareholder Service Agreement, the Fund paid the Distributor a fee for service provided to shareholders by the Distributor and other servicing agents with respect to Class Y shares. The fee was calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Effective Dec. 11, 2006, this agreement was terminated. Sales charges received by the Distributor for distributing Fund shares were $55,860 for Class A and $5 for Class C for the year ended July 31, 2007. In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. For the year ended July 31, 2007, the Investment Manager and its affiliates waived certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment, were 1.29% for Class A, 2.06 % for Class B, 2.06% for Class C, 1.15% for Class R4 and 1.32% for Class W. Of these waived fees and expenses, the transfer agency fees waived for Class R4 and Class W were $8 and $5,488, respectively, and the management fees waived at the Fund level were $65,127. Under an agreement, which was effective until July 31, 2007, 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 1.36% for Class A, 2.13% for Class B, 2.13% for Class C, 1.01% for Class I, 1.19% for Class R4 and 1.36% for Class W of the Fund's average daily net assets. Effective Aug. 1, 2007, - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 35 the Investment Manager and its affiliates have 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, will not exceed 1.36% for Class A, 2.12 % for Class B, 2.12% for Class C, 0.96% for Class I, 1.23% for Class R4 and 1.41% for Class W of the Fund's average daily net assets, until July 31, 2008, unless sooner terminated at the discretion of the Board. During the year ended July 31, 2007, the Fund's custodian and transfer agency fees were reduced by $3,850 as a result of earnings and bank fee credits from overnight cash balances. The Fund also pays custodian fees to Ameriprise Trust Company, an affiliate of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $142,075,573 and $33,333,386, respectively, for the year ended July 31, 2007. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
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(a) 421 1 -- 422 Class W(b) 7,145,709 -- (1,166,290) 5,979,419 - ----------------------------------------------------------------------------------------
PERIOD ENDED JULY 31, 2006(C) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------- Class A 43,096 -- -- 43,096 Class B 5,146 -- (1,986) 3,160 Class C -- -- -- -- Class I 4,815 -- (210) 4,605 Class R4(a) 164 -- -- 164 - ----------------------------------------------------------------------------------------
(a) Effective Dec. 11, 2006, Class Y was renamed Class R4. (b) For the period from Dec. 1 2006 (inception date) to July 31, 2007. (c) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. - -------------------------------------------------------------------------------- 36 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 5. STOCK INDEX FUTURES CONTRACTS At July 31, 2007, investments in securities included securities valued at $410,160 that were pledged as collateral to cover initial margin deposits on 45 open purchase contracts. The notional market value of the open purchase contracts at July 31, 2007 was $3,635,100 with a net unrealized loss of $88,460. See "Summary of significant accounting policies" and " Notes to investments in securities." 6. 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. Cost of purchases and proceeds from sales of securities aggregated $80,827,100 and $79,067,313, respectively, for the year ended July 31, 2007. 7. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 19, 2006. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Prior to this agreement, the Fund paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. The Fund had no borrowings under the facility outstanding during the year ended July 31, 2007. 8. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, the Fund had a capital loss carry-over of $115,029 at July 31, 2007, that if not offset by capital gains will expire as follows: 2014 2015 $93,125 $21,904
The Fund also had a post-October loss of $6,598 at July 31, 2007. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 37 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs may file a notice of appeal with the Eighth Circuit Court of Appeals within 30 days from the date of judgment. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), the parent company of RiverSource Investments, LLC (RiverSource Investments), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. In connection with these matters, the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain provisions of the federal and Minnesota securities laws by failing to adequately disclose market timing activities by allowing certain identified market timers to continue to market time contrary to disclosures in mutual fund and variable annuity product prospectuses. The Orders also alleged that AEFC failed to implement procedures to detect and prevent market timing in 401(k) plans for employees of AEFC and related companies and failed to adequately disclose that there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged that AEFC allowed inappropriate market timing to occur by failing to have written policies and procedures and failing to properly supervise its employees. As a result of the Orders, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to make presentations at least annually to its board of directors and the relevant mutual funds' board that include an overview of policies and procedures to prevent market timing, material changes to these policies and procedures and - -------------------------------------------------------------------------------- 38 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT whether disclosures related to market timing are consistent with the SEC order and federal securities laws. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In addition, AEFC agreed to complete and submit to the MDOC a compliance review of its procedures regarding market timing within one year of the MDOC Order, including a summary of actions taken to ensure compliance with applicable laws and regulations and certification by a senior officer regarding compliance and supervisory procedures. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 39 10. 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, 2007 2006(B) Net asset value, beginning of period $8.95 $9.48 - ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05(c) -- Net gains (losses) (both realized and unrealized) .59 (.53) - ------------------------------------------------------------------------------------------------------------- Total from investment operations .64 (.53) - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) -- - ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.55 $8.95 - ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $18 $9 - ------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 1.29% 1.26%(g) - ------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .52% .01%(g) - ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 84% 14% - ------------------------------------------------------------------------------------------------------------- Total return(h) 7.12% (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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 1.67% and 5.83% for the periods ended July 31, 2007 and 2006, respectively. (g) Adjusted to an annual basis. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- 40 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007 2006(B) Net asset value, beginning of period $8.93 $9.48 - ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.04)(c) (.01) Net gains (losses) (both realized and unrealized) .62 (.54) - ------------------------------------------------------------------------------------------------------------- Total from investment operations .58 (.55) - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) -- - ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.47 $8.93 - ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $-- - ------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 2.06% 2.07%(g) - ------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets (.41%) (.37%)(g) - ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 84% 14% - ------------------------------------------------------------------------------------------------------------- Total return(h) 6.43% (5.80%)(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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 2.12% and 6.64% for the periods ended July 31, 2007 and 2006, respectively. (g) Adjusted to an annual basis. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 41 CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007 2006(B) Net asset value, beginning of period $8.93 $9.48 - ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.04)(c) (.01) Net gains (losses) (both realized and unrealized) .61 (.54) - ------------------------------------------------------------------------------------------------------------- Total from investment operations .57 (.55) - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) -- - ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.47 $8.93 - ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 2.06% 2.04%(g) - ------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets (.40%) (.78%)(g) - ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 84% 14% - ------------------------------------------------------------------------------------------------------------- Total return(h) 6.37% (5.80%)(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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 2.16% and 6.61% for the periods ended July 31, 2007 and 2006, respectively. (g) Adjusted to an annual basis. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- 42 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007 2006(B) Net asset value, beginning of period $8.95 $9.48 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(c) -- Net gains (losses) (both realized and unrealized) .59 (.53) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .67 (.53) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.05) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.57 $8.95 - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $39 $-- - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e) .95% 1.01%(f),(g) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .80% .19%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 84% 14% - ----------------------------------------------------------------------------------------------------------- Total return(h) 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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class I would have been 5.58% for the period ended July 31, 2006. (g) Adjusted to an annual basis. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 43 CLASS R4*
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007 2006(B) Net asset value, beginning of period $8.95 $9.48 - ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07(c) -- Net gains (losses) (both realized and unrealized) .58 (.53) - ------------------------------------------------------------------------------------------------------------- Total from investment operations .65 (.53) - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) -- - ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.56 $8.95 - ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 1.15% 1.12%(g) - ------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .71% .21%(g) - ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 84% 14% - ------------------------------------------------------------------------------------------------------------- Total return(h) 7.30% (5.59%)(i) - -------------------------------------------------------------------------------------------------------------
* Effective Dec. 11, 2006, Class Y was renamed Class R4. (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class R4 would have been 1.68% and 5.69% for the periods ended July 31, 2007 and 2006, respectively. (g) Adjusted to an annual basis. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- 44 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007(B) Net asset value, beginning of period $9.79 - ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) --(c) Net gains (losses) (both realized and unrealized) (.20) - ------------------------------------------------------------------------------------------------------------- Total from investment operations (.20) - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.05) - ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.54 - ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $57 - ------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 1.32%(g) - ------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .03%(g) - ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 84% - ------------------------------------------------------------------------------------------------------------- Total return(h) (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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class W would have been 1.60% for the period ended July 31, 2007. (g) Adjusted to an annual basis. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 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 schedule of investments in securities, 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, 2007, and the related statement of operations, statement of changes in net assets and financial highlights for the year 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 audit. The financial statements and financial highlights of the Fund for the periods presented through July 31, 2006, were audited by other auditors whose report dated September 20, 2006, expressed an unqualified opinion on those financial statements and financial highlights. We conducted our audit 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 audit 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, 2007, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2007 financial statements and financial highlights 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, 2007, the results of its operations, the changes in its net assets and the financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP Minneapolis, Minnesota September 20, 2007 - -------------------------------------------------------------------------------- 46 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 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, 2007 CLASS A
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 100.00% Dividends Received Deduction for corporations......... 100.00%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.03891
CLASS B
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 100.00% Dividends Received Deduction for corporations......... 100.00%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.03561
CLASS C
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 100.00% Dividends Received Deduction for corporations......... 100.00%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.02985
CLASS I
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 100.00% Dividends Received Deduction for corporations......... 100.00%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.05161
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 47 CLASS R4*
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 100.00% Dividends Received Deduction for corporations......... 100.00%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.04499
CLASS W
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 100.00% Dividends Received Deduction for corporations......... 100.00%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.04967
* Effective Dec. 11, 2006, Class Y was renamed Class R4. - -------------------------------------------------------------------------------- 48 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 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 102 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. INDEPENDENT BOARD MEMBERS
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------- Kathleen Blatz Board member Chief Justice, Minnesota Supreme 901 S. Marquette Ave. since 2006 Court, 1998-2005 Minneapolis, MN 55402 Age 53 - ----------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, RiverSource Funds, 901 S. Marquette Ave. since 1999 1999-2006; former Governor of Minneapolis, MN 55402 Minnesota Age 73 - ----------------------------------------------------------------------------------------------------- Pamela G. Carlton Board member President, Springboard -- Partners 901 S. Marquette Ave. since 2007 in Cross Cultural Leadership Minneapolis, MN 55402 (consulting company) Age 52 - ----------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics and 901 S. Marquette Ave. since 2004 Management, Bentley College; former Minneapolis, MN 55402 Dean, McCallum Graduate School of Age 56 Business, Bentley College - ----------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 72 - ----------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive 901 S. Marquette Ave. since 2005 Asset Management Insurance Minneapolis, MN 55402 Age 71 - ----------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries, 901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures Minneapolis, MN 55402 Chair of the irrigation systems) Age 68 Board since 2007 - -----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 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 Strategic 901 S. Marquette Ave. since 2004 Management, Inc. (private real Distribution, Inc. Minneapolis, MN 55402 estate and asset management (transportation, Age 55 company) distribution and logistics consultants) - ----------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer, RiboNovix, Hybridon, Inc. 901 S. Marquette Ave. since 2002 Inc. since 2003 (biotechnology); (biotechnology); Minneapolis, MN 55402 former President, Forester Biotech American Healthways, Age 63 Inc. (health management programs) - -----------------------------------------------------------------------------------------------------
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 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; President, Ameriprise Certificate Company since 2006; Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 - -----------------------------------------------------------------------------------------------------
* 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 -- 2007 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 Senior Vice President -- Asset Management, 172 Ameriprise 2006 RiverSource Investments, LLC since 2006; Financial Center Managing Director and Global Head of Product, Minneapolis, MN 55474 Morgan Stanley Investment Management, Age 41 2004-2006; President, Touchstone Investments, 2002-2004; Director of Strategic Planning, Evergreen Investments, 1995-2002 - ------------------------------------------------------------------------------------------ Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed 172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and Financial Center RiverSource Investments, LLC since 2006; Vice Minneapolis, MN 55474 President -- Investments, Ameriprise Age 43 Certificate Company since 2003; Senior Vice President -- Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006; Managing Director, Zurich Global Assets, 2001-2002 - ------------------------------------------------------------------------------------------ Amy K. Johnson Vice President Vice President -- Asset Management and Trust 5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC Financial Center since 2006; Vice President -- Operations and Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC, Age 41 2004-2006; Director of Product Development -- Mutual Funds, Ameriprise Financial, Inc., 2001-2004 - ------------------------------------------------------------------------------------------ Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting, 105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Vice Financial Center President -- Finance, American Express Minneapolis, MN 55474 Company, 2000-2002 Age 52 - ------------------------------------------------------------------------------------------ Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset 5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since Financial Center and Secretary 2005; Vice President, General Counsel and Minneapolis, MN 55474 since 2006 Secretary, Ameriprise Certificate Company Age 47 since 2005; Vice President -- Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, U.S. Bancorp Asset Management, 2002-2004; Second Vice President and Assistant General Counsel, Hartford Life, 2001-2002 - ------------------------------------------------------------------------------------------ Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance 172 Ameriprise Officer since Officer, RiverSource Investments, LLC since Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset Minneapolis, MN 55474 Management, 2003-2006; Director of Finance, Age 46 Voyageur Asset Management, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 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 43 Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 52 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments, LLC ("RiverSource"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), serves as the investment manager to the Fund. Under an investment management services agreement (the "IMS Agreement") RiverSource provides investment advice and other services to the Fund and all RiverSource funds (collectively, the "Funds"). The Fund's Board of Directors (the "Board") and the Board's Investment Review and Contracts Committees monitor these services throughout the year. On an annual basis, the Board, including the independent Board members (the "Independent Directors"), considers renewal of the IMS Agreement. RiverSource prepares detailed reports for the Board and its Contracts Committee in March and April, including reports based on data provided by independent organizations to assist the Board in making this determination. In addition, throughout the year, the Board (or its committees) reviews information prepared by RiverSource addressing the services RiverSource provides and Fund performance. The Board accords particular weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the IMS Agreement. At the April 11-12, 2007 in-person Board meeting, independent legal counsel to the Independent Directors reviewed with the Independent Directors various factors relevant to the Board's consideration of advisory agreements and the Board's legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Directors, approved renewal of the IMS Agreement. Nature, Extent and Quality of Services Provided by RiverSource: The Board analyzed various reports and presentations it had received detailing the services performed by RiverSource, as well as its expertise, resources and capabilities. The Board specifically considered many developments during the past year concerning the services provided by RiverSource, including, in particular, the growing strength and capabilities of many RiverSource offices and the increased investment and resources dedicated to the Fund's operations, particularly in the areas of trading systems, legal and compliance. Further, in connection with the Board's evaluation of the overall package of services provided by RiverSource, the Board considered the quality of the administrative, custody and transfer agency services provided by RiverSource affiliates to the Fund. The Board also reviewed the financial condition of RiverSource and the 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). The Board concluded that the services being performed under the IMS Agreement were of a reasonably high quality. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 53 Based on the foregoing, and based on other information received (both oral and written, including the information on investment performance referenced below) and other considerations, the Board determined that RiverSource was in a position to continue to provide a high quality and level of services to the Fund. Investment Performance: The Board observed that the Fund launched in May 2006. 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) and recent Fund inflows (and outflows). The Board observed that the Fund's investments reflected the interrelationship of particular market conditions with the specific management style employed by the portfolio management team. Comparative Fees, Costs of Services Provided and the Profits Realized By RiverSource and its Affiliates from their Relationships with the Fund: The Board reviewed comparative fees and the costs of services to be provided under the 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's profitability. The Board accorded particular weight to the notion that the level of fees should reflect a rational pricing model applied consistently across the various product lines in the Funds' family, while assuring that the overall fees for each fund are generally in line with the "pricing philosophy" (i.e., that the total expense ratio of each fund, with few exceptions, is at or below the median expense ratio of funds in the same comparison group). The Board took into account that the Fund's total expense ratio (after considering proposed expense caps/waivers) was below the peer group's median expense ratio shown in the reports. Based on its review, the Board concluded that the Fund's management fee was fair and reasonable in light of the extent and quality of services that the Fund receives. The Board also considered the expected profitability of RiverSource and its affiliates in connection with RiverSource providing investment management services to the Fund. In this regard, the Board referred to a detailed profitability report, discussing the profitability to RiverSource and Ameriprise Financial from managing and operating the Fund, including data showing comparative profitability. 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 - -------------------------------------------------------------------------------- 54 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT investment manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. The Board concluded that profitability levels were reasonable. Economies of Scale to be Realized: The Board also considered the economies of scale that might be realized by RiverSource as the Fund grows and took note of the extent to which Fund shareholders might also benefit from such growth. The Board considered that the IMS Agreement provides for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. Based on the foregoing, the Board, including all of the Independent Directors, concluded that the investment management service fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was determinative. On April 12, 2007, the Board, including all of the Independent Directors, approved the renewal of the 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. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM On April 12, 2007, Ernst & Young LLP was selected as the Fund's independent registered public accounting firm for the 2007 fiscal year. A majority of the Fund's Board of Directors, including a majority of the Independent Directors, approved the appointment of Ernst & Young LLP. The predecessor independent registered public accounting firm's reports on the Fund's financial statements for the year ended July 31, 2006 and the year ended July 31, 2005 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During such fiscal periods and through April 12, 2007 there were no disagreements between the Fund and the predecessor independent registered public accounting firm on any matter of - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT 55 accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which such disagreements, if not resolved to the satisfaction of the predecessor independent registered public accounting firm, would have caused them to make reference to the subject matter of the disagreement in connection with their reports on the financial statements for such fiscal periods. - -------------------------------------------------------------------------------- 56 RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND -- 2007 ANNUAL REPORT RIVERSOURCE(R) 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. and Ameriprise Financial Services, Inc., Members FINRA, and managed by (RIVERSOURCE INVESTMENTS RiverSource Investments, LLC. These companies are part of LOGO) Ameriprise Financial, Inc. S-6505 D (9/07)
Annual Report and Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE(R) DISCIPLINED SMALL CAP VALUE FUND ANNUAL REPORT FOR THE PERIOD ENDED JULY 31, 2007 (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. TABLE OF CONTENTS Fund Snapshot....................... 3 Performance Summary................. 5 Questions & Answers with Portfolio Management........ 8 The Fund's Long-term Performance ... 12 Fund Expenses Example............... 14 Investments in Securities........... 17 Financial Statements................ 25 Notes to Financial Statements....... 31 Report of Independent Registered Public Accounting Firm........... 51 Federal Income Tax Information...... 53 Board Members and Officers.......... 56 Approval of Investment Management Services Agreement............... 60 Proxy Voting........................ 62 Change in Independent Registered Public Accounting Firm........... 62
(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. - -------------------------------------------------------------------------------- 2 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT FUND SNAPSHOT AT JULY 31, 2007 FUND OBJECTIVE RiverSource Disciplined Small Cap Value Fund seeks to provide shareholders with long-term capital growth. SECTOR BREAKDOWN* Percentage of portfolio assets (PIE CHART) Financials 24.0% Consumer Discretionary 18.7% Industrials 16.1% Information Technology 11.1% Materials 9.5% Energy 6.4% Other(1) 14.2%
* Sectors can be comprised of several industries. Please refer to the section entitled "Investments in Securities" for a complete listing. No single industry exceeds 25% of portfolio assets. (1) Includes Consumer Staples 4.3%, Health Care 3.9%, Telecommunication Services 1.3%, Utilities 1.0% and Cash & Cash Equivalents 3.7%. TOP TEN HOLDINGS Percentage of portfolio assets Ohio Casualty 1.6% Aspen Insurance Holdings 1.5% LandAmerica Financial Group 1.0% First BanCorp 1.0% Quanex 0.9% Genco Shipping & Trading 0.8% ArvinMeritor 0.8% USEC 0.7% Ryerson 0.7% Schnitzer Steel Inds Cl A 0.7%
For further detail about these holdings, please refer to the section entitled "Investments in Securities." The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. 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 -- 2007 ANNUAL REPORT 3 FUND SNAPSHOT AT JULY 31, 2007 STYLE MATRIX
STYLE VALUE BLEND GROWTH LARGE MEDIUM SIZE X SMALL
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGERS
YEARS IN INDUSTRY Dimitris Bertsimas, Ph.D. 14 Gina Mourtzinou, Ph.D. 11 Steve Kokkotos, Ph.D. 9
FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A -- 02/16/06 Class B -- 02/16/06 Class C -- 02/16/06 Class I -- 02/16/06 Class R2 -- 12/11/06 Class R3 -- 12/11/06 Class R4(1) RSDVX 02/16/06 Class R5 -- 12/11/06 (1) Effective Dec. 11, 2006, Class Y was renamed Class R4. Total net assets $39.4 million Number of holdings 351
- -------------------------------------------------------------------------------- 4 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT PERFORMANCE SUMMARY PERFORMANCE COMPARISON For the year ended July 31, 2007 (BAR CHART) RiverSource Disciplined Small Cap Value Fund Class A (excluding sales charge) +4.29 Russell 2000 Value Index (unmanaged) +7.67 Lipper Small-Cap Value Funds Index +13.52
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 1.73% 1.35% Class B 2.38% 2.11% Class C 2.47% 2.10% Class I 1.19% 0.97% Class R2(b) 1.85% 1.77% Class R3(b) 1.60% 1.52% Class R4(c) 1.90% 1.27% Class R5(b) 1.10% 1.02%
(a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment (that decreased the management fee by 0.05%) will not exceed 1.40% for Class A, 2.16% for Class B, 2.15% for Class C, 1.02% for Class I, 1.82% for Class R2, 1.57% for Class R3, 1.32% for Class R4 and 1.07% for Class R5. (b) Inception date for Class R2, Class R3 and Class R5 is Dec. 11, 2006, expenses are based on estimated amounts for the current fiscal year. (c) Effective Dec. 11, 2006, Class Y was renamed Class R4. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 5 PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS
AT JULY 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 2/16/06) +4.29% -0.14% Class B (inception 2/16/06) +3.51% -1.01% Class C (inception 2/16/06) +3.51% -0.94% Class I (inception 2/16/06) +4.69% +0.13% Class R2 (inception 12/11/06) N/A -7.40%* Class R3 (inception 12/11/06) N/A -7.21%* Class R4** (inception 2/16/06) +4.42% -0.06% Class R5 (inception 12/11/06) N/A -6.93%* WITH SALES CHARGE Class A (inception 2/16/06) -1.71% -4.14% Class B (inception 2/16/06) -1.49% -3.70% Class C (inception 2/16/06) +2.51% -0.94%
- -------------------------------------------------------------------------------- 6 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT PERFORMANCE SUMMARY
AT JUNE 30, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 2/16/06) +10.60% +7.26% Class B (inception 2/16/06) +9.65% +6.36% Class C (inception 2/16/06) +9.75% +6.43% Class I (inception 2/16/06) +10.91% +7.56% Class R2 (inception 12/11/06) N/A +2.25%* Class R3 (inception 12/11/06) N/A +2.35%* Class R4** (inception 2/16/06) +10.63% +7.36% Class R5 (inception 12/11/06) N/A +2.64%* WITH SALES CHARGE Class A (inception 2/16/06) +4.24% +2.71% Class B (inception 2/16/06) +4.65% +3.48% Class C (inception 2/16/06) +8.75% +6.43%
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. * Not annualized. ** Effective Dec. 11, 2006, Class Y was renamed Class R4. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 7 QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, portfolio managers Dimitris Bertsimas, Gina Mourtzinou and Steve Kokkotos discuss RiverSource Disciplined Small Cap Value Fund's positioning and results for the 12-month period ended July 31, 2007. At July 31, 2007, approximately 64% 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 39, 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 14 and 36. Q: How did RiverSource Disciplined Small Cap Value Fund perform for the annual period? A: RiverSource Disciplined Small Cap Value Fund's Class A shares (excluding sales charge) returned 4.29% for the 12-month period ended July 31, 2007. The Fund underperformed its benchmark, the unmanaged Russell 2000(R) Value Index (Russell Index), which gained 7.67%, as well as the Lipper Small-Cap Value Funds Index, representing the Fund's peer group, which returned 13.52%, for the same period. BECAUSE OF OUR INVESTMENT PROCESS, MOST OF THE FUND'S UNDERPERFORMANCE RESULTED FROM STOCK SELECTION. Q: What factors most significantly affected the Fund's performance? A: The Fund's performance resulted from the three quantitative investment models -- momentum, value and quality -- we employ in selecting stocks for the Fund's portfolio. The momentum model identifies stocks we believe will experience improved 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 believe 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 portfolio. We then weight the models and determine the - -------------------------------------------------------------------------------- 8 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT QUESTIONS & ANSWERS exposure to sectors and industries. During the reporting period, the momentum model outperformed the Russell Index, but the quality model underperformed. The value model also underperformed through March 2007, when we expanded the valuation measures we use within the model. Subsequently, the value model outperformed the Russell Index, but it was not enough to offset the detracting effect of its underperformance earlier in the fiscal year. While the Fund may experience underperformance in the short term, our research has shown that the style diversification provided by the three very different quantitative models is an investment advantage, which may lead to long-term outperformance. During the period, the Fund's greater-than-Russell Index positions in consumer discretionary, materials, consumer staples, industrials and telecommunication services and its lesser-than-Russell Index allocations to health care, energy, financials and utilities all contributed positively to its results relative to the Russell Index. From a sector allocation perspective, the only detractor was the Fund's modest exposure to the strongly performing information technology sector. Because of our investment process, most of the Fund's underperformance resulted from stock selection, which helped performance in the materials, telecommunication services and industrials sectors. However, these positives were not enough to outweigh our selections within financials, consumer discretionary and information technology, which detracted from Fund performance. Some stocks that contributed favorably to the Fund's return included financial commercial services and supply company Deluxe (selected by the value model), telecommunication services company Cogent Communications (momentum model), insurance company Ohio Casualty (quality and revised value model) and materials company Terra Industries (momentum model). Among individual holdings, the stocks that detracted most from the Fund's results were in the financials sector. These included New Century Financial (selected by all three models but then sold in March when we revised the value model), American Home Mtge Investment (value and quality models), W Holding (value and quality models), Fremont General (value and quality models) and Accredited Home Lenders (value model). - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 9 QUESTIONS & ANSWERS At the end of July, the Fund's largest individual stock holdings included three insurance companies: Ohio Casualty, Aspen Insurance Holdings (selected by value and quality models) and LandAmerica Financial Group (all three models). Other top holdings at the end of the period were commercial bank First BanCorp (value and quality models) and metals and mining company Quanex (all three models). 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 from the Russell Index. Q: What changes did you make to the Fund's portfolio during the period? A: Based on an extensive look we took at our quantitative models, in March 2007, we expanded and improved the measures we use in our value model. Also, because diversification is an effective element of risk management, we increased the number of holdings in the portfolio during the annual period from 250 to 351. Finally, as a result of quantitative models-driven stock selection during the period, the portfolio's sector allocations changed somewhat. For example, the Fund's exposure to energy relative to the Russell Index increased, while its position in financials decreased. Overall portfolio turnover was 127% for the 12 months. BASED ON AN EXTENSIVE LOOK WE TOOK AT OUR QUANTITATIVE MODELS, IN MARCH 2007, WE EXPANDED AND IMPROVED THE MEASURES WE USE IN OUR VALUE MODEL. - -------------------------------------------------------------------------------- 10 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT QUESTIONS & ANSWERS Q: How do you intend to manage the Fund in the coming months? A: We believe our use of multiple investment disciplines serves the Fund well in all investment environments over the long term, and the portfolio may be well positioned for any potential market condition. 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 over extended periods of time. We are equally convinced that our multifaceted, disciplined approach may assist in controlling 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. 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 -- 2007 ANNUAL REPORT 11 THE FUND'S LONG-TERM PERFORMANCE The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Disciplined Small Cap Value Fund Class A shares (from 3/1/06 to 7/31/07)* 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 data is from March 1, 2006. COMPARATIVE RESULTS
SINCE Results at July 31, 2007 1 YEAR INCEPTION(3) RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,839 $9,405 Average annual total return -1.61% -4.14% RUSSELL 2000 VALUE INDEX(1) Cumulative value of $10,000 $10,767 $10,831 Average annual total return +7.67% +5.82% LIPPER SMALL-CAP VALUE FUNDS INDEX(2) Cumulative value of $10,000 $11,352 $11,116 Average annual total return +13.52% +7.76%
Results for other share classes can be found on page 6. - -------------------------------------------------------------------------------- 12 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 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 (INCLUDES SALES CHARGE) RUSSELL 2000 VALUE INDEX(1) LIPPER SMALL-CAP VALUE FUNDS ($9,405) ($10,831) INDEX(2) ($11,116) ----------------------------- --------------------------- ---------------------------- 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) 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 data is from March 1, 2006. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 13 FUND EXPENSES EXAMPLE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds expense ratio as of the most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended July 31, 2007. ACTUAL EXPENSES The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 14 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED FEB. 1, 2007 JULY 31, 2007 THE PERIOD(A) EXPENSE RATIO Class A Actual(b) $1,000 $909.90 $6.68(c) 1.41% Hypothetical (5% return before expenses) $1,000 $1,017.80 $7.05(c) 1.41% Class B Actual(b) $1,000 $906.60 $10.21(c) 2.16% Hypothetical (5% return before expenses) $1,000 $1,014.08 $10.79(c) 2.16% Class C Actual(b) $1,000 $906.60 $10.12(c) 2.14% Hypothetical (5% return before expenses) $1,000 $1,014.18 $10.69(c) 2.14% Class I Actual(b) $1,000 $911.80 $5.07(c) 1.07% Hypothetical (5% return before expenses) $1,000 $1,019.49 $5.36(c) 1.07% Class R2 Actual(b) $1,000 $908.00 $8.47(c) 1.79% Hypothetical (5% return before expenses) $1,000 $1,015.92 $8.95(c) 1.79% Class R3 Actual(b) $1,000 $909.00 $7.29(c) 1.54% Hypothetical (5% return before expenses) $1,000 $1,017.16 $7.70(c) 1.54% Class R4* Actual(b) $1,000 $909.90 $5.92(c) 1.25% Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.26(c) 1.25%
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 15
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED FEB. 1, 2007 JULY 31, 2007 THE PERIOD(A) EXPENSE RATIO Class R5 Actual(b) $1,000 $911.70 $4.93(c) 1.04% Hypothetical (5% return before expenses) $1,000 $1,019.64 $5.21(c) 1.04%
* Effective Dec. 11, 2006, Class Y was renamed Class R4. (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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended July 31, 2007: -9.01% for Class A, -9.34% for Class B, -9.34% for Class C, -8.82% for Class I, -9.20% for Class R2, -9.10% for Class R3, -9.01% for Class R4 and -8.83%. for Class R5. (c) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2008, unless sooner terminated at the discretion of the Fund's Board, such that net expenses, (excluding fees and expenses of acquired funds) before giving effect to any performance incentive adjustment, will not exceed 1.40% for Class A, 2.16% for Class B, 2.15% for Class C, 1.02% for Class I, 1.82% for Class R2, 1.57% for Class R3, 1.32% for Class R4 and 1.07% for Class R5. Any amounts waived will not be reimbursed by the Fund. This change was effective Aug. 1, 2007. If this change had been in place for the entire six month period ended July 31, 2007, the actual expenses paid would have been $6.33 for Class A, $9.91 for Class B, $9.87 for Class C, $4.55 for Class I, $8.32 for R2, $7.14 for Class R3, $5.96 for Class R4 and $4.78 for Class R5; the hypothetical expenses paid would have been $6.69 for Class A, $10.47 for Class B, $10.43 for Class C, $4.81 for Class I, $8.79 for R2, $7.54 for Class R3, $6.30 for Class R4 and $5.05 for Class R5. - -------------------------------------------------------------------------------- 16 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT INVESTMENTS IN SECURITIES JULY 31, 2007 (Percentages represent value of investments compared to net assets)
COMMON STOCKS (99.6%) ISSUER SHARES VALUE(A) AEROSPACE & DEFENSE (1.1%) AAR 2,889(b) $86,179 Ceradyne 1,287(b) 96,049 Curtiss-Wright 1,152 50,193 Ladish 3,135(b) 152,015 Triumph Group 662 50,451 --------------- Total 434,887 - ----------------------------------------------------------------------------------- AIR FREIGHT & LOGISTICS (0.5%) Atlas Air Worldwide Holdings 1,855(b) 100,559 Park-Ohio Holdings 3,209(b) 79,712 --------------- Total 180,271 - ----------------------------------------------------------------------------------- AIRLINES (1.2%) Alaska Air Group 7,690(b) 179,408 ExpressJet Holdings 13,333(b) 69,732 SkyWest 9,840 219,530 --------------- Total 468,670 - ----------------------------------------------------------------------------------- AUTO COMPONENTS (3.6%) Aftermarket Technology 3,450(b) 104,708 American Axle & Mfg Holdings 8,175 197,835 ArvinMeritor 16,201 321,265 Cooper Tire & Rubber 7,952 182,816 Exide Technologies 3,662(b) 26,696 Modine Mfg 8,428 215,757 Sauer-Danfoss 2,414 65,782 Standard Motor Products 7,371 91,769 Superior Inds Intl 4,370 80,845 Tenneco 2,734(b) 96,510 Visteon 7,633(b) 49,004 --------------- Total 1,432,987 - ----------------------------------------------------------------------------------- BIOTECHNOLOGY (1.0%) Immunomedics 38,698(b) 111,450 Incyte 11,676(b) 62,116 InterMune 3,453(b) 73,722 Isis Pharmaceuticals 8,779(b) 91,389 XOMA 20,316(b) 41,851 --------------- Total 380,528 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) BUILDING PRODUCTS (0.5%) Ameron Intl 634 $62,024 Gibraltar Inds 2,132 41,169 Universal Forest Products 2,588 102,381 --------------- Total 205,574 - ----------------------------------------------------------------------------------- CAPITAL MARKETS (2.2%) Apollo Investment 11,312 238,571 Capital Southwest 840(d) 113,854 Cowen Group 2,348(b) 33,717 Knight Capital Group Cl A 6,352(b) 89,817 MCG Capital 7,447 107,758 MVC Capital 2,993 48,397 SWS Group 9,559 168,716 Technology Investment Capital 5,364 73,540 --------------- Total 874,370 - ----------------------------------------------------------------------------------- CHEMICALS (3.8%) Calgon Carbon 4,608(b) 50,688 CF Inds Holdings 4,351 250,096 Georgia Gulf 5,337 86,406 Innospec 7,370(c) 202,896 Minerals Technologies 1,458 94,289 Olin 11,018 229,946 Pioneer Companies 1,679(b) 58,093 PolyOne 20,728(b) 155,875 Rockwood Holdings 2,814(b) 97,336 Tronox Cl B 3,361 41,340 WR Grace & Co 11,594(b) 239,416 --------------- Total 1,506,381 - ----------------------------------------------------------------------------------- COMMERCIAL BANKS (6.1%) BancFirst 4,904 198,171 Chemical Financial 8,169 177,921 Community Trust Bancorp 6,516 186,879 Farmers Capital Bank 3,336 100,647 First BanCorp 45,562(c) 419,170 FirstMerit 8,256 151,332 Glacier Bancorp 3,678 70,066
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 17
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) COMMERCIAL BANKS (CONT.) MainSource Financial Group 8,285 $129,080 Sterling Financial 12,027 201,212 Susquehanna Bancshares 11,370 196,701 Trustmark 7,888(d) 197,437 UMB Financial 5,207 194,429 W Holding 86,156(c) 190,405 --------------- Total 2,413,450 - ----------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES (2.9%) ABM Inds 3,501 88,085 AMREP 1,299 53,519 CDI 4,276 120,968 Deluxe 1,832 69,176 Ennis 3,174 64,051 Exponent 4,298(b) 97,865 Heidrick & Struggles Intl 2,811(b) 151,064 IKON Office Solutions 7,221 100,083 Kelly Services Cl A 2,029 50,421 On Assignment 6,548(b) 65,676 PHH 3,814(b) 111,140 Pike Electric 2,486(b) 49,347 Spherion 3,679(b) 32,486 Tetra Tech 4,484(b) 94,299 --------------- Total 1,148,180 - ----------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT (1.9%) Andrew 6,072(b) 85,372 ARRIS Group 8,915(b) 132,121 Black Box 1,969 79,252 Dycom Inds 4,309(b) 120,437 Extreme Networks 17,821(b) 72,353 Foundry Networks 5,512(b) 96,956 Loral Space & Communications 2,466(b) 102,068 Plantronics 1,721 48,222 --------------- Total 736,781 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) COMPUTERS & PERIPHERALS (1.7%) Adaptec 14,241(b) $49,844 Hutchinson Technology 3,508(b) 70,370 Imation 4,278 133,816 Immersion 4,753(b) 74,099 Komag 4,686(b) 149,999 Palm 7,176(b) 107,066 Quantum 25,758(b) 72,895 --------------- Total 658,089 - ----------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING (0.5%) EMCOR Group 2,030(b) 72,877 Perini 1,881(b) 115,512 --------------- Total 188,389 - ----------------------------------------------------------------------------------- CONSTRUCTION MATERIALS (0.7%) Headwaters 7,384(b) 119,104 Texas Inds 827 65,176 U.S. Concrete 11,336(b) 86,040 --------------- Total 270,320 - ----------------------------------------------------------------------------------- CONSUMER FINANCE (0.3%) Cash America Intl 3,489 127,767 - ----------------------------------------------------------------------------------- CONTAINERS & PACKAGING (0.6%) Rock-Tenn Cl A 2,852 87,613 Silgan Holdings 2,727 140,768 --------------- Total 228,381 - ----------------------------------------------------------------------------------- DISTRIBUTORS (0.3%) Building Materials Holding 7,987 110,939 - ----------------------------------------------------------------------------------- DIVERSIFIED CONSUMER SERVICES (0.2%) INVESTools 8,938(b) 88,665 - ----------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES (0.6%) Interactive Brokers Group Cl A 2,785(b) 67,620 Primus Guaranty 10,274(b,c) 97,603 Resource America Cl A 3,467 51,970 --------------- Total 217,193 - -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 18 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) DIVERSIFIED TELECOMMUNICATION SERVICES (0.9%) Golden Telecom 2,909(c) $187,776 SureWest Communications 2,422 65,370 Time Warner Telecom Cl A 4,535(b,d) 88,659 --------------- Total 341,805 - ----------------------------------------------------------------------------------- ELECTRIC UTILITIES (0.4%) Central Vermont Public Service 2,839 96,526 Westar Energy 1,916 44,106 --------------- Total 140,632 - ----------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT (1.3%) Acuity Brands 2,344 138,530 Encore Wire 3,862 117,984 GrafTech Intl 7,224(b) 111,900 Lamson & Sessions 3,438(b) 76,117 Superior Essex 1,448(b) 50,463 --------------- Total 494,994 - ----------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS (3.0%) Agilysys 9,664 185,645 Anixter Intl 946(b) 78,187 Benchmark Electronics 7,065(b) 156,843 Brightpoint 5,784(b) 75,944 Insight Enterprises 5,122(b) 115,552 L-1 Identity Solutions 4,908(b) 84,123 Methode Electronics 4,543 73,460 OSI Systems 3,611(b) 89,408 PC Connection 5,258(b) 70,668 Plexus 4,919(b) 119,286 Rofin-Sinar Technologies 787(b) 51,210 SYNNEX 3,552(b) 72,177 --------------- Total 1,172,503 - ----------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (3.1%) Allis-Chalmers Energy 2,727(b) 65,448 Bristow Group 1,547(b) 73,374 Bronco Drilling 4,773(b) 69,209 Dawson Geophysical 2,182(b) 119,159 Grey Wolf 24,111(b) 178,663 GulfMark Offshore 3,074(b) 144,417 Hornbeck Offshore Services 966(b) 41,586
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) ENERGY EQUIPMENT & SERVICES (CONT.) Oil States Intl 4,772(b) $208,727 Parker Drilling 12,843(b) 120,981 Pioneer Drilling 10,076(b) 126,756 Trico Marine Services 1,845(b) 65,405 --------------- Total 1,213,725 - ----------------------------------------------------------------------------------- FOOD & STAPLES RETAILING (2.0%) Andersons 2,725 116,821 Great Atlantic & Pacific Tea 5,729(b) 167,000 Ingles Markets Cl A 3,042 89,100 Nash Finch 4,214 169,698 Ruddick 2,640 73,392 Spartan Stores 3,273 95,801 Village Super Market Cl A 806 37,527 Weis Markets 1,005 39,497 --------------- Total 788,836 - ----------------------------------------------------------------------------------- FOOD PRODUCTS (1.8%) Cal-Maine Foods 6,409 116,387 Chiquita Brands Intl 4,413(b) 77,492 Fresh Del Monte Produce 1,859(c) 47,683 Imperial Sugar 2,072 55,758 Pilgrim's Pride 3,749 126,266 Reddy Ice Holdings 1,469 43,703 Seaboard 128 256,001 --------------- Total 723,290 - ----------------------------------------------------------------------------------- GAS UTILITIES (0.3%) Nicor 1,223 48,198 South Jersey Inds 1,324 43,387 WGL Holdings 1,241 37,156 --------------- Total 128,741 - ----------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT & SUPPLIES (0.3%) Inverness Medical Innovations 885(b) 42,843 Medical Action Inds 2,222(b) 43,240 ZOLL Medical 1,586(b) 42,600 --------------- Total 128,683 - -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 19
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) HEALTH CARE PROVIDERS & SERVICES (2.1%) American Dental Partners 1,656(b) $42,510 AMERIGROUP 3,460(b) 95,773 Apria Healthcare Group 3,871(b) 101,498 Capital Senior Living 8,087(b) 71,651 Chemed 1,515 95,869 Emeritus 5,422(b) 132,839 Kindred Healthcare 8,267(b) 221,390 Magellan Health Services 1,614(b) 67,497 --------------- Total 829,027 - ----------------------------------------------------------------------------------- HEALTH CARE TECHNOLOGY (0.2%) Vital Images 3,333(b) 64,960 - ----------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE (1.1%) Ambassadors Intl 2,335 65,403 Ameristar Casinos 1,342 42,515 Bluegreen 4,200(b) 35,532 Bob Evans Farms 3,264 105,917 Domino's Pizza 3,421 65,512 Jack in the Box 1,159(b) 74,164 O'Charley's 3,240 57,445 --------------- Total 446,488 - ----------------------------------------------------------------------------------- HOUSEHOLD DURABLES (3.8%) American Greetings Cl A 7,285 180,158 Avatar Holdings 2,150(b) 139,600 Beazer Homes USA 11,104 155,345 Brookfield Homes 1,581 33,517 CSS Inds 1,684 60,523 Furniture Brands Intl 9,020 99,400 Hooker Furniture 6,208 125,712 Hovnanian Enterprises Cl A 9,031(b) 119,570 M/I Homes 1,703 41,809 Meritage Homes 6,742(b) 131,469 Standard-Pacific 16,361 242,307 Tupperware Brands 4,814 125,212 WCI Communities 3,524(b) 31,117 --------------- Total 1,485,739 - ----------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES (0.4%) Sequa Cl A 396(b) 65,380 Tredegar 5,416 99,437 --------------- Total 164,817 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) INSURANCE (10.6%) American Physicians Capital 3,592(b) $136,209 Argonaut Group 7,335 201,933 Aspen Insurance Holdings 24,706(c) 604,062 Commerce Group 7,149 205,391 Horace Mann Educators 5,251 93,625 Infinity Property & Casualty 3,581 157,707 IPC Holdings 8,720(c) 216,343 LandAmerica Financial Group 5,549 424,998 Natl Western Life Insurance Cl A 601 141,668 Odyssey Re Holdings 6,349 223,485 Ohio Casualty 15,049 653,276 Platinum Underwriters Holdings 7,565(c) 251,158 Presidential Life 6,153(d) 100,355 Safety Insurance Group 4,183 139,294 Selective Insurance Group 10,909 223,853 Stewart Information Services 4,586 167,297 Zenith Natl Insurance 5,522 222,868 --------------- Total 4,163,522 - ----------------------------------------------------------------------------------- INTERNET & CATALOG RETAIL (0.4%) Gaiam Cl A 3,237(b) 52,051 Systemax 4,497 93,762 --------------- Total 145,813 - ----------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES (1.6%) CMGI 76,471(b) 120,824 EarthLink 22,004(b) 152,928 InfoSpace 2,462 51,259 Interwoven 4,702(b) 65,123 RealNetworks 19,066(b) 135,750 United Online 4,484 63,314 Vignette 2,755(b) 57,965 --------------- Total 647,163 - -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 20 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) IT SERVICES (1.5%) Authorize.Net Holdings 8,758(b) $151,775 eFunds 1,437(b) 51,373 iGATE 10,330(b) 79,334 Perot Systems Cl A 6,208(b) 94,486 Safeguard Scientifics 31,852(b) 73,260 SAIC 8,551(b) 143,315 --------------- Total 593,543 - ----------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS (0.8%) Arctic Cat 3,338 60,485 JAKKS Pacific 7,341(b) 174,055 MarineMax 3,266(b) 61,074 --------------- Total 295,614 - ----------------------------------------------------------------------------------- MACHINERY (4.2%) Ampco-Pittsburgh 831 35,085 Barnes Group 5,567 173,691 Blount Intl 2,839(b) 32,279 Briggs & Stratton 4,205 119,254 Cascade 3,032 205,540 Columbus McKinnon 3,542(b) 90,852 Commercial Vehicle Group 2,980(b) 43,210 EnPro Inds 1,882(b) 74,113 LB Foster Cl A 2,471(b) 74,599 FreightCar America 1,324 62,585 Gorman-Rupp 351 10,070 Hardinge 3,151 103,731 Kaydon 946 50,337 Miller Inds 6,504(b) 158,177 Mueller Inds 3,657(d) 134,870 NACCO Inds Cl A 479 62,998 Robbins & Myers 803 42,342 Tennant 3,861 148,842 Wabash Natl 3,475 44,167 --------------- Total 1,666,742 - ----------------------------------------------------------------------------------- MARINE (1.7%) Eagle Bulk Shipping 4,999 131,574 Genco Shipping & Trading 5,883 331,389 TBS Intl Cl A 5,822(b,c) 223,390 --------------- Total 686,353 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) MEDIA (2.3%) Charter Communications Cl A 26,330(b) $106,900 DG FastChannel 5,734(b) 101,836 Harris Interactive 14,558(b) 65,220 Interactive Data 1,676 45,839 Knology 7,619(b) 118,246 LIN TV Cl A 6,092(b) 92,233 Media General Cl A 2,094 59,051 Nexstar Broadcasting Group Cl A 9,614(b) 98,544 Scholastic 2,985(b) 96,057 Sinclair Broadcast Group Cl A 9,649 125,822 --------------- Total 909,748 - ----------------------------------------------------------------------------------- METALS & MINING (4.3%) AM Castle & Co 3,318 109,560 Century Aluminum 1,874(b) 96,586 Metal Management 5,004 210,218 Northwest Pipe 2,025(b) 68,060 Olympic Steel 6,357 166,998 Quanex 7,908 356,335 Ryerson 8,993 288,586 Schnitzer Steel Inds Cl A 4,901 265,585 Worthington Inds 6,631 137,262 --------------- Total 1,699,190 - ----------------------------------------------------------------------------------- MULTILINE RETAIL (0.4%) Bon-Ton Stores 3,881 99,043 Fred's 5,848 69,416 --------------- Total 168,459 - ----------------------------------------------------------------------------------- MULTI-UTILITIES (0.1%) NorthWestern Energy 1,999 54,093 - ----------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS (3.5%) Berry Petroleum Cl A 1,228 45,694 Brigham Exploration 7,653(b) 37,117 Callon Petroleum 4,357(b) 61,042 General Maritime 6,948 180,648 Meridian Resource 20,127(b) 54,142 Petrohawk Energy 6,333(b) 94,932 Stone Energy 5,379(b) 174,818 Swift Energy 5,949(b) 254,260
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 21
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) OIL, GAS & CONSUMABLE FUELS (CONT.) USEC 18,160(b) $304,905 Whiting Petroleum 4,615(b) 189,538 --------------- Total 1,397,096 - ----------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS (0.4%) Buckeye Technologies 6,109(b) 93,651 Schweitzer-Mauduit Intl 2,709 61,846 --------------- Total 155,497 - ----------------------------------------------------------------------------------- PERSONAL PRODUCTS (0.1%) Chattem 766(b) 43,019 - ----------------------------------------------------------------------------------- PHARMACEUTICALS (0.5%) Alpharma Cl A 4,668 115,720 Par Pharmaceutical Companies 3,371(b) 79,859 --------------- Total 195,579 - ----------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS (REITS) (3.8%) American Home Mtge Investment 10,275 10,686 Annaly Capital Management 10,656 153,979 Arbor Realty Trust 3,163 62,469 Capital Trust Cl A 2,651 81,995 Crystal River Capital 4,784 83,194 Deerfield Triarc Capital 13,515 148,260 Entertainment Properties Trust 1,685 75,067 FelCor Lodging Trust 7,900 173,485 Gramercy Capital 1,985 48,017 Kite Realty Group Trust 5,156 82,290 Medical Properties Trust 5,082 56,918 Nationwide Health Properties 3,968 94,557 NorthStar Realty Finance 9,316 93,998 RAIT Financial Trust 3,805 39,420 Redwood Trust 2,266 65,261 Senior Housing Properties Trust 3,794 65,560 Thornburg Mtge 6,109 155,291 --------------- Total 1,490,447 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) ROAD & RAIL (1.0%) Arkansas Best 5,982 $215,532 Saia 1,679(b) 33,966 Werner Enterprises 7,184 139,657 --------------- Total 389,155 - ----------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (1.4%) MKS Instruments 4,649(b) 105,532 OmniVision Technologies 8,893(b) 152,693 Photronics 3,058(b) 42,873 Silicon Storage Technology 17,204(b,d) 62,278 Standard Microsystems 1,281(b) 42,773 Ultra Clean Holdings 6,294(b) 88,557 Zoran 2,214(b) 41,734 --------------- Total 536,440 - ----------------------------------------------------------------------------------- SOFTWARE (0.4%) i2 Technologies 4,569(b) 74,201 Lawson Software 5,374(b) 51,214 Pegasystems 4,852 51,140 --------------- Total 176,555 - ----------------------------------------------------------------------------------- SPECIALTY RETAIL (5.9%) Asbury Automotive Group 10,056 222,439 Blockbuster Cl A 27,929(b) 119,815 Books-A-Million 3,085 48,650 Borders Group 12,361 202,226 Charming Shoppes 7,337(b) 72,490 Conn's 6,515(b) 165,286 Finish Line Cl A 13,512 91,341 Gander Mountain 13,484(b) 138,885 Genesco 1,980(b) 100,089 Group 1 Automotive 3,153 118,301 Haverty Furniture Companies 4,131 46,061 Lithia Motors Cl A 3,831 78,880 Payless ShoeSource 3,057(b) 81,377 Pep Boys -- Manny, Moe & Jack 2,801 47,421 Rent-A-Center 7,663(b) 148,739 Shoe Carnival 3,908(b) 85,624 Sonic Automotive Cl A 7,789 213,419 Stage Stores 8,134 145,111 Talbots 2,271 52,210 Zale 6,388(b) 135,617 --------------- Total 2,313,981 - -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 22 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) TEXTILES, APPAREL & LUXURY GOODS (0.6%) G-III Apparel Group 2,603(b) $41,986 Kellwood 1,203 30,845 Perry Ellis Intl 4,055(b) 121,691 Warnaco Group 1,125(b) 40,624 --------------- Total 235,146 - ----------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE (1.3%) Corus Bankshares 12,404 201,689 Fremont General 21,283 122,803 K-Fed Bancorp 4,489 59,524 Ocwen Financial 6,989(b) 75,761 Triad Guaranty 1,784(b) 49,185 --------------- Total 508,962 - ----------------------------------------------------------------------------------- TOBACCO (0.6%) Universal 3,395 187,438 Vector Group 1,987 42,522 --------------- Total 229,960 - ----------------------------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS (1.3%) Kaman 5,899 197,557 Rush Enterprises Cl A 5,829(b) 162,921 UAP Holding 4,358 118,407 Watsco 967 48,263 --------------- Total 527,148 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) WATER UTILITIES (0.2%) SJW 2,245 $64,634 - ----------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES (0.4%) Rural Cellular Cl A 2,863(b) 122,135 USA Mobility 1,996(b) 47,645 --------------- Total 169,780 - ----------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $42,575,727) $39,259,701 - -----------------------------------------------------------------------------------
MONEY MARKET FUND (3.8%) SHARES VALUE(A) RiverSource Short-Term Cash Fund 1,506,252(e) $1,506,252 - ----------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $1,506,252) $1,506,252 - ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $44,081,979)(f) $40,765,953 ===================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At July 31, 2007, the value of foreign securities represented 6.2% of net assets. (d) Partially pledged as initial margin deposit on the following open stock index futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY CONTRACTS - ------------------------------------------------------------------------------ PURCHASE CONTRACTS Mini Russell 2000 Index, Sept. 2007 1
(e) Affiliated Money Market Fund -- See Note 6 to the financial statements. (f) At July 31, 2007, the cost of securities for federal income tax purposes was $44,092,553 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 1,399,748 Unrealized depreciation (4,726,348) - ------------------------------------------------------------------------------ Net unrealized depreciation $(3,326,600) - ------------------------------------------------------------------------------
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 23 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. - -------------------------------------------------------------------------------- 24 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES JULY 31, 2007 ASSETS Investments in securities, at value (Note 1) Unaffiliated issuers (identified cost $42,575,727) $39,259,701 Affiliated money market fund (identified cost $1,506,252) (Note 6) 1,506,252 - --------------------------------------------------------------------------- Total investments in securities (identified cost $44,081,979) 40,765,953 Capital shares receivable 99,154 Dividends and accrued interest receivable 32,582 Receivable for investment securities sold 6,003,118 - --------------------------------------------------------------------------- Total assets 46,900,807 - --------------------------------------------------------------------------- LIABILITIES Payable for investment securities purchased 7,429,469 Capital shares payable 15,781 Variation margin payable 11,020 Accrued investment management services fee 927 Accrued distribution fee 111 Accrued transfer agency fee 24 Accrued administrative services fee 87 Other accrued expenses 36,894 - --------------------------------------------------------------------------- Total liabilities 7,494,313 - --------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $39,406,494 ===========================================================================
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 25 STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) JULY 31, 2007 REPRESENTED BY Capital stock -- $.01 par value (Note 1) $ 39,341 Additional paid-in capital 41,406,427 Undistributed net investment income 333,335 Accumulated net realized gain (loss) 943,261 Unrealized appreciation (depreciation) on investments (Note 5) (3,315,870) - --------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $39,406,494 ===========================================================================
Net assets applicable to outstanding shares: Class A $13,618,506 Class B $ 551,233 Class C $ 46,126 Class I $25,166,988 Class R2 $ 4,536 Class R3 $ 4,544 Class R4 $ 10,004 Class R5 $ 4,557 Net asset value per share of outstanding capital stock: Class A shares(1) 1,361,629 $ 10.00 Class B shares 55,679 $ 9.90 Class C shares 4,657 $ 9.90 Class I shares 2,509,791 $ 10.03 Class R2 shares 455 $ 9.97 Class R3 shares 455 $ 9.99 Class R4 shares 1,000 $ 10.00 Class R5 shares 455 $ 10.02 - -------------------------------------------------------------------------------------------
(1)The maximum offering price per share for Class A is $10.61. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 5.75%. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 2007 INVESTMENT INCOME Income: Dividends $ 603,001 Interest 2,999 Income distributions from affiliated money market fund (Note 6) 52,017 Less foreign taxes withheld (921) - --------------------------------------------------------------------------- Total income 657,096 - --------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 206,071 Distribution fee Class A 34,465 Class B 4,763 Class C 349 Class R2 16 Class R3 7 Transfer agency fee Class A 6,434 Class B 307 Class C 21 Class R2 2 Class R3 2 Class R4 6 Class R5 2 Service fee -- Class R4 6 Administrative services fees and expenses 20,681 Plan administration services fee Class R2 7 Class R3 7 Class R4 19 Compensation of board members 330 Custodian fees 29,775 Printing and postage 15,751 Registration fees 47,588 Professional fees 20,937 Other 1,292 - --------------------------------------------------------------------------- Total expenses 388,838 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (71,732) - --------------------------------------------------------------------------- 317,106 Earnings and bank fee credits on cash balances (Note 2) (6,406) - --------------------------------------------------------------------------- Total net expenses 310,700 - --------------------------------------------------------------------------- Investment income (loss) -- net 346,396 - ---------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 27 STATEMENT OF OPERATIONS (CONTINUED) YEAR ENDED JULY 31, 2007 REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) $ 1,070,240 Futures contracts (127,007) - --------------------------------------------------------------------------- Net realized gain (loss) on investments 943,233 Net change in unrealized appreciation (depreciation) on investments (2,467,303) - --------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (1,524,070) - --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(1,177,674) ===========================================================================
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 28 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM JULY 31, 2007 FEB. 16, 2006* YEAR ENDED TO JULY 31, 2006 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 346,396 $ 33,477 Net realized gain (loss) on investments 943,233 334,405 Net change in unrealized appreciation (depreciation) on investments (2,467,303) (1,059,500) - ------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (1,177,674) (691,618) - ------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (22,789) -- Class I (22,690) -- Class R2 (17) N/A Class R3 (17) N/A Class R4 (58) -- Class R5 (18) N/A Net realized gain Class A (234,913) -- Class B (7,684) -- Class C (463) -- Class I (106,528) -- Class R2 (84) N/A Class R3 (84) N/A Class R4 (337) -- Class R5 (84) N/A - ------------------------------------------------------------------------------------------- Total distributions (395,766) -- - -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 29 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD FROM JULY 31, 2007 FEB. 16, 2006* YEAR ENDED TO JULY 31, 2006 CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) $ 3,183,242 $ 1,781,018 Class B shares 600,360 262,415 Class C shares 23,355 20,800 Class I shares 23,678,701 3,314,962 Class R2 shares 5,000 N/A Class R3 shares 5,000 N/A Class R4 shares 8,003 -- Class R5 shares 5,000 N/A Reinvestment of distributions at net asset value Class A shares 55,291 -- Class B shares 7,499 -- Class C shares 278 -- Class I shares 128,993 -- Class R4 shares 178 -- Payments for redemptions Class A shares (1,077,624) (134,265) Class B shares (Note 2) (269,435) (26,868) Class C shares (Note 2) (4,930) -- Class I shares (115,893) (125) Class R4 shares (9,200) -- - ------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 26,223,818 5,217,937 - ------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 24,650,378 4,526,319 Net assets at beginning of year (Note 1) 14,756,116 10,229,797** - ------------------------------------------------------------------------------------------- Net assets at end of year $39,406,494 $14,756,116 =========================================================================================== Undistributed net investment income $ 333,335 $ 46,733 - -------------------------------------------------------------------------------------------
* When shares became publicly available. ** Initial capital of $10,010,640 was contributed on Feb. 9, 2006. The Fund had an increase in net assets resulting from operations of $219,157 during the period from Feb. 9, 2006 to Feb. 16, 2006 (when shares became publicly available). See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 30 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. 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. On Feb. 9, 2006, Ameriprise Financial, Inc. (Ameriprise Financial), the parent company of Riversource Investments, LLC (the Investment Manager) invested $10,010,640* in the Fund (996,000 shares for Class A, 1,000 shares for Class B, 1,000 shares for Class C, 2,064** shares for Class I and 1,000 shares for Class R4), which represented the initial capital for each class at $10 per share. Shares of the Fund were first offered to the public on Feb. 16, 2006. The Fund offers Class A, Class B, Class C, Class I and Class R4 shares. - - Class A shares are sold with a front-end sales charge. - - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - - Class C shares may be subject to a CDSC. - - Class I and Class R4 shares have no sales charge and are offered only to qualifying institutional investors. Effective Dec. 11, 2006, the Board approved renaming Class Y as Class R4, terminating the shareholder servicing agreement, revising the fee structure under the transfer agent agreement from account-based to asset-based, and adopting a plan administration services agreement. At July 31, 2007, Ameriprise Financial and the affiliated funds-of-funds owned 100% of Class I shares. Effective Dec. 11, 2006, the Fund offers additional classes of shares, Class R2, Class R3 and Class R5, to certain institutional investors. These shares are sold without a front-end sales charge or CDSC. At July 31, 2007, Ameriprise Financial owned 100% of Class R2, Class R3 and Class R5 shares. At July 31, 2007, Ameriprise Financial and the affiliated funds-of-funds owned approximately 89% of the total outstanding Fund shares. * Includes $10,640 invested by the RiverSource Income Builder Funds. ** Includes 1,064 shares purchased by RiverSource Income Builder Funds. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 31 All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board of Directors of the funds generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign equities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial will fair value foreign equity securities pursuant to procedures adopted by the Board of Directors of the funds, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Swap transactions are valued through an authorized pricing service, broker, or an internal model. 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. - -------------------------------------------------------------------------------- 32 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. 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. 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, 2007, 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 - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 33 on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. At July 31, 2007, 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. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $14,205 and accumulated net realized gain has been increased by $14,205. - -------------------------------------------------------------------------------- 34 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT The tax character of distributions paid for the periods indicated is as follows:
FOR THE PERIOD JULY 31, 2007 FROM FEB. 16, 2006(A) YEAR ENDED TO JULY 31, 2006 - --------------------------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income.................. $232,895 $ -- Long-term capital gain........... 24,807 -- CLASS B Distributions paid from: Ordinary income.................. 6,873 -- Long-term capital gain........... 811 -- CLASS C Distributions paid from: Ordinary income.................. 414 -- Long-term capital gain........... 49 -- CLASS I Distributions paid from: Ordinary income.................. 117,968 -- Long-term capital gain........... 11,250 -- CLASS R2(B) Distributions paid from: Ordinary income.................. 92 N/A Long-term capital gain........... 9 N/A CLASS R3(B) Distributions paid from: Ordinary income.................. 92 N/A Long-term capital gain........... 9 N/A CLASS R4(C) Distributions paid from: Ordinary income.................. 359 -- Long-term capital gain........... 36 -- CLASS R5(B) Distributions paid from: Ordinary income.................. 93 N/A Long-term capital gain........... 9 N/A
(a) When shares became publicly available. (b) For the period from Dec. 11, 2006 (inception date) to July 31, 2007. (c) Effective Dec. 11, 2006, Class Y was renamed Class R4. At July 31, 2007, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.............................. $ 1,073,324 Undistributed accumulated long-term gain................... $ 214,002 Unrealized appreciation (depreciation)..................... $ (3,326,600)
RECENT ACCOUNTING PRONOUNCEMENTS On Sept. 20, 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 35 a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of SFAS 157 is required for fiscal years beginning after Nov. 15, 2007 and interim periods within those fiscal years. The impact of SFAS 157 on the Fund's financial statements is being evaluated. In June 2006, the FASB issued FASB Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after Dec. 15, 2006. Tax positions of the Fund are being evaluated to determine the impact, if any to the Fund. The adoption of FIN 48 is not anticipated to have a material impact on the Fund. DIVIDENDS TO SHAREHOLDERS An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES Under an Investment Management Services Agreement, 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 0.85% to 0.725% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of the Fund to the Lipper 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 $13,668 for the year ended July 31, 2007. The management fee for the year ended July 31, 2007, was 0.80% of the Fund's average daily net assets, including an adjustment under the terms of the performance incentive arrangement. - -------------------------------------------------------------------------------- 36 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.08% to 0.05% annually as the Fund's assets increase. Other expenses in the amount of $509 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. 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. Professional fees include fees paid by the Fund for legal services and independent registered public accounting firm services. Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: - - Class A $19.50 - - Class B $20.50 - - Class C $20.00 Effective Dec. 11, 2006, as part of the Board's approval to rename Class Y as Class R4, the fee structure under the Transfer Agency Agreement was revised from an account-based fee for Class Y to an asset-based fee for Class R4. The Fund pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R4 shares. Prior to Dec. 11, 2006, the Fund paid the Transfer Agent an annual account-based fee of $17.50 per shareholder account. In addition, the Fund pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R5 shares. Prior to Dec. 11, 2006, Class I paid a transfer agency fee at an annual rate per shareholder account of $1. Effective Dec. 11, 2006, this fee was eliminated. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 37 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. The Fund has agreements with Ameriprise Financial Services, Inc. and RiverSource Distributors, Inc. (collectively, the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A 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. Effective Dec. 11, 2006, a Plan Administration Services Agreement was adopted for the restructured Class R4 and the introduction of Class R2 and Class R3. The fee is calculated at a rate of 0.25% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R4 shares. Prior to Dec. 11, 2006, under a Shareholder Service Agreement, the Fund paid the Distributor a fee for service provided to shareholders by the Distributor and other servicing agents with respect to Class Y shares. The fee was calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Effective Dec. 11, 2006, this agreement was terminated. Sales charges received by the Distributor for distributing Fund shares were $15,072 for Class A, $523 for Class B and $49 for Class C for the year ended July 31, 2007. In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. For the year ended July 31, 2007, the Investment Manager and its affiliates waived certain fees and expenses (excluding fees and expenses of acquired funds), such that net expenses were 1.35% for Class A, 2.11% for Class B, 2.11% for Class C, 1.05% for Class I, 1.80% for Class R2, 1.55% for Class R3, 1.26% for Class R4 and 1.05% for Class R5. Of these waived fees and expenses, the transfer agency fees waived for Class R2, Class R3, Class R4 and Class R5 were $2, $1, $2 and $1, respectively, and the management fees waived at the Fund level were $71,726. Under an agreement, which was effective until July 31, 2007, the Investment Manager and its affiliates agreed to waived certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds), before giving effect to - -------------------------------------------------------------------------------- 38 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT any performance incentive adjustment, would not exceed 1.48% for Class A, 2.25% for Class B, 2.25% for Class C, 1.13% for Class I, 1.85% for Class R2, 1.60% for Class R3, 1.31% for Class R4 and 1.10% for Class R5 of the Fund's average daily net assets. Effective Aug. 1, 2007, the Investment Manager and its affiliates have agreed to waive certain fees and expenses until July 31, 2008, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment, will not exceed 1.40% for Class A, 2.16% for Class B, 2.15% for Class C, 1.02% for Class I, 1.82% for Class R2, 1.57% for Class R3, 1.32% for Class R4 and 1.07% for Class R5 of the Fund's average daily net assets. During the year ended July 31, 2007, the Fund's custodian and transfer agency fees were reduced by $6,406 as a result of earnings and bank fee credits from overnight cash balances. The Fund also pays custodian fees to Ameriprise Trust Company, an affiliate of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $57,570,895 and $30,980,107, respectively, for the year ended July 31, 2007. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
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(a) 455 -- -- 455 Class R3(a) 455 -- -- 455 Class R4(b) 822 17 (839) -- Class R5(a) 455 -- -- 455 - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 39
FEB. 16, 2006(C) TO JULY 31, 2006 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 173,455 -- (13,317) 160,138 Class B 25,661 -- (2,790) 22,871 Class C 1,966 -- -- 1,966 Class I 324,274 -- (12) 324,262 Class R4(b) -- -- -- -- - ----------------------------------------------------------------------------------------------
(a) For the period from Dec. 11, 2006 (inception date) to July 31, 2007. (b) Effective Dec. 11, 2006, Class Y was renamed Class R4. (c) When shares became publicly available. 5. STOCK INDEX FUTURES CONTRACTS At July 31, 2007, investments in securities included securities valued at $162,355 that were pledged as collateral to cover initial margin deposits on one open purchase contract. The notional market value of the open purchase contract at July 31, 2007 was $78,100 with a net unrealized gain of $156. See "Summary of significant accounting policies" and "Notes to investments in securities." 6. 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. Cost of purchases and proceeds from sales of securities aggregated $26,314,879 and $24,808,628, respectively, for the year ended July 31, 2007. 7. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 19, 2006. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Prior to this agreement, the Fund paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. The Fund had no borrowings under the facility outstanding during the year ended July 31, 2007. - -------------------------------------------------------------------------------- 40 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 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 may file a notice of appeal with the Eighth Circuit Court of Appeals within 30 days from the date of judgment. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), the parent company of RiverSource Investments, LLC (RiverSource Investments), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. In connection with these matters, the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain provisions of the federal and Minnesota securities laws by failing to adequately disclose market timing activities by allowing certain identified market timers to continue to market time contrary to disclosures in mutual fund and variable annuity product prospectuses. The Orders also alleged that AEFC failed to implement procedures to detect and prevent market timing in 401(k) plans for employees of AEFC and related companies and failed to adequately disclose that there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged that AEFC allowed inappropriate market timing to occur by failing to have written policies and procedures and failing to properly supervise its employees. As a result of the Orders, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to make presentations at least annually to its board of directors and the relevant mutual funds' board that include an overview of policies and procedures to prevent market timing, material changes to these policies and procedures and - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 41 whether disclosures related to market timing are consistent with the SEC order and federal securities laws. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In addition, AEFC agreed to complete and submit to the MDOC a compliance review of its procedures regarding market timing within one year of the MDOC Order, including a summary of actions taken to ensure compliance with applicable laws and regulations and certification by a senior officer regarding compliance and supervisory procedures. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. 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. - -------------------------------------------------------------------------------- 42 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 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, 2007 2006(B) Net asset value, beginning of period $9.77 $10.22 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14(c) .02 Net gains (losses) (both realized and unrealized) .29 (.47) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .43 (.45) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.01) -- Distributions from realized gains (.19) -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.20) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.00 $9.77 - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $14 $11 - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 1.35% 1.40%(g) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.30% .55%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 127% 40% - ----------------------------------------------------------------------------------------------------------- Total return(h) 4.29% (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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 1.73% and 3.27% for the periods ended July 31, 2007 and 2006, respectively. (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) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 43 CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007 2006(B) Net asset value, beginning of period $9.73 $10.22 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05(c) -- Net gains (losses) (both realized and unrealized) .31 (.49) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .36 (.49) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Distributions from realized gains (.19) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.90 $9.73 - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $-- - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 2.11% 2.18%(g) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .49% (.17%)(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 127% 40% - ----------------------------------------------------------------------------------------------------------- Total return(h) 3.51% (4.79%)(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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 2.38% and 4.05% for the periods ended July 31, 2007 and 2006, respectively. (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) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- 44 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007 2006(B) Net asset value, beginning of period $9.73 $10.22 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05(c) -- Net gains (losses) (both realized and unrealized) .31 (.49) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .36 (.49) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Distributions from realized gains (.19) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.90 $9.73 - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 2.11% 2.18%(g) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .43% (.22%)(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 127% 40% - ----------------------------------------------------------------------------------------------------------- Total return(h) 3.51% (4.79%)(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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 2.47% and 4.05% for the periods ended July 31, 2007 and 2006, respectively. (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) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 45 CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007 2006(B) Net asset value, beginning of period $9.78 $10.22 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .03 Net gains (losses) (both realized and unrealized) .32 (.47) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .47 (.44) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) -- Distributions from realized gains (.19) -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.22) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.03 $9.78 - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $25 $3 - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 1.05% 1.13%(g) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.43% .91%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 127% 40% - ----------------------------------------------------------------------------------------------------------- Total return(h) 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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class I would have been 1.19% and 3.00% for the periods ended July 31, 2007 and 2006, respectively. (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) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- 46 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007(B) Net asset value, beginning of period $10.99 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06(c) Net gains (losses) (both realized and unrealized) (.86) - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.80) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) Distributions from realized gains (.19) - ----------------------------------------------------------------------------------------------------------- Total distributions (.22) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.97 - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 1.80%(g) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .77%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 127% - ----------------------------------------------------------------------------------------------------------- Total return(h) (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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class R2 would have been 1.85% for the period ended July 31, 2007. (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) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 47 CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007(B) Net asset value, beginning of period $10.99 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07(c) Net gains (losses) (both realized and unrealized) (.85) - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.78) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) Distributions from realized gains (.19) - ----------------------------------------------------------------------------------------------------------- Total distributions (.22) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.99 - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 1.55%(g) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.02%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 127% - ----------------------------------------------------------------------------------------------------------- Total return(h) (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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class R3 would have been 1.58% for the period ended July 31, 2007. (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) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- 48 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT CLASS R4*
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007 2006(B) Net asset value, beginning of period $9.77 $10.22 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .17(c) .02 Net gains (losses) (both realized and unrealized) .28 (.47) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .45 (.45) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) -- Distributions from realized gains (.19) -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.22) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.00 $9.77 - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 1.26% 1.25%(g) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.60% .69%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 127% 40% - ----------------------------------------------------------------------------------------------------------- Total return(h) 4.42% (4.40%)(i) - -----------------------------------------------------------------------------------------------------------
* Effective Dec. 11, 2006, Class Y was renamed Class R4. (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (c) Per share amounts have been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class R4 would have been 1.83% and 3.12% for the periods ended July 31, 2007 and 2006, respectively. (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) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 49 CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED JULY 31, 2007(B) Net asset value, beginning of period $10.99 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(c) Net gains (losses) (both realized and unrealized) (.86) - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.75) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) Distributions from realized gains (.19) - ----------------------------------------------------------------------------------------------------------- Total distributions (.22) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $10.02 - ----------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d),(e),(f) 1.05%(g) - ----------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.53%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 127% - ----------------------------------------------------------------------------------------------------------- Total return(h) (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 average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. Includes the impact of a performance incentive adjustment fee, if any. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class R5 would have been 1.09% for the period ended July 31, 2007. (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) Total return does not reflect payment of a sales charge. (i) Not annualized. - -------------------------------------------------------------------------------- 50 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 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 schedule of investments in securities of RiverSource Disciplined Small Cap Value Fund (the Fund), one of the portfolios constituting the RiverSource Dimensions Series, Inc, as of July 31, 2007, and the related statements of operations, changes in net assets, and financial highlights for the year 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 audit. The financial statements and 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 opinions on those financial statements and financial highlights. We conducted our audit 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 audit 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, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides a reasonable basis for our opinion. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 51 In our opinion, the 2007 financial statements and financial highlights 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, 2007, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles. -s- Ernst & Young Minneapolis, Minnesota September 20, 2007 - -------------------------------------------------------------------------------- 52 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT FEDERAL INCOME TAX INFORMATION (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. RiverSource Disciplined Small Cap Value Fund Fiscal year ended July 31, 2007 CLASS A
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 18.71% Dividends Received Deduction for corporations......... 18.44%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.18344
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.01954 Total distributions......................................... $0.20298
CLASS B
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 18.71% Dividends Received Deduction for corporations......... 18.44%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.16549
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.01954 Total distributions......................................... $0.18503
CLASS C
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 18.71% Dividends Received Deduction for corporations......... 18.44%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.16549
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.01954 Total distributions......................................... $0.18503
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 53 CLASS I
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 18.71% Dividends Received Deduction for corporations......... 18.44%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.20490
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.01954 Total distributions......................................... $0.22444
CLASS R2
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 18.71% Dividends Received Deduction for corporations......... 18.44%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.20309
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.01954 Total distributions......................................... $0.22263
CLASS R3
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 18.71% Dividends Received Deduction for corporations......... 18.44%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.20370
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.01954 Total distributions......................................... $0.22324
CLASS R4*
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 18.71% Dividends Received Deduction for corporations......... 18.44%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.19695
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.01954 Total distributions......................................... $0.21649
- -------------------------------------------------------------------------------- 54 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT CLASS R5
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 18.71% Dividends Received Deduction for corporations......... 18.44%
PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.20485
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2006............................................... $0.01954 Total distributions......................................... $0.22439
* Effective Dec. 11, 2006, Class Y was renamed Class R4. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 55 BOARD MEMBERS AND OFFICERS Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board members. Each member oversees 102 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. INDEPENDENT BOARD MEMBERS
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------- Kathleen Blatz Board member Chief Justice, Minnesota Supreme 901 S. Marquette Ave. since 2006 Court, 1998-2005 Minneapolis, MN 55402 Age 53 - ----------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, RiverSource Funds, 901 S. Marquette Ave. since 1999 1999-2006; former Governor of Minneapolis, MN 55402 Minnesota Age 73 - ----------------------------------------------------------------------------------------------------- Pamela G. Carlton Board member President, Springboard -- Partners 901 S. Marquette Ave. since 2007 in Cross Cultural Leadership Minneapolis, MN 55402 (consulting company) Age 52 - ----------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics and 901 S. Marquette Ave. since 2004 Management, Bentley College; former Minneapolis, MN 55402 Dean, McCallum Graduate School of Age 56 Business, Bentley College - ----------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 72 - ----------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive 901 S. Marquette Ave. since 2005 Asset Management Insurance Minneapolis, MN 55402 Age 71 - ----------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries, 901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures Minneapolis, MN 55402 Chair of the irrigation systems) Age 68 Board since 2007 - -----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 56 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 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 Director, Enterprise Asset Strategic 901 S. Marquette Ave. since 2004 Management, Inc. (private real Distribution, Inc. Minneapolis, MN 55402 estate and asset management (transportation, Age 55 company) distribution and logistics consultants) - ----------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer, RiboNovix, Hybridon, Inc. 901 S. Marquette Ave. since 2002 Inc. since 2003 (biotechnology); (biotechnology); Minneapolis, MN 55402 former President, Forester Biotech American Healthways, Age 63 Inc. (health management programs) - -----------------------------------------------------------------------------------------------------
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 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; President, Ameriprise Certificate Company since 2006; Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 - -----------------------------------------------------------------------------------------------------
* 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 -- 2007 ANNUAL REPORT 57 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 Senior Vice President -- Asset Management, 172 Ameriprise 2006 RiverSource Investments, LLC since 2006; Financial Center Managing Director and Global Head of Product, Minneapolis, MN 55474 Morgan Stanley Investment Management, Age 41 2004-2006; President, Touchstone Investments, 2002-2004; Director of Strategic Planning, Evergreen Investments, 1995-2002 - ------------------------------------------------------------------------------------------ Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed 172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and Financial Center RiverSource Investments, LLC since 2006; Vice Minneapolis, MN 55474 President -- Investments, Ameriprise Age 43 Certificate Company since 2003; Senior Vice President -- Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006; Managing Director, Zurich Global Assets, 2001-2002 - ------------------------------------------------------------------------------------------ Amy K. Johnson Vice President Vice President -- Asset Management and Trust 5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC Financial Center since 2006; Vice President -- Operations and Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC, Age 41 2004-2006; Director of Product Development -- Mutual Funds, Ameriprise Financial, Inc., 2001-2004 - ------------------------------------------------------------------------------------------ Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting, 105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Vice Financial Center President -- Finance, American Express Minneapolis, MN 55474 Company, 2000-2002 Age 52 - ------------------------------------------------------------------------------------------ Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset 5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since Financial Center and Secretary 2005; Vice President, General Counsel and Minneapolis, MN 55474 since 2006 Secretary, Ameriprise Certificate Company Age 47 since 2005; Vice President -- Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, U.S. Bancorp Asset Management, 2002-2004; Second Vice President and Assistant General Counsel, Hartford Life, 2001-2002 - ------------------------------------------------------------------------------------------ Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance 172 Ameriprise Officer since Officer, RiverSource Investments, LLC since Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset Minneapolis, MN 55474 Management, 2003-2006; Director of Finance, Age 46 Voyageur Asset Management, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 58 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 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 43 Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 59 APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments, LLC ("RiverSource"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), serves as the investment manager to the Fund. Under an investment management services agreement (the "IMS Agreement") RiverSource provides investment advice and other services to the Fund and all RiverSource funds (collectively, the "Funds"). The Fund's Board of Directors (the "Board") and the Board's Investment Review and Contracts Committees monitor these services throughout the year. On an annual basis, the Board, including the independent Board members (the "Independent Directors"), considers renewal of the IMS Agreement. RiverSource prepares detailed reports for the Board and its Contracts Committee in March and April, including reports based on data provided by independent organizations to assist the Board in making this determination. In addition, throughout the year, the Board (or its committees) reviews information prepared by RiverSource addressing the services RiverSource provides and Fund performance. The Board accords particular weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the IMS Agreement. At the April 11-12, 2007 in-person Board meeting, independent legal counsel to the Independent Directors reviewed with the Independent Directors various factors relevant to the Board's consideration of advisory agreements and the Board's legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Directors, approved renewal of the IMS Agreement. Nature, Extent and Quality of Services Provided by RiverSource: The Board analyzed various reports and presentations it had received detailing the services performed by RiverSource, as well as its expertise, resources and capabilities. The Board specifically considered many developments during the past year concerning the services provided by RiverSource, including, in particular, the growing strength and capabilities of many RiverSource offices and the increased investment and resources dedicated to the Fund's operations, particularly in the areas of trading systems, legal and compliance. Further, in connection with the Board's evaluation of the overall package of services provided by RiverSource, the Board considered the quality of the administrative, custody and transfer agency services provided by RiverSource affiliates to the Fund. The Board also reviewed the financial condition of RiverSource and the 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). The Board concluded that the services being performed under the IMS Agreement were of a reasonably high quality. - -------------------------------------------------------------------------------- 60 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT Based on the foregoing, and based on other information received (both oral and written, including the information on investment performance referenced below) and other considerations, the Board determined that RiverSource was in a position to continue to provide a high quality and level of services to the Fund. Investment Performance: The Board observed that the Fund was first launched in February 2006. 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) and recent Fund inflows (and outflows).The Board observed that the Fund's investment performance reflected the interrelationship of particular market conditions with the specific management style employed by the portfolio management team. Further, the Board noted that appropriate measures have been taken to modify the disciplined quantitative method designed to lead to a more consistent performance experience over time. Comparative Fees, Costs of Services Provided and the Profits Realized By RiverSource and its Affiliates from their Relationships with the Fund: The Board reviewed comparative fees and the costs of services to be provided under the 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's profitability. The Board accorded particular weight to the notion that the level of fees should reflect a rational pricing model applied consistently across the various product lines in the Funds' family, while assuring that the overall fees for each fund are generally in line with the "pricing philosophy" (i.e., that the total expense ratio of each fund, with few exceptions, is at or below the median expense ratio of funds in the same comparison group). The Board took into account that the Fund's total expense ratio (after considering proposed expense caps/waivers) approximated the peer group's median expense ratio. Based on its review, the Board concluded that the Fund's management fee was fair and reasonable in light of the extent and quality of services that the Fund receives. The Board also considered the expected profitability of RiverSource and its affiliates in connection with RiverSource providing investment management services to the Fund. In this regard, the Board referred to a detailed profitability report, discussing the profitability to RiverSource and Ameriprise Financial from managing and operating the Fund, including data showing comparative profitability. The Board also considered the services acquired by the investment - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 61 manager through the use of commission dollars paid by the Funds on portfolio transactions. The Board noted that the fees paid by the Fund should permit the investment manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. The Board concluded that profitability levels were reasonable. Economies of Scale to be Realized: The Board also considered the economies of scale that might be realized by RiverSource as the Fund grows and took note of the extent to which Fund shareholders might also benefit from such growth. The Board considered that the IMS Agreement provides for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. Based on the foregoing, the Board, including all of the Independent Directors, concluded that the investment management service fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was determinative. On April 12, 2007, the Board, including all of the Independent Directors, approved the renewal of the 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. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM On April 12, 2007, Ernst & Young LLP was selected as the Fund's independent registered public accounting firm for the 2007 fiscal year. A majority of the Fund's Board of Directors, including a majority of the Independent Directors, approved the appointment of Ernst & Young LLP. The predecessor independent registered public accounting firm's reports on the Fund's financial statements for the year ended July 31, 2006 and the year ended July 31, 2005 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During such fiscal periods and - -------------------------------------------------------------------------------- 62 RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT through April 12, 2007 there were no disagreements between the Fund and the predecessor independent registered public accounting firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which such disagreements, if not resolved to the satisfaction of the predecessor independent registered public accounting firm, would have caused them to make reference to the subject matter of the disagreement in connection with their reports on the financial statements for such fiscal periods. - -------------------------------------------------------------------------------- RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND -- 2007 ANNUAL REPORT 63 RIVERSOURCE(R) 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. and Ameriprise Financial Services, Inc., Members FINRA, and managed by (RIVERSOURCE INVESTMENTS RiverSource Investments, LLC. These companies are part of LOGO) Ameriprise Financial, Inc. S-6397 D (9/07)
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 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: 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: 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: 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: 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 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: 2007 - $239,670 (h) 100% of the services performed in item (g) above during 2007 were pre-approved by the 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, 2007 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, 2007 By /s/ Jeffrey P. Fox ----------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date October 3, 2007 EX-99.CODE 2 c18113exv99wcode.txt CODE OF ETHICS Exhibit (a)(1) Ex. 99.CODE ETH. 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: - 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; - annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code; - 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 - 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; - will take all appropriate action to investigate such reported violations; - 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 Paula R. Meyer* William F. Truscott** * Until August 5, 2006. ** Until November 9, 2006. EX-99.CERT 3 c18113exv99wcert.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 25, 2007 /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 25, 2007 /s/ Jeffrey P. Fox - ------------------------------------------------ Name: Jeffrey P. Fox Title: Treasurer and Principal Financial Officer EX-99.906CERT 4 c18113exv99w906cert.txt 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 25, 2007 /s/ Patrick T. Bannigan ---------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date: September 25, 2007 /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-----