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 811-5522
RIVERSOURCE SECTOR 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: 6/30
Date of reporting period: 6/30
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
DIVIDEND OPPORTUNITY FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
JUNE 30, 2008
(Prospectus also enclosed)
RIVERSOURCE DIVIDEND OPPORTUNITY
FUND SEEKS TO PROVIDE SHAREHOLDERS
WITH A HIGH LEVEL OF CURRENT
INCOME. SECONDARY OBJECTIVE IS
GROWTH OF INCOME AND CAPITAL.
<Table>
This annual report includes a prospectus that
describes in detail the Fund's objective, investment
strategy, risks, sales charges, fees and other
matters of interest. Please read the prospectus
carefully before you invest or send money. (SINGLE STRATEGY FUNDS ICON)
</Table>
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance............... 2
Manager Commentary.................. 5
The Fund's Long-term Performance ... 10
Fund Expenses Example............... 12
Portfolio of Investments............ 14
Financial Statements................ 19
Notes to Financial Statements....... 24
Report of Independent Registered
Public Accounting Firm........... 43
Federal Income Tax Information...... 45
Board Members and Officers.......... 48
Approval of Investment Management
Services Agreement............... 52
Proxy Voting........................ 54
</Table>
(DALBAR LOGO)
The RiverSource mutual fund
shareholder reports have been
awarded the Communications Seal
from Dalbar Inc., an independent
financial services research firm.
The Seal recognizes communications
demonstrating a level of
excellence in the industry.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Dividend Opportunity Fund (the Fund) Class A shares declined
17.46% (excluding sales charge) for the 12-months ended June 30, 2008.
> The Fund outperformed its benchmark, the Russell 1000(R) Value Index, which
decreased 18.78% for the 12-month period.
> The Fund underperformed the Lipper Equity Income Funds Index, representing the
Fund's peer group, which fell 15.90% during the same time frame.
ANNUALIZED TOTAL RETURNS (for period ended June 30, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------
RiverSource Dividend Opportunity
Fund Class A (excluding sales
charge) -17.46% +4.88% +7.54% +3.30%
- ---------------------------------------------------------------------------------
Russell 1000(R) Value Index
(unmanaged) -18.78% +3.53% +8.92% +4.91%
- ---------------------------------------------------------------------------------
Lipper Equity Income Funds Index -15.90% +3.93% +8.02% +3.83%
- ---------------------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 5.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. See the Average Annual Total Returns table for performance of other
share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
2 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
STYLE MATRIX
- ----------------------------------------
<Table>
<Caption>
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- ----------------------------------------
<Table>
<Caption>
Net
Total expenses(a)
- ---------------------------------------------------
Class A 1.11% 1.11%
- ---------------------------------------------------
Class B 1.87% 1.87%
- ---------------------------------------------------
Class C 1.87% 1.87%
- ---------------------------------------------------
Class I 0.72% 0.72%
- ---------------------------------------------------
Class R2(b) 1.52% 1.52%
- ---------------------------------------------------
Class R3(b) 1.27% 1.27%
- ---------------------------------------------------
Class R4 1.02% 1.01%
- ---------------------------------------------------
Class R5(b) 0.77% 0.77%
- ---------------------------------------------------
Class W 1.16% 1.16%
- ---------------------------------------------------
</Table>
(a) The Investment Manager and its affiliates
have contractually agreed to waive certain fees and to absorb certain
expenses until June 30, 2009, unless sooner terminated at the discretion of
the Fund's Board. Any amounts waived will not be reimbursed by the Fund.
Under this agreement, net fund expenses (excluding fees and expenses of
acquired funds), before giving effect to any performance incentive
adjustment (that increased the management fee by 0.05% for the year ended
June 30, 2008), will not exceed 1.06 for Class A, 1.82% for Class B, 1.82%
for Class C, 0.70% for Class I, 1.50% for Class R2, 1.25% for Class R3,
0.96% for Class R4, 0.75% for Class R5 and 1.15% for Class W.
(b) Inception date for Class R2, Class R3 and
Class R5 is Aug. 1, 2008.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT JUNE 30, 2008
SINCE
WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception 8/1/88) -17.46% +4.88% +7.54% +3.30% N/A
- ---------------------------------------------------------------------------------------------
Class B (inception 3/20/95) -18.15% +4.09% +6.72% +2.52% N/A
- ---------------------------------------------------------------------------------------------
Class C (inception 6/26/00) -18.15% +4.05% +6.71% N/A +0.49%
- ---------------------------------------------------------------------------------------------
Class I (inception 3/4/04) -17.19% +5.24% N/A N/A +7.24%
- ---------------------------------------------------------------------------------------------
Class R4 (inception 3/20/95) -17.00% +5.16% +7.84% +3.51% N/A
- ---------------------------------------------------------------------------------------------
Class W (inception 12/1/06) -17.58% N/A N/A N/A -4.87%
- ---------------------------------------------------------------------------------------------
With sales charge
Class A (inception 8/1/88) -22.22% +2.81% +6.28% +2.77% N/A
- ---------------------------------------------------------------------------------------------
Class B (inception 3/20/95) -22.15% +2.84% +6.41% +2.52% N/A
- ---------------------------------------------------------------------------------------------
Class C (inception 6/26/00) -18.95% +4.05% +6.71% N/A +0.49%
- ---------------------------------------------------------------------------------------------
</Table>
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.
* For classes with less than 10 years performance.
- --------------------------------------------------------------------------------
4 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
Dear Shareholders,
RiverSource Dividend Opportunity Fund (the Fund) Class A shares declined 17.46%
(excluding sales charge) for the 12-months ended June 30, 2008. The Fund
outperformed the Russell 1000(R) Value Index (Russell Index), which decreased
18.78%. The Fund underperformed its peer group, as represented by the Lipper
Equity Income Funds Index, which fell 15.90% during the same period.
SIGNIFICANT PERFORMANCE FACTORS
The fiscal year was characterized by heightened concerns about weakness in the
economy, ongoing turmoil in the housing and financial markets, and soaring
commodity prices. As a result, equity volatility increased as the year
progressed, peaking in March with the collapse of Bear Stearns and rearing its
head again in June. Given the extreme pressure on the financial system, it comes
as no surprise that the financials sector, the largest weighting in the Russell
Index, performed the worst. Clearly, the resulting equity market decline was
only partially mitigated by the impressive double-digit gains generated by the
energy sector, as crude oil prices surged past $140 per barrel. Despite economic
weakness and market turmoil, the Fund continued to increase its dividend payout
at a rate greater than inflation during the annual period. Also, the Fund
maintained a net dividend yield at a level in excess of 150% of the S&P 500
Index yield during the annual period. The net dividend yield is the dividend
yield after expenses.
SECTOR DIVERSIFICATION(1) (at June 30, 2008; % of portfolio assets)
- -----------------------------------------------------------------
<Table>
Consumer Discretionary 5.0%
- --------------------------------------------------------------
Consumer Staples 11.8%
- --------------------------------------------------------------
Energy 18.4%
- --------------------------------------------------------------
Financials 15.0%
- --------------------------------------------------------------
Health Care 7.8%
- --------------------------------------------------------------
Industrials 6.0%
- --------------------------------------------------------------
Information Technology 2.5%
- --------------------------------------------------------------
Materials 10.2%
- --------------------------------------------------------------
Telecommunication Services 11.8%
- --------------------------------------------------------------
Utilities 8.9%
- --------------------------------------------------------------
Other(2) 2.6%
- --------------------------------------------------------------
</Table>
(1) Sectors can be comprised of several industries. Please refer to the section
entitled "Portfolio of Investments" for a complete listing. No single
industry exceeds 25% of portfolio assets.
(2) Cash & Cash Equivalents. Of the 2.6%, 1.8% is due to security lending
activity and 0.8% is the Fund's cash equivalent position.
The sectors identified above are based on the Global Industry Classification
Standard (GICS), which was developed by and is the exclusive property of Morgan
Stanley Capital International Inc. and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 5
MANAGER COMMENTARY (continued) -------------------------------------------------
Having only a modest exposure to the financials sector contributed the most to
the Fund's performance during the period. Within financials, a position in XL
CAPITAL detracted, but this was offset by the benefit of holding just a small
position in AMERICAN INTERNATIONAL GROUP (AIG), which performed poorly. The
Fund's exposure to the comparatively stronger performing materials and utilities
sectors also helped as did effective stock selection within materials. COMPASS
MINERALS INTL and RIO TINTO were standout individual performers, each benefiting
primarily from the rise in commodity prices.
Detracting from performance most was having only a modest allocation to the
integrated oils industry. Most notably, not having positions in strong
performers EXXON MOBIL and CONOCOPHILLIPS hurt the Fund's results. So, too, did
having only a small position in OCCIDENTAL PETROLEUM. Stock selection within the
health care sector disappointed as well. In particular, sizable positions in
pharmaceutical companies PFIZER and MERCK & CO. detracted, as both saw share
price declines based on ongoing weakness in their product pipelines. PFIZER also
lost market share as a generic cholesterol-fighting drug cut into its sales of
Lipitor. MERCK also reported delays in the FDA approval process for the use of
cervical cancer vaccine Gardasil in women ages 27 through 45 as well as the
withdrawal of a joint venture with SCHERING-PLOUGH for its new respiratory drug
application.
TOP TEN HOLDINGS (at June 30, 2008; % of portfolio assets)
- -----------------------------------------------------------------
<Table>
Chevron 4.9%
- --------------------------------------------------------------
Lorillard 3.6%
- --------------------------------------------------------------
BP ADR 3.5%
- --------------------------------------------------------------
AT&T 3.3%
- --------------------------------------------------------------
Pfizer 2.4%
- --------------------------------------------------------------
EI du Pont de Nemours & Co 2.3%
- --------------------------------------------------------------
Verizon Communications 2.2%
- --------------------------------------------------------------
Enbridge 2.0%
- --------------------------------------------------------------
Bank of America 2.0%
- --------------------------------------------------------------
US Bancorp 1.8%
- --------------------------------------------------------------
</Table>
For further detail about these holdings, please refer to the section entitled
"Portfolio of Investments."
- --------------------------------------------------------------------------------
6 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
Despite economic weakness and market turmoil, the Fund continued to increase its
dividend payout at a rate greater than inflation during the annual period.
CHANGES TO THE FUND'S PORTFOLIO
The Fund's already moderate position in financials
was further reduced due to depreciation and active
management decisions. The Fund's exposure to the
energy and information technology sectors increased.
In consumer staples, we added to the Fund's position
in COCA-COLA. In industrials, we reduced the Fund's
position in GENERAL ELECTRIC, prudently doing so
just before its share price fell after the
announcement of disappointing first quarter
earnings. Other than these, we made no meaningful
changes to the Fund's portfolio during the period,
maintaining a low 20% turnover rate.
OUR FUTURE STRATEGY
In balancing our long-term view and our more
near-term concerns, we have established an emphasis
in the Fund on economically-sensitive equity
sectors. In our view, this positions the Fund well
to benefit from stabilization of the downturn in
economic growth and provides upside potential should
the economy perform better than anticipated.
As always, we take larger positions in sectors,
industries or individual stocks when we believe we
have identified factors that other investors have
either missed or ignored or strongly disagree with,
and that have the potential to move the share values
higher. We intend to focus on larger-cap stocks and
to continue to add stocks offering greater dividend
yield. Of course, we intend to continue carefully
monitoring economic data and shifts in market
conditions as we seek stock-specific and
industry-level opportunities to add value for our
shareholders.
We remain optimistic about dividend-paying stocks.
We believe those select companies with
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
the ability and willingness to increase their dividend payout ratio as their
earnings grow will be particularly attractive investments going forward. In
addition, stock dividends have historically outpaced the inflation rate. Given
these factors and the many other historical benefits of dividend-paying stocks,
we expect that investors will be willing to pay more for companies that
demonstrate dividend growth as part of a total return strategy going forward. We
continue to seek a diversified mix of dividend-paying stocks, with a focus on
large-cap, value-oriented companies.
<Table>
(PHOTO - WARREN SPITZ) (PHOTO - LATON SPAHR)
Warren Spitz Laton Spahr, CFA(R)
Senior Portfolio Manager Portfolio Manager
(PHOTO - STEVE SCHROLL) (PHOTO - PAUL STOCKING)
Steve Schroll Paul Stocking
Portfolio Manager Portfolio Manager
</Table>
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.
- --------------------------------------------------------------------------------
8 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
THIS PAGE LEFT BLANK INTENTIONALLY
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Dividend Opportunity Fund Class A shares (from 7/1/98
to 6/30/08) as compared to the performance of two widely cited performance
indices, the Russell 1000 Value Index and the Lipper Equity Income 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.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at June 30, 2008
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE DIVIDEND OPPORTUNITY FUND (INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $7,778 $10,867 $13,560 $13,039
- -----------------------------------------------------------------------------------------------
Average annual total return -22.22% +2.81% +6.28% +2.77%
- -----------------------------------------------------------------------------------------------
RUSSELL 1000 VALUE INDEX(1)
Cumulative value of $10,000 $8,122 $11,097 $15,330 $16,157
- -----------------------------------------------------------------------------------------------
Average annual total return -18.78% +3.53% +8.92% +4.91%
- -----------------------------------------------------------------------------------------------
LIPPER EQUITY INCOME FUNDS INDEX(2)
Cumulative value of $10,000 $8,410 $11,226 $14,707 $14,564
- -----------------------------------------------------------------------------------------------
Average annual total return -15.90% +3.93% +8.02% +3.83%
- -----------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 4.
- --------------------------------------------------------------------------------
10 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE DIVIDEND OPPORTUNITY
FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE DIVIDEND
OPPORTUNITY FUND CLASS A
(INCLUDES SALES CHARGE) RUSSELL 1000 VALUE INDEX(1) LIPPER EQUITY INCOME
($13,039) ($16,157) FUNDS INDEX(2) ($14,564)
------------------------ --------------------------- ------------------------
'98 $9,425 $10,000 $10,000
'99 11,320 11,637 11,120
'00 11,510 10,599 10,389
'01 12,217 11,695 11,189
'02 9,287 10,648 10,094
'03 9,064 10,539 9,904
'04 9,596 12,766 11,785
'05 11,303 14,561 12,974
'06 12,472 16,323 14,265
'07 15,797 19,893 17,318
'08 13,039 16,157 14,564
</Table>
(1) The Russell 1000 Value Index, an unmanaged index, measures the performance
of those stocks in the Russell 1000 Index with lower price-to-book ratios
and lower forecasted growth values. The index reflects reinvestment of all
distributions and changes in market prices.
(2) The Lipper Equity Income Funds Index includes the 30 largest equity income
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.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 11
FUND EXPENSES EXAMPLE ----------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended June 30, 2008.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
12 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JAN. 1, 2008 JUNE 30, 2008 THE PERIOD(A) EXPENSE RATIO
- -------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 855.90 $ 5.03(c) 1.09%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,019.44 $ 5.47(c) 1.09%
- -------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 852.30 $ 8.52(c) 1.85%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,015.66 $ 9.27(c) 1.85%
- -------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 852.10 $ 8.47(c) 1.84%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,015.71 $ 9.22(c) 1.84%
- -------------------------------------------------------------------------------------------
Class I
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 857.10 $ 3.19(c) .69%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,021.43 $ 3.47(c) .69%
- -------------------------------------------------------------------------------------------
Class R4
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 857.60 $ 4.48(c) .97%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,020.04 $ 4.87(c) .97%
- -------------------------------------------------------------------------------------------
Class W
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 854.90 $ 5.12(c) 1.11%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,019.34 $ 5.57(c) 1.11%
- -------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/366 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended June 30, 2008: -14.41%
for Class A, -14.77% for Class B, -14.79% for Class C, -14.29% for Class I,
-14.24% for Class R4 and -14.51% for Class W.
(c) The Investment Manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until June 30, 2009,
unless sooner terminated at the discretion of the Fund's Board, such that
net expenses (excluding fees and expenses of acquired funds), before giving
effect to any performance incentive adjustment, will not exceed 1.06% for
Class A, 1.82% for Class B, 1.82% for Class C, 0.70% for Class I, 0.96% for
Class R4 and 1.15% for Class W. Any amounts waived will not be reimbursed
by the Fund. This change was effective July 1, 2008. Had this change been
in place for the entire six month period ended June 30, 2008, the actual
expenses paid would have been $4.94 for Class A, $8.43 for Class B and
$8.43 for Class C; the hypothetical expenses paid would have been $5.37 for
Class A, $9.17 for Class B and $9.17 for Class C. The actual and
hypothetical expenses paid for Class I, Class R4 and Class W would have
been the same as those expenses presented in the table above.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 13
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
JUNE 30, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
COMMON STOCKS (96.4%)
ISSUER SHARES VALUE(A)
AEROSPACE & DEFENSE (0.9%)
Honeywell Intl 287,287 $14,444,790
- -----------------------------------------------------------------------------------
AUTOMOBILES (0.6%)
Ford Motor 1,257,332(b) 6,047,766
General Motors 295,947(e) 3,403,391
---------------
Total 9,451,157
- -----------------------------------------------------------------------------------
BEVERAGES (2.0%)
Coca-Cola 316,312 16,441,898
Diageo ADR 200,808(c) 14,833,687
---------------
Total 31,275,585
- -----------------------------------------------------------------------------------
CHEMICALS (5.4%)
Air Products & Chemicals 118,374 11,702,454
Dow Chemical 526,098 18,366,081
Eastman Chemical 152,594 10,507,623
EI du Pont de Nemours & Co 852,436 36,560,980
Olin 242,255 6,342,236
---------------
Total 83,479,374
- -----------------------------------------------------------------------------------
COMMERCIAL BANKS (5.6%)
Comerica 145,396 3,726,499
HSBC Holdings 631,161(c) 9,753,294
Lloyds TSB Group 596,541(c) 3,692,673
Natl Australia Bank 620,324(c) 15,759,675
PNC Financial Services Group 68,502 3,911,464
Regions Financial 368,754 4,023,106
Royal Bank of Scotland Group 888,166(c) 3,803,838
US Bancorp 1,036,590 28,910,494
Wachovia 495,817 7,700,038
Wells Fargo & Co 280,894 6,671,233
---------------
Total 87,952,314
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
COMMERCIAL SERVICES & SUPPLIES (2.1%)
Deluxe 353,662 $6,302,257
Pitney Bowes 305,559 10,419,562
RR Donnelley & Sons 351,782 10,444,408
Waste Management 129,513 4,883,935
---------------
Total 32,050,162
- -----------------------------------------------------------------------------------
CONTAINERS & PACKAGING (0.8%)
Packaging Corp of America 586,778 12,621,595
- -----------------------------------------------------------------------------------
DISTRIBUTORS (0.4%)
Genuine Parts 165,773 6,577,873
- -----------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (5.1%)
Bank of America 1,297,148 30,962,923
Citigroup 1,384,366 23,201,974
JPMorgan Chase & Co 641,478 22,009,110
KKR Financial Holdings LLC 321,652 3,377,346
---------------
Total 79,551,353
- -----------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (11.6%)
AT&T 1,526,483 51,427,212
BT Group 3,460,660(c) 13,780,377
Citizens Communications 1,150,079 13,041,896
Deutsche Telekom ADR 664,922(c) 10,884,773
Embarq 417,097 19,716,175
FairPoint Communications 219,311 1,581,232
Telefonos de Mexico ADR Series L 440,782(c) 10,437,718
Telmex Internacional ADR 440,782(b,c,e) 7,096,590
Telstra 2,483,425(c) 10,094,846
Verizon Communications 967,410 34,246,314
Windstream 518,948 6,403,818
---------------
Total 178,710,951
- -----------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
14 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
ELECTRIC UTILITIES (2.8%)
American Electric Power 192,925 $7,761,373
Duke Energy 711,701 12,369,364
Pinnacle West Capital 216,672 6,666,997
Progress Energy 173,303 7,249,264
Southern 207,759 7,254,944
UIL Holdings 102,587 3,017,084
---------------
Total 44,319,026
- -----------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (0.6%)
Hubbell Cl B 244,696 9,756,030
- -----------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (3.7%)
Halliburton 398,655 21,156,621
Schlumberger 122,034 13,110,113
Transocean 158,043(b) 24,084,172
---------------
Total 58,350,906
- -----------------------------------------------------------------------------------
FOOD PRODUCTS (2.6%)
B&G Foods Cl A 547,276 5,111,558
ConAgra Foods 425,287 8,199,533
Kraft Foods Cl A 450,401 12,813,908
Reddy Ice Holdings 699,425 9,568,134
Sara Lee 383,030 4,692,118
---------------
Total 40,385,251
- -----------------------------------------------------------------------------------
GAS UTILITIES (1.0%)
Nicor 383,127 16,317,379
- -----------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE (0.4%)
Carnival Unit 186,211 6,137,515
- -----------------------------------------------------------------------------------
HOUSEHOLD DURABLES (1.6%)
Newell Rubbermaid 231,747 3,891,032
Tupperware Brands 625,013 21,387,945
---------------
Total 25,278,977
- -----------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (1.1%)
General Electric 460,025 12,278,067
Tomkins 1,397,668(c) 4,204,074
---------------
Total 16,482,141
- -----------------------------------------------------------------------------------
INSURANCE (1.8%)
Lincoln Natl 106,067 4,806,956
Marsh & McLennan Companies 126,739 3,364,920
Montpelier Re Holdings 551,052(c) 8,128,017
Unitrin 85,909 2,368,511
XL Capital Cl A 492,795(c) 10,131,866
---------------
Total 28,800,270
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
MACHINERY (0.8%)
Harsco 219,055 $11,918,783
- -----------------------------------------------------------------------------------
MARINE (0.1%)
Aries Maritime Transport 430,889(c) 2,089,812
- -----------------------------------------------------------------------------------
MEDIA (2.0%)
CBS Cl B 245,909 4,792,766
Cinemark Holdings 184,788(e) 2,413,331
GateHouse Media 341,029(e) 838,931
Natl CineMedia 658,606 7,020,740
Regal Entertainment Group Cl A 1,050,667 16,054,193
---------------
Total 31,119,961
- -----------------------------------------------------------------------------------
METALS & MINING (3.1%)
Compass Minerals Intl 339,902 27,382,505
Rio Tinto ADR 25,074(c) 12,411,630
Southern Copper 80,216(e) 8,553,432
---------------
Total 48,347,567
- -----------------------------------------------------------------------------------
MULTI-UTILITIES (5.1%)
Ameren 95,832 4,046,985
CH Energy Group 78,833 2,804,090
Consolidated Edison 262,908 10,277,074
Dominion Resources 222,020 10,543,729
DTE Energy 181,293 7,694,075
Energy East 337,404 8,340,627
Natl Grid 1,239,269(c) 16,305,261
NiSource 286,363 5,131,625
NSTAR 124,358 4,205,788
Public Service Enterprise Group 222,834 10,234,766
---------------
Total 79,584,020
- -----------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS (15.0%)
Arlington Tankers 126,980(c,e) 2,948,476
BP ADR 796,268(c) 55,396,365
Chevron 785,419 77,858,585
Enbridge 736,990(c) 31,823,228
Enbridge Energy Management LLC 1(b) 27
Eni 436,423(c) 16,284,363
Kinder Morgan Management LLC 1(b) 55
Royal Dutch Shell ADR 277,278(c) 22,656,385
Ship Finance Intl 176,813(c) 5,221,288
Spectra Energy 355,848 10,227,072
TransCanada 256,021(c,e) 9,925,934
---------------
Total 232,341,778
- -----------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio
of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 15
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
PAPER & FOREST PRODUCTS (1.1%)
Intl Paper 190,815 $4,445,990
MeadWestvaco 347,096 8,274,768
Stora Enso Series R 499,163(c) 4,683,855
---------------
Total 17,404,613
- -----------------------------------------------------------------------------------
PHARMACEUTICALS (7.7%)
Biovail 611,722(c) 5,903,117
Bristol-Myers Squibb 784,321 16,102,110
Eli Lilly & Co 89,331 4,123,519
Johnson & Johnson 290,687 18,702,802
Merck & Co 756,758 28,522,209
Pfizer 2,181,447 38,109,879
Schering-Plough 55,363 1,090,097
Wyeth 156,130 7,487,995
---------------
Total 120,041,728
- -----------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (2.6%)
Intel 440,139 9,454,186
Microchip Technology 498,587 15,226,847
Taiwan Semiconductor Mfg ADR 1,444,341(c) 15,757,760
---------------
Total 40,438,793
- -----------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.4%)
Capitol Federal Financial 102,958(e) 3,872,251
Fannie Mae 105,330 2,054,988
---------------
Total 5,927,239
- -----------------------------------------------------------------------------------
TOBACCO (7.4%)
Altria Group 588,257 12,094,564
Lorillard 827,971(b) 57,262,475
Philip Morris Intl 580,155 28,653,855
Reynolds American 364,467 17,009,675
---------------
Total 115,020,569
- -----------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS (0.5%)
Babcock & Brown Air ADR 754,331(c,e) 7,528,223
- -----------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.5%)
Vodafone Group ADR 262,798(c) 7,742,029
- -----------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $1,550,004,871) $1,501,447,764
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
BONDS (2.1%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
BROKERAGE
Goldman Sachs Group
13.00% Cv
10-08-08 13.00% $25,000,000(d,g,h) $22,141,250
Goldman Sachs Group
25.00% Cv
10-10-08 25.00 17,000,000(d,g,h) 10,522,235
- -------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $42,000,000) $32,663,485
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PREFERRED STOCKS (0.4%)
ISSUER SHARES VALUE(A)
PHARMACEUTICALS (0.3%)
Schering-Plough
6.00% Cv 20,400 $3,887,628
PROPERTY & CASUALTY (0.1%)
XL Capital
7.00% Cv 255,800(c) 2,291,968
- -----------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost: $11,514,662) $6,179,596
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (2.7%)(f)
SHARES VALUE(A)
RiverSource Short-Term
Cash Fund, 2.57% 41,669,170(i) $41,669,170
- -----------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $41,669,170) $41,669,170
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $1,645,188,703)(j) $1,581,960,015
===================================================================================
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. At June 30, 2008, the
value of foreign securities represented 21.9% of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
may be determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At June 30,
2008, the value of these securities amounted to $32,663,485 or 2.1% of net
assets.
(e) At June 30, 2008, security was partially or fully on loan. See Note 5 to
the financial statements.
(f) Cash collateral received from security lending activity is invested in an
affiliated money market fund and represents 1.8% of net assets. See Note 5
to the financial statements. The Fund's cash equivalent position is 0.9% of
net assets.
(g) This privately issued security is an aggregate mandatory exchangeable note
whose investment results are designed to correspond generally to the
performance of a specific basket of common stocks. Upon maturity, the
security will be exchanged for either cash or at the option of the issuer,
the issuer may deliver shares of the referenced securities.
(h) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). These securities may be valued at fair
value according to procedures approved, in good faith, by the Fund's Board
of Directors. Information concerning such security holdings at June 30,
2008, is as follows:
<Table>
<Caption>
ACQUISITION
SECURITY DATES COST
- ---------------------------------------------------------------------------------
Goldman Sachs Group*
13.00% Cv 2008 04-01-08 $25,000,000
Goldman Sachs Group*
25.00% Cv 2008 04-01-08 17,000,000
</Table>
* Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended.
(i) Affiliated Money Market Fund -- See Note 6 to the financial statements. The
rate shown is the seven-day current annualized yield at June 30, 2008.
(j) At June 30, 2008, the cost of securities for federal income tax purposes
was $1,645,953,590 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $231,432,678
Unrealized depreciation (295,426,253)
- ------------------------------------------------------------------------------
Net unrealized depreciation $(63,993,575)
- ------------------------------------------------------------------------------
</Table>
The sectors identified above are based on the Global Industry Classification
Standard (GICS), which was developed by and is the exclusive property of Morgan
Stanley Capital International Inc. and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 17
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.
- --------------------------------------------------------------------------------
18 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
FINANCIAL STATEMENTS -----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008
<Table>
ASSETS
Investments in securities, at value
Unaffiliated issuers* (identified cost $1,603,519,533) $1,540,290,845
Affiliated money market fund (identified cost
$41,669,170) 41,669,170
- ------------------------------------------------------------------------------
Total investments in securities (identified cost
$1,645,188,703) 1,581,960,015
Capital shares receivable 636,075
Dividends and accrued interest receivable 6,471,065
- ------------------------------------------------------------------------------
Total assets 1,589,067,155
- ------------------------------------------------------------------------------
LIABILITIES
Disbursements in excess of cash 3
Capital shares payable 3,015,227
Payable upon return of securities loaned 28,188,700
Accrued investment management services fees 74,413
Accrued distribution fees 648,184
Accrued transfer agency fees 16,289
Accrued administrative services fees 6,984
Accrued plan administration services fees 416
Other accrued expenses 215,058
- ------------------------------------------------------------------------------
Total liabilities 32,165,274
- ------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $1,556,901,881
==============================================================================
REPRESENTED BY
Capital stock -- $.01 par value $ 2,018,047
Additional paid-in capital 1,949,686,625
Undistributed net investment income 12,449,075
Accumulated net realized gain (loss) (344,036,066)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies (63,215,800)
- ------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $1,556,901,881
==============================================================================
* Including securities on loan, at value $ 27,179,085
- ------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 19
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
JUNE 30, 2008
<Table>
<Caption>
SHARES NET ASSET VALUE
NET ASSETS OUTSTANDING PER SHARE
NET ASSET VALUE PER SHARE
Class A $1,166,836,238 151,153,162 $ 7.72(1)
Class B $ 171,162,689 22,320,646 $ 7.67
Class C $ 21,336,365 2,787,614 $ 7.65
Class I $ 196,677,710 25,428,411 $ 7.73
Class R4 $ 884,486 114,314 $ 7.74
Class W $ 4,393 568 $ 7.73
- ------------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $8.19. The offering
price is calculated by dividing the net asset value by 1.0 minus the
maximum sales charge of 5.75%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
20 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2008
<Table>
INVESTMENT INCOME
Income:
Dividends $ 78,655,412
Interest 5,480,191
Income distributions from affiliated money market fund 1,209,506
Fee income from securities lending 545,996
Less foreign taxes withheld (1,574,990)
- -----------------------------------------------------------------------------
Total income 84,316,115
- -----------------------------------------------------------------------------
Expenses:
Investment management services fees 12,015,660
Distribution fees
Class A 3,563,045
Class B 2,220,149
Class C 257,746
Class W 13
Transfer agency fees
Class A 2,049,714
Class B 341,253
Class C 38,312
Class R4 568
Class W 11
Administrative services fees 1,033,158
Plan administration services fees -- Class R4 2,840
Compensation of board members 37,820
Custodian fees 172,378
Printing and postage 269,700
Registration fees 81,150
Professional fees 61,167
Other 66,750
- -----------------------------------------------------------------------------
Total expenses 22,211,434
Expenses waived/reimbursed by the Investment Manager
and its affiliates (2,957)
Earnings and bank fee credits on cash balances (59,667)
- -----------------------------------------------------------------------------
Total net expenses 22,148,810
- -----------------------------------------------------------------------------
Investment income (loss) -- net 62,167,305
- -----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 21
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED JUNE 30, 2008
<Table>
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions $ 57,838,140
Foreign currency transactions 241,375
Futures contracts (1,859,734)
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments 56,219,781
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies (471,877,412)
- ----------------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies (415,657,631)
- ----------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(353,490,326)
==================================================================================
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
22 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED JUNE 30, 2008 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 62,167,305 $ 49,502,404
Net realized gain (loss) on investments 56,219,781 58,260,614
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (471,877,412) 264,722,828
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (353,490,326) 372,485,846
- ---------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (42,059,205) (33,311,055)
Class B (4,705,394) (5,449,259)
Class C (577,096) (414,008)
Class I (8,053,021) (5,522,045)
Class R4 (37,117) (35,161)
Class W (149) (107)
- ---------------------------------------------------------------------------------------
Total distributions (55,431,982) (44,731,635)
- ---------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 333,666,137 481,210,177
Class B shares 30,861,475 68,992,607
Class C shares 6,798,093 10,520,148
Class I shares 55,427,460 168,025,146
Class R4 shares 308,726 444,187
Class W shares -- 5,000
Reinvestment of distributions at net asset value
Class A shares 39,955,948 31,486,764
Class B shares 4,536,786 5,250,958
Class C shares 525,590 382,217
Class I shares 8,052,561 5,521,621
Class R4 shares 37,117 35,161
Payments for redemptions
Class A shares (353,444,406) (204,331,194)
Class B shares (122,803,455) (99,829,524)
Class C shares (6,247,970) (3,444,796)
Class I shares (56,505,344) (9,363,966)
Class R4 shares (550,381) (294,026)
- ---------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions (59,381,663) 454,610,480
- ---------------------------------------------------------------------------------------
Total increase (decrease) in net assets (468,303,971) 782,364,691
Net assets at beginning of year 2,025,205,852 1,242,841,161
- ---------------------------------------------------------------------------------------
Net assets at end of year $1,556,901,881 $2,025,205,852
=======================================================================================
Undistributed net investment income $ 12,449,075 $ 5,463,699
- ---------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 23
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource Dividend Opportunity Fund (the Fund) is a series of RiverSource
Sector Series, Inc. and is registered under the Investment Company Act of 1940
(as amended) as a diversified, open-end management investment company.
RiverSource Sector Series, Inc. has 10 billion authorized shares of capital
stock that can be allocated among the separate series as designated by the Board
of Directors (the Board). The Fund invests primarily in dividend-paying common
and preferred stocks.
The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
- - Class W shares are sold without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At June 30, 2008, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of
Class I shares and the Investment Manager owned 100% of Class W shares.
Effective Aug. 1, 2008, 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.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
24 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Foreign securities are valued based on quotations from the principal market in
which such securities are normally traded. The procedures adopted by the Board
generally contemplate the use of fair valuation in the event that price
quotations or valuations are not readily available, price quotations or
valuations from other sources are not reflective of market value and thus deemed
unreliable, or a significant event has occurred in relation to a security or
class of securities (such as foreign securities) that is not reflected in price
quotations or valuations from other sources. A fair value price is a good faith
estimate of the value of a security at a given point in time.
Many securities markets and exchanges outside the U.S. close prior to the close
of the New York Stock Exchange and therefore the closing prices for securities
in such markets or on such exchanges may not fully reflect events that occur
after such close but before the close of the New York Stock Exchange, including
significant movements in the U.S. market after foreign exchanges have closed.
Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise
Financial), parent company of the Investment Manager, as administrator to the
Fund, will fair value foreign securities pursuant to procedures adopted by the
Board, including utilizing a third party pricing service to determine these fair
values. These procedures take into account multiple factors, including movements
in the U.S. securities markets, to determine a good faith estimate that
reasonably reflects the current market conditions as of the close of the New
York Stock Exchange.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
ILLIQUID SECURITIES
At June 30, 2008, investments in securities included issues that are illiquid
which the Fund currently limits to 15% of net assets, at market value, at the
time of purchase. Prior to July 12, 2007, the Fund limited the percent held in
securities and other instruments that were illiquid to 10% of the Fund's net
assets. The aggregate value of such securities at June 30, 2008 was $32,663,485
representing 2.10% of net assets. These securities may be valued at fair value
according to procedures approved, in good faith, by the Board. According to
Board guidelines, certain unregistered securities are determined to be liquid
and are not included within the 15% limitation specified above. Assets are
liquid if they can be sold or disposed of in the ordinary course of business
within seven days at approximately the value at which the asset is valued by the
Fund.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 25
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
June 30, 2008, and for the year then ended, the Fund had no outstanding option
contracts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Futures are valued daily based upon the last sale price at the close of market
on the principal exchange on which they are traded. Upon entering into a futures
contract, the Fund is required to deposit either cash or securities in an amount
(initial margin) equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the Fund each day. The
variation margin payments are equal to the daily changes in the contract value
and are recorded as unrealized gains and losses. The Fund recognizes a realized
gain or loss when the contract is closed or expires. At June 30, 2008, the Fund
had no outstanding futures contracts.
- --------------------------------------------------------------------------------
26 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the Statement of Operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Fund may enter into forward foreign currency contracts for operational
purposes and to protect against adverse exchange rate fluctuation. The net U.S.
dollar value of foreign currency underlying all contractual commitments held by
the Fund and the resulting unrealized appreciation or depreciation are
determined using foreign currency exchange rates from an independent pricing
service. The Fund is subject to the credit risk that the other party will not
complete its contract obligations. At June 30, 2008, the Fund had no outstanding
forward foreign currency contracts.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes," clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB Statement 109,
"Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize
and measure a tax position taken or expected to be taken in a tax return. The
first step is to determine whether a tax position has met the more-likely-than-
not recognition threshold and the second step is to measure a tax position that
meets the threshold to determine the amount of benefit to recognize. Management
of the Fund has concluded that there are no significant uncertain tax positions
that
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 27
would require recognition in the financial statements. Generally, the tax
authorities can examine all the tax returns filed for the last three years.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures contracts,
investments in partnerships and losses deferred due to wash sales. The character
of distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Fund.
On the Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $250,053
and accumulated net realized loss has been increased by $250,053.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED JUNE 30, 2008 2007*
- ----------------------------------------------------------------------------
CLASS A
Distributions paid from:
Ordinary income......................... $42,059,205 $33,311,055
Long-term capital gain.................. -- --
CLASS B
Distributions paid from:
Ordinary income......................... 4,705,394 5,449,259
Long-term capital gain.................. -- --
CLASS C
Distributions paid from:
Ordinary income......................... 577,096 414,008
Long-term capital gain.................. -- --
CLASS I
Distributions paid from:
Ordinary income......................... 8,053,021 5,522,045
Long-term capital gain.................. -- --
CLASS R4
Distributions paid from:
Ordinary income......................... 37,117 35,161
Long-term capital gain.................. -- --
CLASS W
Distributions paid from:
Ordinary income......................... 149 107
Long-term capital gain.................. -- --
</Table>
* Class W is for the period from Dec. 1, 2006 (inception date) to June 30, 2007.
- --------------------------------------------------------------------------------
28 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
At June 30, 2008, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income............................ $ 13,126,774
Undistributed accumulated long-term gain................. $ --
Accumulated realized loss................................ $(343,927,468)
Unrealized appreciation (depreciation)................... $ (64,002,097)
</Table>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging
Activities -- an amendment of FASB Statement No. 133," which requires enhanced
disclosures about a fund's derivative and hedging activities. Funds are required
to provide enhanced disclosures about (a) how and why a fund uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect a fund's financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
Nov. 15, 2008. As of June 30, 2008, management does not believe the adoption of
SFAS 161 will impact the financial statement amounts; however, additional
footnote disclosures may be required about the use of derivative instruments and
hedging items.
On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards
No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an
authoritative definition of fair value, sets out a hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. The application of SFAS 157
will be effective for the Fund's fiscal year beginning July 1, 2008. The
adoption of SFAS 157 is not anticipated to have a material impact on the Fund's
financial statements; however, additional disclosures will be required about the
inputs used to develop the measurements of fair value and the effect of certain
measurements reported in the Statement of Operations for a fiscal period.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared and paid each calendar quarter,
when available, are reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed along
with the last income dividend of the calendar year.
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,
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 29
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.61%
to 0.375% annually as the Fund's assets increase. The fee may be adjusted upward
or downward by a performance incentive adjustment determined monthly by
measuring the percentage difference over a rolling 12-month period between the
annualized performance of one Class A share of the Fund and the annualized
performance of the Lipper Equity Income Funds Index. In certain circumstances,
the Board may approve a change in the index. The maximum adjustment is 0.12% per
year. If the performance difference is less than 0.50%, the adjustment will be
zero. The adjustment increased the management fee by $916,530 for the year ended
June 30, 2008. The management fee for the year ended June 30, 2008 was 0.63% of
the Fund's average daily net assets, including the adjustment under the terms of
the performance incentive arrangement.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.06% to 0.03% annually as the
Fund's assets increase. The fee for the year ended June 30, 2008 was 0.05% of
the Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended June 30,
2008, other expenses paid to this company were $8,823.
COMPENSATION OF BOARD MEMBERS
Compensation of board members includes, for a former Board Chair, compensation
as well as retirement benefits. Certain other aspects of a former Board Chair's
compensation, including health benefits and payment of certain other expenses,
are included under other expenses.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
RiverSource funds. The Fund's liability for these amounts is adjusted for market
- --------------------------------------------------------------------------------
30 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
value changes and remains in the Fund until distributed in accordance with the
Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual account-based fee at a rate equal to $19.50 for Class A, $20.50
for Class B and $20.00 for Class C for this service The Fund also pays the
Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's
average daily net assets attributable to Class R4 shares and an annual
asset-based fee at a rate of 0.20% of the Fund's average daily net assets
attributable to Class W shares.
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statement of Operations.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R4 shares for the provision of various administrative,
recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor)
for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise
Financial Services, Inc. also served as a principal underwriter and distributor
to the Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1,
the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily
net assets attributable to Class A and Class W shares and a fee at an annual
rate of up to 1.00% of the Fund's average daily net assets attributable to Class
B and Class C shares.
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$1,510,259 for Class A, $130,130 for Class B and $8,141 for Class C for the year
ended June 30, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended June 30, 2008, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*) were as follows:
<Table>
Class R4.................................................... 0.76%
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class R4.................................................... $117
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 31
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R4.................................................... $2,840
</Table>
Under an agreement, which was effective until June 30, 2008, the Investment
Manager and its affiliates contractually agreed to waive certain fees and
expenses such that net expenses (excluding fees and expenses of acquired
funds*), before giving effect to any performance incentive adjustment, would not
exceed the following percentage of the Fund's average daily net assets:
<Table>
Class R4.................................................... 0.96%
</Table>
Effective July 1, 2008, the Investment Manager and its affiliates have
contractually agreed to waive certain fees and expenses until June 30, 2009,
unless sooner terminated at the discretion of the Board, such that net expenses
(excluding fees and expenses of acquired funds*), before giving effect to any
performance incentive adjustment, will not exceed the following percentage of
the Fund's average daily net assets:
<Table>
Class A..................................................... 1.06%
Class B..................................................... 1.82
Class C..................................................... 1.82
Class I..................................................... 0.70
Class R4.................................................... 0.96
Class W..................................................... 1.15
</Table>
* In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
funds in which it invests (also referred to as "acquired funds"), including
affiliated and non-affiliated pooled investment vehicles (including mutual
funds and exchange traded funds). Because the acquired funds have varied
expense and fee levels and the Fund may own different proportions of
acquired funds at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
EARNINGS AND BANK FEE CREDITS
During the year ended June 30, 2008, the Fund's custodian and transfer agency
fees were reduced by $59,667 as a result of earnings and bank fee credits from
overnight cash balances. The Fund pays custodian fees to Ameriprise Trust
Company, a subsidiary of Ameriprise Financial.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $369,186,506 and $401,148,727 respectively, for the year
ended June 30, 2008. Realized gains and losses are determined on an identified
cost basis.
- --------------------------------------------------------------------------------
32 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<Table>
<Caption>
YEAR ENDED JUNE 30, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------------------
Class A 36,055,477 4,660,694 (40,059,510) 656,661
Class B 3,418,567 533,508 (13,264,038) (9,311,963)
Class C 748,301 61,937 (720,206) 90,032
Class I 5,941,045 935,656 (6,461,387) 415,314
Class R4 34,110 4,320 (61,365) (22,935)
- ----------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED JUNE 30, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------------------
Class A 54,219,265 3,497,308 (23,007,012) 34,709,561
Class B 7,770,738 589,257 (12,013,076) (3,653,081)
Class C 1,171,837 42,724 (391,943) 822,618
Class I 19,633,199 608,792 (1,075,764) 19,166,227
Class R4 51,172 3,908 (33,039) 22,041
Class W* 568 -- -- 568
- ----------------------------------------------------------------------------------------------
</Table>
* For the period from Dec. 1, 2006 (inception date) to June 30, 2007.
5. LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend securities
representing up to one-third of the value of its total assets (which includes
collateral for securities on loan) to broker-dealers, banks, or other
institutional borrowers of securities. The Fund receives collateral in the form
of cash and U.S. government securities, equal to at least 100% of the value of
securities loaned, which is marked to the market value of the loaned securities
daily until the securities are returned, e.g., if the value of the securities on
loan increases, additional cash collateral is provided by the borrower. The
Investment Manager serves as securities lending agent for the Fund under the
Investment Management Services Agreement pursuant to which the Fund has agreed
to reimburse the Investment Manager for expenses incurred by it in connection
with the lending program, and pursuant to guidelines adopted by and under the
oversight of the Board. At June 30, 2008, securities valued at $27,179,085 were
on loan to brokers. For collateral, the Fund received $28,188,700 in cash. Cash
collateral received is invested in an affiliated money market fund and
short-term securities, including U.S. government securities or other high grade
debt obligations, which are included in the Portfolio of Investments. Income
from securities lending amounted to $545,996 for the year ended June 30, 2008.
Expenses paid to the Investment Manager as securities
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 33
lending agent were $15,422 for the year ended June 30, 2008, which are included
in other expenses on the Statement of Operations. The risks to the Fund of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
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. The cost of the
Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term
Cash Fund aggregated $767,785,887 and $819,964,503, respectively, for the year
ended June 30, 2008. The income distributions received with respect to the
Fund's investment in RiverSource Short-Term Cash Fund can be found on the
Statement of Operations and the Fund's invested balance in RiverSource
Short-Term Cash Fund at June 30, 2008, can be found in the Portfolio of
Investments.
7. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the
temporary funding of shareholder redemptions or for other temporary or emergency
purposes. The credit facility became effective on Oct. 18, 2007, replacing a
prior credit facility. The credit facility agreement, which is a collective
agreement between the Fund and certain other RiverSource funds, severally and
not jointly, permits collective borrowings up to $500 million. Interest is
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.30%. Each borrowing under the credit facility matures no later
than 60 days after the date of borrowing. The Fund also pays a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.06% per annum. Under the prior credit facility, a Fund paid interest on its
outstanding borrowings at a rate equal to either the higher of the federal funds
effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. The Fund
had no borrowings during the year ended June 30, 2008.
8. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$343,927,468 at June 30, 2008, that if not offset by capital gains will expire
in 2011. It is unlikely the Board will authorize a distribution of any net
realized capital gains until the available capital loss carry-over has been
offset or expires.
- --------------------------------------------------------------------------------
34 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
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 filed a notice of appeal with the Eighth Circuit Court of Appeals on
August 8, 2007.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was censured and ordered
to cease and desist from committing or causing any violations of certain
provisions of the Investment Advisers Act of 1940, the Investment Company Act of
1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million
and civil money penalties of $7 million. AEFC also agreed to retain an
independent distribution consultant to assist in developing a plan for
distribution of all disgorgement and civil penalties ordered by the SEC in
accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of Directors/
Trustees.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 35
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.
- --------------------------------------------------------------------------------
36 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
10. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004
Net asset value, beginning of period $9.65 $7.83 $7.30 $6.39 $6.23
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .30(b) .26 .25 .22 .21
Net gains (losses) (both realized and
unrealized) (1.96) 1.81 .50 .91 .15
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (1.66) 2.07 .75 1.13 .36
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.27) (.25) (.22) (.22) (.20)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.72 $9.65 $7.83 $7.30 $6.39
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $1,167 $1,453 $907 $808 $700
- -----------------------------------------------------------------------------------------------------------
Total expenses(c),(d) 1.11% 1.15% 1.16% 1.12% 1.02%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.31% 3.15% 3.27% 3.20% 3.30%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 17% 19% 24% 118%
- -----------------------------------------------------------------------------------------------------------
Total return(e) (17.46%) 26.66% 10.34% 17.79% 5.87%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(d) 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.
(e) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 37
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004
Net asset value, beginning of period $9.59 $7.78 $7.25 $6.35 $6.19
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .22(b) .19 .19 .17 .16
Net gains (losses) (both realized and
unrealized) (1.94) 1.80 .50 .89 .15
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (1.72) 1.99 .69 1.06 .31
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.18) (.16) (.16) (.15)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.67 $9.59 $7.78 $7.25 $6.35
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $171 $303 $275 $297 $301
- -----------------------------------------------------------------------------------------------------------
Total expenses(c),(d) 1.87% 1.91% 1.93% 1.88% 1.79%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.48% 2.38% 2.50% 2.41% 2.53%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 17% 19% 24% 118%
- -----------------------------------------------------------------------------------------------------------
Total return(e) (18.15%) 25.76% 9.55% 16.84% 5.08%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(d) 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.
(e) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
38 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004
Net asset value, beginning of period $9.57 $7.77 $7.25 $6.35 $6.19
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23(b) .19 .18 .17 .16
Net gains (losses) (both realized and
unrealized) (1.95) 1.79 .50 .89 .15
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (1.72) 1.98 .68 1.06 .31
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.18) (.16) (.16) (.15)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.65 $9.57 $7.77 $7.25 $6.35
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $21 $26 $15 $12 $10
- -----------------------------------------------------------------------------------------------------------
Total expenses(c),(d) 1.87% 1.91% 1.92% 1.89% 1.79%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.56% 2.40% 2.50% 2.43% 2.54%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 17% 19% 24% 118%
- -----------------------------------------------------------------------------------------------------------
Total return(e) (18.15%) 25.74% 9.47% 16.86% 5.11%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(d) 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.
(e) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 39
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004(B)
Net asset value, beginning of period $9.67 $7.85 $7.32 $6.41 $6.64
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .33(c) .30 .27 .25 .13
Net gains (losses) (both realized and
unrealized) (1.97) 1.80 .51 .91 (.24)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (1.64) 2.10 .78 1.16 (.11)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.30) (.28) (.25) (.25) (.12)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.73 $9.67 $7.85 $7.32 $6.41
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $197 $242 $46 $-- $--
- -----------------------------------------------------------------------------------------------------------
Total expenses(d),(e) .72% .76% .78% .70% .60%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.70% 3.58% 3.52% 3.61% 3.81%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 17% 19% 24% 118%
- -----------------------------------------------------------------------------------------------------------
Total return (17.19%) 27.07% 10.78% 18.24% (1.84%)(g)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (inception date) to June 30, 2004.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) Not annualized.
- --------------------------------------------------------------------------------
40 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004
Net asset value, beginning of period $9.67 $7.85 $7.32 $6.41 $6.23
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .33(b) .27 .26 .23 .22
Net gains (losses) (both realized and
unrealized) (1.95) 1.81 .50 .91 .17
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (1.62) 2.08 .76 1.14 .39
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.31) (.26) (.23) (.23) (.21)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.74 $9.67 $7.85 $7.32 $6.41
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $1 $1 $1 $-- $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.02% 1.03% .99% .94% .84%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .76% 1.02% .99% .94% .84%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.62% 3.29% 3.37% 3.37% 3.32%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 17% 19% 24% 118%
- -----------------------------------------------------------------------------------------------------------
Total return (17.00%) 26.75% 10.56% 17.93% 6.35%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) 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.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(f) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 41
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007(B)
Net asset value, beginning of period $9.67 $8.80
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .29(c) .25
Net gains (losses) (both realized and
unrealized) (1.97) .81
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (1.68) 1.06
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.26) (.19)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.73 $9.67
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $-- $--
- -----------------------------------------------------------------------------------------------------------
Total expenses(d),(e) 1.16% 1.19%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.27% 2.97%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 17%
- -----------------------------------------------------------------------------------------------------------
Total return (17.58%) 12.15%(g)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (inception date) to June 30, 2007.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) Not annualized.
- --------------------------------------------------------------------------------
42 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RIVERSOURCE DIVIDEND OPPORTUNITY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RiverSource Dividend Opportunity Fund (the
Fund) (one of the portfolios constituting the RiverSource Sector Series, Inc.)
as of June 30, 2008, 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 periods presented through June 30,
2007, were audited by other auditors whose report dated August 21, 2007,
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 June 30, 2008, by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audit provides a reasonable basis for our
opinion.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 43
In our opinion, the 2008 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
RiverSource Dividend Opportunity Fund of the RiverSource Sector Series, Inc. at
June 30, 2008, 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 LLP
Minneapolis, Minnesota
August 20, 2008
- --------------------------------------------------------------------------------
44 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
FEDERAL INCOME TAX INFORMATION -------------------------------------------------
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
Fiscal year ended June 30, 2008
CLASS A
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 100%
Dividends Received Deduction for corporations......... 100%
U.S. Government Obligations........................... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 24, 2007.............................................. $0.06434
Dec. 17, 2007............................................... $0.06310
March 27, 2008.............................................. $0.06718
June 26, 2008............................................... $0.07343
Total distributions......................................... $0.26805
</Table>
CLASS B
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 100%
Dividends Received Deduction for corporations......... 100%
U.S. Government Obligations........................... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 24, 2007.............................................. $0.04132
Dec. 17, 2007............................................... $0.04986
March 27, 2008.............................................. $0.04854
June 26, 2008............................................... $0.05707
Total distributions......................................... $0.19679
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 45
CLASS C
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 100%
Dividends Received Deduction for corporations......... 100%
U.S. Government Obligations........................... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 24, 2007.............................................. $0.04730
Dec. 17, 2007............................................... $0.04715
March 27, 2008.............................................. $0.04905
June 26, 2008............................................... $0.05736
Total distributions......................................... $0.20086
</Table>
CLASS I
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 100%
Dividends Received Deduction for corporations......... 100%
U.S. Government Obligations........................... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 24, 2007.............................................. $0.07334
Dec. 17, 2007............................................... $0.07145
March 27, 2008.............................................. $0.07688
June 26, 2008............................................... $0.08215
Total distributions......................................... $0.30382
</Table>
CLASS R4
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 100%
Dividends Received Deduction for corporations......... 100%
U.S. Government Obligations........................... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 24, 2007.............................................. $0.06546
Dec. 17, 2007............................................... $0.08448
March 27, 2008.............................................. $0.07602
June 26, 2008............................................... $0.08601
Total distributions......................................... $0.31197
</Table>
- --------------------------------------------------------------------------------
46 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
CLASS W
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 100%
Dividends Received Deduction for corporations......... 100%
U.S. Government Obligations........................... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 24, 2007.............................................. $0.06236
Dec. 17, 2007............................................... $0.06135
March 27, 2008.............................................. $0.06606
June 26, 2008............................................... $0.07263
Total distributions......................................... $0.26240
</Table>
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 47
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board.
The following is a list of the Fund's Board members. Each member oversees 104
RiverSource funds. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the Board. Under the current Board policy, members may serve until the end of
the meeting following their 75th birthday, or the fifteenth anniversary of the
first Board meeting they attended as members of the Board, whichever occurs
first. This policy does not apply to Ms. Jones who may retire after her 75th
birthday.
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
Kathleen Blatz Board member Chief Justice, Minnesota Supreme None
901 S. Marquette Ave. since 2006 Court, 1998-2006; Attorney
Minneapolis, MN 55402
Age 54
- -----------------------------------------------------------------------------------------------------
Arne H. Carlson Board member Chair, RiverSource Funds, None
901 S. Marquette Ave. since 1999 1999-2006; former Governor of
Minneapolis, MN 55402 Minnesota
Age 73
- -----------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member President, Springboard -- Partners None
901 S. Marquette Ave. since 2007 in Cross Cultural Leadership
Minneapolis, MN 55402 (consulting company)
Age 53
- -----------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member Trustee Professor of Economics and None
901 S. Marquette Ave. since 2004 Management, Bentley College; former
Minneapolis, MN 55402 Dean, McCallum Graduate School of
Age 57 Business, Bentley College
- -----------------------------------------------------------------------------------------------------
Anne P. Jones Board member Attorney and Consultant None
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 73
- -----------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive
901 S. Marquette Ave. since 2005 Asset Management Insurance
Minneapolis, MN 55402
Age 72
- -----------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries,
901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures
Minneapolis, MN 55402 Chair of the irrigation systems)
Age 69 Board since 2007
- -----------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
48 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
Catherine James Paglia Board member Director, Enterprise Asset None
901 S. Marquette Ave. since 2004 Management, Inc. (private real
Minneapolis, MN 55402 estate and asset management
Age 55 company)
- -----------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member Chief Executive Officer and Idera
901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Pharmaceutical, Inc.
Minneapolis, MN 55402 2003 (biotechnology); former (biotechnology);
Age 64 President, Forester Biotech Healthways, Inc.
(health management
programs)
- -----------------------------------------------------------------------------------------------------
</Table>
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
William F. Truscott Board member President -- U.S. Asset Management None
53600 Ameriprise since 2001, and Chief Investment Officer,
Financial Center Vice President Ameriprise Financial, Inc. and
Minneapolis, MN 55474 since 2002 President, Chairman of the Board
Age 47 and Chief Investment Officer,
RiverSource Investments, LLC since
2005; Director, President, and
Chief Executive Officer, Ameriprise
Certificate Company since 2006;
Chairman of the Board, Chief
Executive Officer and President,
RiverSource Distributors, Inc.
since 2006; Senior Vice
President -- Chief Investment
Officer, Ameriprise Financial, Inc.
and Chairman of the Board and Chief
Investment Officer, RiverSource
Investments, LLC, 2001-2005
- -----------------------------------------------------------------------------------------------------
</Table>
* 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 DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 49
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
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Patrick T. Bannigan President since Director and Senior Vice President, Asset
172 Ameriprise 2006 Management, Products and Marketing,
Financial Center RiverSource Investments, LLC since 2006;
Minneapolis, MN 55474 Director and Vice President -- Asset
Age 42 Management, Products and Marketing,
RiverSource Distributors, Inc. since 2006;
Managing Director and Global Head of Product,
Morgan Stanley Investment Management,
2004-2006; President, Touchstone Investments,
2002-2004
- ------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed
172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and
Financial Center RiverSource Investments, LLC since 2006; Vice
Minneapolis, MN 55474 President -- Investments, Ameriprise
Age 44 Certificate Company since 2003; Senior Vice
President -- Fixed Income, Ameriprise
Financial, Inc., 2002-2006 and RiverSource
Investments, LLC, 2004-2006
- ------------------------------------------------------------------------------------------
Amy K. Johnson Vice President Vice President -- Asset Management and Trust
5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC
Financial Center since 2006; Vice President -- Operations and
Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC,
Age 42 2004-2006; Director of Product
Development -- Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- ------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting,
105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Chief
Financial Center Financial Officer, RiverSource Distributors,
Minneapolis, MN 55474 Inc. since 2006
Age 53
- ------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset
5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since
Financial Center and Secretary 2005; Chief Counsel, RiverSource Distributors,
Minneapolis, MN 55474 since 2006 Inc. since 2006; Vice President, General
Age 49 Counsel and Secretary, Ameriprise Certificate
Company since 2005; Vice President -- Asset
Management Compliance, Ameriprise Financial,
Inc., 2004-2005; Senior Vice President and
Chief Compliance Officer, USBancorp Asset
Management, 2002-2004
- ------------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance
172 Ameriprise Officer since Officer, RiverSource Investments, LLC since
Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset
Minneapolis, MN 55474 Management, 2003-2006; Director of Finance,
Age 47 Voyageur Asset Management, 2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
50 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
FUND OFFICERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering
2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since
Financial Center Officer since 2004; Manager Anti-Money Laundering,
Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004;
Age 44 Compliance Director and Bank Secrecy Act
Officer, American Express Centurion Bank,
2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 51
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT ----------------------------------------------------------------------
RiverSource Investments, LLC ("RiverSource Investments" or the "investment
manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"), serves as the investment manager to the Fund. Under an investment
management services agreement (the "IMS Agreement") RiverSource Investments
provides investment advice and other services to the Fund and all RiverSource
funds (collectively, the "Funds").
On an annual basis, the Fund's Board of Directors (the "Board"), including the
independent Board members (the "Independent Directors"), considers renewal of
the IMS Agreement. RiverSource Investments prepared detailed reports for the
Board and its Contracts Committee in March and April 2008, including reports
based on data provided by independent organizations to assist the Board in
making this determination. In addition, throughout the year, the Board (or its
committees) reviews information prepared by RiverSource Investments addressing
the services RiverSource Investments provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts, Investment Review and Compliance Committees in determining whether to
continue the IMS Agreement. At the April 9-10, 2008 in-person Board meeting,
independent legal counsel to the Independent Directors reviewed with the
Independent Directors various factors relevant to the Board's consideration of
advisory agreements and the Board's legal responsibilities related to such
consideration. Following an analysis and discussion of the factors identified
below, the Board, including all of the Independent Directors, approved renewal
of the IMS Agreement.
Nature, Extent and Quality of Services Provided by RiverSource Investments: The
Board analyzed various reports and presentations it had received detailing the
services performed by RiverSource Investments, as well as its expertise,
resources and capabilities. The Board specifically considered many developments
during the past year concerning the services provided by RiverSource
Investments, including, in particular, the continued investment in, and
resources dedicated to, the Fund's operations, particularly in the areas of
trading systems, new product initiatives, legal and compliance. Further, in
connection with the Board's evaluation of the overall package of services
provided by RiverSource Investments, the Board considered the quality of the
administrative and transfer agency services provided by RiverSource Investments'
affiliates to the Fund. The Board also reviewed the financial condition of
RiverSource Investments (and its affiliates) and each entity's ability to carry
out its responsibilities under the IMS Agreement. The Board also discussed the
acceptability of the terms of the IMS Agreement (including the relatively broad
scope of services required to be performed by RiverSource Investments). The
Board concluded that the services being performed under the
- --------------------------------------------------------------------------------
52 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
IMS Agreement were of a reasonably high quality, particularly in light of recent
market conditions.
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board concluded that RiverSource Investments and
its affiliates were in a position to continue to provide a high quality and
level of services to the Fund.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the IMS Agreement, the Board carefully
reviewed the investment performance of the Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of the Fund, the
performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund; and (ii) a report detailing the
Fund's performance over various periods (including since inception), recent Fund
inflows (and outflows) and a comparison of the Fund's net assets from December
2006 to December 2007. The Board observed that the Fund's investment performance
met expectations.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with the
Fund: The Board reviewed comparative fees and the costs of services to be
provided under the IMS Agreement. The Board members considered detailed
comparative information set forth in an annual report on fees and expenses,
including, among other things, data (prepared by an independent organization)
showing a comparison of the Fund's expenses with median expenses paid by funds
in its peer group, as well as data showing the Fund's contribution to
RiverSource Investments' profitability.
The Board accorded particular weight to the notion that the level of fees should
reflect a rational pricing model applied consistently across the various product
lines in the Funds' family, while assuring that the overall fees for each fund
are generally in line with the "pricing philosophy" (i.e., that the total
expense ratio of each fund, with few exceptions, is at or below the median
expense ratio of funds in the same comparison group). The Board observed that
the Fund's expense ratio (after considering proposed expense caps/waivers)
approximated the peer group's median expense ratio. The Board also considered
the Fund's performance incentive adjustment and noted its continued
appropriateness. Based on its review,
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT 53
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ----------------------------------------------------------
the Board concluded that the Fund's management fee was fair and reasonable in
light of the extent and quality of services that the Fund receives.
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to the Fund. In this regard, the Board referred
to a detailed profitability report, discussing the profitability to RiverSource
Investments and Ameriprise Financial from managing and operating the Fund,
including data showing comparative profitability over the past two years. The
Board also considered the services acquired by the investment manager through
the use of commission dollars paid by the Funds on portfolio transactions. The
Board noted that the fees paid by the Fund should permit the investment manager
to offer competitive compensation to its personnel, make necessary investments
in its business and earn an appropriate profit. The Board concluded that
profitability levels were reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as the Fund grows and
took note of the extent to which Fund shareholders might also benefit from such
growth. The Board considered that the IMS Agreement provides for lower fees as
assets increase at pre-established breakpoints and concluded that the IMS
Agreement satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 10, 2008, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement.
PROXY
VOTING ----------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities is filed
with the SEC by August 31 for the most recent 12-month period ending June 30 of
that year, and is available without charge by visiting riversource.com/funds; or
searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
54 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 ANNUAL REPORT
RIVERSOURCE DIVIDEND OPPORTUNITY FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by
the Fund's current prospectus. RiverSource(R)
mutual funds are distributed by RiverSource
Distributors, Inc., Member FINRA, and managed by
RiverSource Investments, LLC. These companies are
part of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6341 AD (8/08)
</Table>
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
REAL ESTATE FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
JUNE 30, 2008
(Prospectus also enclosed)
RIVERSOURCE REAL ESTATE FUND SEEKS
TO PROVIDE SHAREHOLDERS WITH TOTAL
RETURN FROM BOTH CURRENT INCOME
AND CAPITAL APPRECIATION.
<Table>
This annual report includes a prospectus that
describes in detail the Fund's objective, investment
strategy, risks, sales charges, fees and other
matters of interest. Please read the prospectus
carefully before you invest or send money. (SINGLE STRATEGY FUNDS ICON)
</Table>
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance............... 2
Manager Commentary.................. 5
The Fund's Long-term Performance ... 12
Fund Expenses Example............... 14
Portfolio of Investments............ 16
Financial Statements................ 18
Notes to Financial Statements....... 23
Report of Independent Registered
Public Accounting Firm........... 41
Federal Income Tax Information...... 43
Board Members and Officers.......... 44
Approval of Investment Management
Services Agreement............... 48
Proxy Voting........................ 50
</Table>
(DALBAR LOGO)
The RiverSource mutual fund
shareholder reports have been
awarded the Communications Seal
from Dalbar Inc., an independent
financial services research firm.
The Seal recognizes communications
demonstrating a level of
excellence in the industry.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Real Estate Fund (the Fund) Class A shares declined 14.32%
(excluding sales charge) for the 12 months ended June 30, 2008.
> The Fund outperformed its benchmark, the Dow Jones Wilshire Real Estate
Securities Index (Float-Weighted), which fell 15.42% during the same annual
period.
> The Lipper Real Estate Funds Index, representing the Fund's peer group,
decreased 11.55% during the same time frame.
ANNUALIZED TOTAL RETURNS (for period ended June 30, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Since
1 year 3 years inception
- ------------------------------------------------------------------------------
RiverSource Real Estate Fund Class A
(excluding sales charge) -14.32% +5.33% +10.68%
- ------------------------------------------------------------------------------
Dow Jones Wilshire Real Estate
Securities
Index (Float-Weighted) (unmanaged) -15.42% +4.82% +10.88%
- ------------------------------------------------------------------------------
Lipper Real Estate Funds Index -11.55% +5.72% +10.90%
- ------------------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 5.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. See the Average Annual Total Returns table for performance of other
share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
2 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
STYLE MATRIX
- ----------------------------------------
<Table>
<Caption>
STYLE
VALUE BLEND GROWTH
X LARGE
X MEDIUM SIZE
X SMALL
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- ----------------------------------------
<Table>
<Caption>
Net
Total expenses(a)
- ----------------------------------------------------
Class A 1.45% 1.37%
- ----------------------------------------------------
Class B 2.21% 2.14%
- ----------------------------------------------------
Class C 2.21% 2.13%
- ----------------------------------------------------
Class I 0.91% 0.91%
- ----------------------------------------------------
Class R4 1.21% 1.21%
- ----------------------------------------------------
Class W 1.35% 1.35%
- ----------------------------------------------------
</Table>
(a) The Investment Manager and its affiliates
have contractually agreed to waive certain fees and to absorb certain
expenses until June 30, 2009, unless sooner terminated at the discretion of
the Fund's Board. Any amounts waived will not be reimbursed by the Fund.
Under this agreement, net fund expenses (excluding fees and expenses of
acquired funds), before giving effect to any performance incentive
adjustment (that decreased the fee by 0.09% for the year ended June 30,
2008), will not exceed 1.46% for Class A, 2.23% for Class B, 2.22% for
Class C, 1.01% for Class I, 1.31% for Class R4 and 1.46% for Class W.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT JUNE 30, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS INCEPTION
Class A (inception 3/4/04) -14.32% +5.33% +10.68%
- ------------------------------------------------------------------------
Class B (inception 3/4/04) -14.92% +4.55% +9.84%
- ------------------------------------------------------------------------
Class C (inception 3/4/04) -14.96% +4.55% +9.84%
- ------------------------------------------------------------------------
Class I (inception 3/4/04) -13.90% +5.83% +11.13%
- ------------------------------------------------------------------------
Class R4 (inception 3/4/04) -13.74% +5.69% +11.00%
- ------------------------------------------------------------------------
Class W (inception 12/1/06) -14.30% N/A -13.92%
- ------------------------------------------------------------------------
WITH SALES CHARGE
Class A (inception 3/4/04) -19.27% +3.27% +9.18%
- ------------------------------------------------------------------------
Class B (inception 3/4/04) -18.53% +3.50% +9.50%
- ------------------------------------------------------------------------
Class C (inception 3/4/04) -15.68% +4.55% +9.84%
- ------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum sales charge of 5.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase. Sales charges do
not apply to Class I, Class R4 and Class W shares. Class I and Class R4 are
available to institutional investors only. Class W shares are offered through
qualifying discretionary accounts.
- --------------------------------------------------------------------------------
4 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
At June 30, 2008, approximately 53% of the Fund's total outstanding shares were
owned in aggregate by affiliated funds-of-funds managed by RiverSource
Investments, LLC (RiverSource). As a result of asset allocation decisions by
RiverSource, it is possible RiverSource Real Estate Fund may experience
relatively large purchases or redemptions from affiliated funds-of-funds (see
page 32, 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
Real Estate Fund may experience increased expenses as it buys and sells
securities to manage transactions for affiliated funds-of-funds. For more
information on the Fund's expenses, see the discussions beginning on pages 14
and 29.
Dear Shareholders:
RiverSource Real Estate Fund (the Fund) Class A shares declined 14.32%
(excluding sales charge) for the 12 months ended June 30, 2008. The Fund
outperformed its benchmark, the Dow Jones Wilshire Real Estate Securities Index
(Float-Weighted) (Wilshire Index), which fell 15.42% during the same time
period. The Lipper Real Estate Funds Index, representing the Fund's peer group,
decreased 11.55% during the same time frame.
SECTOR DIVERSIFICATION (at June 30, 2008; % of portfolio assets)
- -----------------------------------------------------------------
<Table>
Apartments 15.2%
- --------------------------------------------------------------
Diversified Properties 8.4%
- --------------------------------------------------------------
Health Care 8.3%
- --------------------------------------------------------------
Homebuilders 0.3%
- --------------------------------------------------------------
Hotels 7.0%
- --------------------------------------------------------------
Industrial 8.8%
- --------------------------------------------------------------
Manufactured Homes 0.8%
- --------------------------------------------------------------
Office Property 20.1%
- --------------------------------------------------------------
Regional Malls 15.5%
- --------------------------------------------------------------
Shopping Centers 9.4%
- --------------------------------------------------------------
Storage 3.8%
- --------------------------------------------------------------
Other(1) 2.4%
- --------------------------------------------------------------
</Table>
(1) Cash & Cash Equivalents.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 5
MANAGER COMMENTARY (continued) -------------------------------------------------
SIGNIFICANT PERFORMANCE FACTORS
The fiscal year started off well for real estate investments, as HILTON HOTELS
announced during the first week of July that it would be acquired by the
BLACKSTONE GROUP in an all-cash transaction valued at approximately $26 billion.
However, following that deal, real estate equities were hit hard, along with the
broader financials sector, by a confluence of headwinds led by a collapse of the
mortgage market, a liquidity crunch and fears concerning an economic recession.
As the year progressed, sales of new and existing homes showed no signs of
stabilizing. Home values continued to fall. Profits from real estate narrowed.
Consumer sentiment slumped, and employment data softened.
The weakness in real estate investment trusts (REITs) during the annual period
came despite a decline in the ten-year Treasury yield, which fell from 5.03% at
the end of June 2007 to 3.99% on June 30, 2008. While interest rates moved
lower, the credit crisis that evolved during the period significantly limited
the availability of credit to finance real estate deals. This, in turn, led to
the demise of the merger and acquisition and property sales boom that had pushed
real estate values higher during the prior fiscal year.
On the positive side, it is important to note that while underlying real estate
fundamentals showed some signs of softening in select subsectors, they remained
relatively strong in others. Hotels, for example, struggled due to the inherent
nature of their short-term (nightly) leases and due to oversupply and declining
demand. Offices, on the other hand, held up
TOP TEN HOLDINGS (at June 30, 2008; % of portfolio assets)
- -----------------------------------------------------------------
<Table>
Simon Property Group* 7.8%
- --------------------------------------------------------------
ProLogis* 5.2%
- --------------------------------------------------------------
Vornado Realty Trust* 5.1%
- --------------------------------------------------------------
Boston Properties* 4.6%
- --------------------------------------------------------------
Equity Residential* 3.9%
- --------------------------------------------------------------
General Growth Properties* 3.4%
- --------------------------------------------------------------
Public Storage* 3.1%
- --------------------------------------------------------------
AvalonBay Communities* 3.1%
- --------------------------------------------------------------
Kimco Realty* 2.9%
- --------------------------------------------------------------
Alexandria Real Estate Equities* 2.9%
- --------------------------------------------------------------
</Table>
*Real Estate Investment Trust
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
- --------------------------------------------------------------------------------
6 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
fairly well, given the multi-year long-term leases they enjoy. Most of the
decline in REIT stocks during the period was driven by the normalization of
premium valuations in the sector and concerns about reduced credit availability.
Indeed, by the end of the annual period, valuations of U.S. real estate stocks
had reached more attractive levels than had been seen for some time. Also,
dividend yields for most REITs continued to grow by virtue of both the actual
dividend amount going up and as a percentage given share price declines.
Overbuilding, which was a characteristic of some previous real estate downturns,
was not a factor in the market. Occupancies overall remained solid.
Against this challenging backdrop, the Fund outperformed the Wilshire Index due
to a combination of sector allocation decisions and individual stock selection.
The Fund's results benefited most during the annual period from stock selection
within the regional malls, office and apartment REIT subsectors. Having a
significant exposure to the strongly-performing office subsector and only a
modest allocation to the weaker apartment subsector also helped. HILTON HOTELS,
SENIOR HOUSING PROPERTIES TRUST AND LIBERTY PROPERTY TRUST were among the
strongest positive individual stock contributors to Fund performance. HILTON
HOTELS saw its shares advance after announcing its acquisition by BLACKSTONE
GROUP, as discussed above. The acquisition was completed on October 24, 2007 and
Hilton's ticker was delisted at the close of market that day. SENIOR HOUSING
PROPERTIES TRUST is a health care REIT, which benefited both from being added to
the Wilshire Index during the period, along with the health care subsector as a
whole, and from relative strength in the underlying health care subsector. The
health care subsector is widely considered a comparatively defensive REIT
subsector and therefore less economically sensitive. LIBERTY PROPERTY TRUST is
an office and industrial REIT. We established a position at attractive levels in
early 2008; the REIT performed well during the next six months. Also, a basket
of names the Fund held in the regional malls subsector performed well, led by a
sizable position in SIMON PROPERTY GROUP, the largest REIT in the United States.
Detracting from the Fund's performance most was stock selection in the health
care and diversified REIT subsectors. To a lesser degree, having only a modest
exposure to the storage subsector also hurt, as this subsector performed well.
From an individual stock perspective, holdings in commercial and residential
real estate development company FOREST CITY
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
ENTERPRISES, hotel operating company STARWOOD HOTELS & RESORTS WORLDWIDE and
commercial real estate broker HFF hurt the Fund's performance during the annual
period. Shares of FOREST CITY ENTERPRISES fell, as investors grew concerned with
its seeming overdevelopment. STARWOOD HOTELS & RESORTS WORLDWIDE struggled, as
concerns increased regarding a consumer spending slowdown and the significant
amount of new capacity that had been recently introduced to the market. HFF is a
small mortgage broker, which saw its earnings decline as transaction volume
dropped.
Detracting from the Fund's results relative to its Lipper peer group was the
Fund's inherent emphasis on U.S. real estate companies, especially during the
first half of the fiscal year when international real estate investments
outperformed domestic real estate companies.
CHANGES TO THE FUND'S PORTFOLIO
Given weakness in the real estate market, tightening credit conditions and
increasing investor fears regarding the potential direction of the economy, we
continued to seek to upgrade the quality of the portfolio overall. We reduced
positions where we felt discomfort based on stock-specific or event-specific
concerns and increased holdings in higher quality companies with strong balance
sheets, including low leverage, superior management teams and a sustainable
competitive advantage. We also, of course, made adjustments based on relative
valuation analysis and shifts in market conditions.
We increased the Fund's exposure to the office property subsector, given its
attractive long-term leases. We added to the Fund's position in hotels, seeking
to take advantage of market weakness. We reduced the Fund's allocation to
regional malls, given concerns about consumer spending. We also decreased the
Fund's exposure to industrial REITs based on prospects for a global economic
slowdown. We reduced the Fund's allocation to storage REITs as well, taking
profits following strong performance from this subsector.
- --------------------------------------------------------------------------------
8 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
We do believe that given the earnings and other characteristics of real estate
investment trusts, investors will once again unbundle their view of these trusts
from that of the broader financials sector.
At the end of the period, the Fund had significant
exposure to the office and hotel subsectors and more
modest allocations to the diversified properties,
health care, industrials, regional malls, shopping
center, and storage subsectors. As of June 30, 2008,
the Fund was virtually equally weighted to the
Wilshire Index in the apartment and manufactured
home subsectors.
OUR FUTURE STRATEGY
At the end of the annual period, merger and
acquisition activity and property sales activity had
slowed to a significantly reduced level given credit
market conditions, offering little clarity on the
current market value of real estate assets. Still,
we felt the REIT price decline had already priced in
most underlying value declines by the end of June.
Further, since many REITs were active sellers of
assets during the peak of the market, they remained
well positioned with capital to take advantage of
any opportunities in the property market created by
issues with more highly leveraged buyers. Similarly,
because REITs are generally less leveraged than
other buyers, they have been among banks' better
borrowers and thus are anticipated to have more
access to capital when attractive opportunities do
arise. Another reason for optimism over the longer
term is that because development financing had
virtually dried up during the annual period, there
is no built up overhang of supply to contend with
when the economy does eventually recover. All told,
the decline in real estate over the annual period
appears to be setting the stage for a buying
opportunity, though the catalyst for such an
opportunity in the near term has yet to be seen.
We do believe that given the earnings and other
characteristics of real estate investment trusts,
investors will once again unbundle their view of
these trusts from that of the broader financials
sector.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
Given this view, we intend over the months ahead to seek to take advantage of
stock-specific buying opportunities created by recent market weakness. We intend
to look for select real estate companies
and REITs where we believe valuation declines have been overdone or where a
sustainable competitive advantage positions such companies to take advantage of
current market conditions. Our goal, as always, will be to use in-depth,
bottom-up analysis of real estate fundamentals and market performance across the
United States to find undervalued companies with solid dividend-paying ability
and attractive long-term growth potential. Our focus will be on securities of
real estate companies with quality assets, strong balance sheets, and, more
importantly than ever in our opinion, experienced management teams.
Julene Melquist
Portfolio Manager
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
10 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
THIS PAGE LEFT BLANK INTENTIONALLY
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Real Estate Fund Class A shares (from 3/4/04 to
6/30/08)* as compared to the performance of two widely cited performance
indices, the Dow Jones Wilshire Real Estate Securities Index (Float-Weighted)
and the Lipper Real Estate 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 March 4, 2004. Dow Jones Wilshire Real Estate Securities
Index (Float-Weighted) and Lipper data is from March 1, 2004.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SINCE
Results at June 30, 2008 1 YEAR 3 YEARS INCEPTION(3)
RIVERSOURCE REAL ESTATE FUND (INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $8,073 $11,013 $14,616
- --------------------------------------------------------------------------------
Average annual total return -19.27% +3.27% +9.18%
- --------------------------------------------------------------------------------
DOW JONES WILSHIRE REAL ESTATE SECURITIES INDEX (FLOAT-WEIGHTED)(1)
Cumulative value of $10,000 $8,458 $11,517 $15,645
- --------------------------------------------------------------------------------
Average annual total return -15.42% +4.82% +10.88%
- --------------------------------------------------------------------------------
LIPPER REAL ESTATE FUNDS INDEX(2)
Cumulative value of $10,000 $8,845 $11,816 $15,660
- --------------------------------------------------------------------------------
Average annual total return -11.55% +5.72% +10.90%
- --------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 4.
- --------------------------------------------------------------------------------
12 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE REAL ESTATE FUND LINE
GRAPH)
<Table>
<Caption>
DOW JONES WILSHIRE REAL
RIVERSOURCE REAL ESTATE ESTATE SECURITIES INDEX
FUND CLASS A (INCLUDES SALES (FLOAT-WEIGHTED)(1) LIPPER REAL ESTATE FUNDS
CHARGE)($14,616) ($15,645) INDEX(2)($15,660)
---------------------------- ----------------------- ------------------------
3/1/04 $9,425 $10,000 $10,000
6/04 9,525 10,113 9,997
6/05 12,508 13,584 13,253
6/06 15,512 16,555 15,625
6/07 17,059 18,497 17,705
6/08 14,616 15,645 15,660
</Table>
(1) The Dow Jones Wilshire Real Estate Securities Index (Float-Weighted), an
unmanaged float-weighted index, measures the performance of publicly traded
real estate securities, including REITS and real estate operating
companies. The index reflects reinvestment of all distributions and changes
in market prices.
(2) The Lipper Real Estate Funds Index includes the 30 largest real estate
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 March 4, 2004. Dow Jones Wilshire Real Estate Securities
Index (Float-Weighted) and Lipper data is from March 1, 2004.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 13
FUND EXPENSES EXAMPLE ----------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended June 30, 2008.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
14 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JAN. 1, 2008 JUNE 30, 2008 THE PERIOD(A) EXPENSE RATIO
- -------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 959.40 $ 6.82(c) 1.40%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,017.90 $ 7.02(c) 1.40%
- -------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 956.30 $10.51(c) 2.16%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,014.12 $10.82(c) 2.16%
- -------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 955.70 $10.50(c) 2.16%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,014.12 $10.82(c) 2.16%
- -------------------------------------------------------------------------------------------
Class I
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 961.50 $ 4.44(c) .91%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,020.34 $ 4.57(c) .91%
- -------------------------------------------------------------------------------------------
Class R4
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 962.50 $ 5.90(c) 1.21%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,018.85 $ 6.07(c) 1.21%
- -------------------------------------------------------------------------------------------
Class W
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 959.60 $ 6.58(c) 1.35%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,018.15 $ 6.77(c) 1.35%
- -------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/366 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended June 30, 2008: -4.06%
for Class A, -4.37% for Class B, -4.43% for Class C, -3.85% for Class I,
-3.75% for Class R4 and -4.04% for Class W.
(c) The Investment Manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until June 30, 2009,
unless sooner terminated at the discretion of the Fund's Board, such that
net expenses (excluding fees and expenses of acquired funds), before giving
effect to any performance incentive adjustment, will not exceed 1.46% for
Class A, 2.23% for Class B, 2.22% for Class C, 1.01% for Class I, 1.31% for
Class R4 and 1.46% for Class W. Any amounts waived will not be reimbursed
by the Fund. This change was effective July 1, 2008. Had this change been
in place for the entire six month period ended June 30, 2008, the actual
expenses paid would have been $6.67 for Class A, $10.41 for Class B and
$10.41 for Class C; the hypothetical expenses paid would have been $6.87
for Class A, $10.72 for Class B and $10.72 for Class C. The actual and
hypothetical expenses paid for Class I, Class R4 and Class W would have
been the same as those expenses presented in the table above.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
JUNE 30, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
COMMON STOCKS (97.3%)
ISSUER SHARES VALUE(A)
HOTELS, RESTAURANTS & LEISURE (1.7%)
Gaylord Entertainment 80,606(b) $1,931,319
Starwood Hotels & Resorts Worldwide 43,011 1,723,451
---------------
Total 3,654,770
- -----------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (REITS) (94.1%)
Acadia Realty Trust 86,889 2,011,480
Alexandria Real Estate Equities 66,189 6,442,837
AMB Property 122,972 6,195,329
AvalonBay Communities 78,735 7,020,013
Boardwalk Real Estate Investment Trust 74,271(c) 2,777,881
Boston Properties 115,167 10,390,367
Brookfield Properties 317,359 5,645,817
Camden Property Trust 72,868 3,225,138
Colonial Properties Trust 52,028 1,041,601
Corporate Office Properties Trust 38,186 1,310,925
DiamondRock Hospitality 136,481 1,486,278
Digital Realty Trust 71,919 2,942,206
Douglas Emmett 153,300 3,368,001
Duke Realty 59,113 1,327,087
EastGroup Properties 20,087 861,732
Equity Lifestyle Properties 39,009 1,716,396
Equity One 29,808 612,554
Equity Residential 231,432 8,856,903
Essex Property Trust 32,628 3,474,882
Federal Realty Investment Trust 78,813 5,438,097
General Growth Properties 219,431 7,686,668
HCP 183,221 5,828,260
Healthcare Realty Trust 71,825 1,707,280
Hersha Hospitality Trust 59,898 452,230
Highwoods Properties 130,953 4,114,543
</Table>
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(A)
REAL ESTATE INVESTMENT TRUSTS (REITS) (CONT.)
Home Properties 75,699 $3,638,094
Host Hotels & Resorts 420,945 5,745,899
Kilroy Realty 51,471 2,420,681
Kimco Realty 192,340 6,639,577
LaSalle Hotel Properties 62,230 1,563,840
Liberty Property Trust 83,782 2,777,373
Macerich 85,261 5,297,266
Medical Properties Trust 176,421 1,785,381
Mid-America Apartment Communities 28,023 1,430,294
Nationwide Health Properties 26,829 844,845
Parkway Properties 29,466 993,888
Post Properties 37,010 1,101,048
ProLogis 215,944 11,736,556
Public Storage 87,798 7,093,200
Regency Centers 93,517 5,528,725
Senior Housing Properties Trust 165,411 3,230,477
Simon Property Group 196,467 17,660,419
SL Green Realty 66,808 5,526,358
Sovran Self Storage 25,250 1,049,390
Strategic Hotels & Resorts 144,622 1,355,108
Sunstone Hotel Investors 45,662 757,989
Taubman Centers 53,323 2,594,164
Ventas 103,037 4,386,285
Vornado Realty Trust 129,371 11,384,648
---------------
Total 202,476,010
- -----------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT (1.4%)
Forest City Enterprises Cl A 74,482 2,399,810
St. Joe 19,974 685,508
---------------
Total 3,085,318
- -----------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $228,695,962) $209,216,098
- -----------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
MONEY MARKET FUND (7.5%)
SHARES VALUE(A)
RiverSource Short-Term Cash Fund, 2.57% 16,033,595(d) $16,033,595
- -----------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $16,033,595) $16,033,595
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $244,729,557)(e) $225,249,693
===================================================================================
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. At June 30, 2008, the
value of foreign securities represented 1.3% of net assets.
(d) Affiliated Money Market Fund - See Note 5 to the financial statements. The
rate shown is the seven-day current annualized yield at June 30, 2008.
(e) At June 30, 2008, the cost of securities for federal income tax purposes
was $244,768,879 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $ 6,368,848
Unrealized depreciation (25,888,034)
- ------------------------------------------------------------------------------
Net unrealized depreciation $(19,519,186)
- ------------------------------------------------------------------------------
</Table>
The sectors identified above are based on the Global Industry Classification
Standard (GICS), which was developed by and is the exclusive property of Morgan
Stanley Capital International Inc. and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc.
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 17
FINANCIAL STATEMENTS -----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008
<Table>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $228,695,962) $209,216,098
Affiliated money market fund (identified cost
$16,033,595) 16,033,595
- ----------------------------------------------------------------------------
Total investments in securities (identified cost
$244,729,557) 225,249,693
Cash 36,175
Capital shares receivable 243,091
Dividends receivable 859,606
- ----------------------------------------------------------------------------
Total assets 226,388,565
- ----------------------------------------------------------------------------
LIABILITIES
Capital shares payable 139,879
Payable for investment securities purchased 11,016,329
Accrued investment management services fees 14,822
Accrued distribution fees 48,418
Accrued transfer agency fees 2,567
Accrued administrative services fees 1,059
Accrued plan administration services fees 51
Other accrued expenses 76,050
- ----------------------------------------------------------------------------
Total liabilities 11,299,175
- ----------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $215,089,390
============================================================================
REPRESENTED BY
Capital stock -- $.01 par value $ 188,168
Additional paid-in capital 233,046,891
Excess of distributions over net investment income (2,762)
Accumulated net realized gain (loss) 1,337,022
Unrealized appreciation (depreciation) on investments (19,479,929)
- ----------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $215,089,390
============================================================================
</Table>
- --------------------------------------------------------------------------------
18 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
JUNE 30, 2008
NET ASSET VALUE PER SHARE
<Table>
<Caption>
SHARES NET ASSET VALUE
NET ASSETS OUTSTANDING PER SHARE
Class A $ 86,019,287 7,529,295 $ 11.42(1)
Class B $ 14,247,297 1,256,751 $ 11.34
Class C $ 1,419,450 125,279 $ 11.33
Class I $113,290,977 9,895,570 $ 11.45
Class R4 $ 109,251 9,603 $ 11.38
Class W $ 3,128 275 $ 11.37
- ---------------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $12.12. The offering
price is calculated by dividing the net asset value by 1.0 minus the
maximum sales charge of 5.75%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 19
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2008
<Table>
INVESTMENT INCOME
Income:
Dividends $ 8,261,630
Interest 19,837
Income distributions from affiliated money market fund 151,636
Less foreign taxes withheld (44,355)
- ----------------------------------------------------------------------------
Total income 8,388,748
- ----------------------------------------------------------------------------
Expenses:
Investment management services fees 1,667,040
Distribution fees
Class A 276,727
Class B 189,408
Class C 17,500
Class W 9
Transfer agency fees
Class A 319,144
Class B 57,772
Class C 5,180
Class R4 76
Class W 8
Administrative services fees 132,646
Plan administration services fees -- Class R4 381
Compensation of board members 4,378
Custodian fees 17,930
Printing and postage 67,300
Registration fees 61,915
Professional fees 42,685
Other 9,050
- ----------------------------------------------------------------------------
Total expenses 2,869,149
Expenses waived/reimbursed by the Investment Manager and
its affiliates (60,823)
Earnings and bank fee credits on cash balances (3,786)
- ----------------------------------------------------------------------------
Total net expenses 2,804,540
- ----------------------------------------------------------------------------
Investment income (loss) -- net 5,584,208
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions 7,804,807
Foreign currency transactions 1,054
- ----------------------------------------------------------------------------
Net realized gain (loss) on investments 7,805,861
Net change in unrealized appreciation (depreciation) on
investments (47,066,092)
- ----------------------------------------------------------------------------
Net gain (loss) on investments (39,260,231)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $(33,676,023)
============================================================================
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
20 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED JUNE 30, 2008 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 5,584,208 $ 3,706,693
Net realized gain (loss) on investments 7,805,861 19,389,903
Net change in unrealized appreciation (depreciation) on
investments (47,066,092) (7,865,363)
- --------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (33,676,023) 15,231,233
- --------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (1,484,774) (1,648,144)
Class B (106,391) (112,364)
Class C (11,115) (9,035)
Class I (1,829,893) (1,269,062)
Class R4 (2,902) (3,035)
Class W (56) (42)
Net realized gain
Class A (14,679,913) (7,168,364)
Class B (2,506,709) (1,506,082)
Class C (232,761) (107,494)
Class I (8,717,442) (3,430,271)
Class R4 (20,584) (11,480)
Class W (549) (237)
- --------------------------------------------------------------------------------------
Total distributions (29,593,089) (15,265,610)
- --------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 21
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<Table>
<Caption>
YEAR ENDED JUNE 30, 2008 2007
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares $ 22,580,376 $ 71,003,345
Class B shares 2,597,783 11,643,215
Class C shares 579,010 1,325,734
Class I shares 74,017,463 42,168,432
Class R4 shares 8,000 48,466
Class W shares -- 5,000
Reinvestment of distributions at net asset value
Class A shares 15,706,217 8,628,771
Class B shares 2,534,302 1,576,925
Class C shares 236,189 108,406
Class I shares 10,545,077 4,698,204
Class R4 shares 21,205 13,435
Payments for redemptions
Class A shares (64,940,426) (40,780,657)
Class B shares (14,671,042) (10,850,325)
Class C shares (1,181,708) (679,693)
Class I shares (42,696,102) (7,933,451)
Class R4 shares (64,415) (118,777)
- --------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions 5,271,929 80,857,030
- --------------------------------------------------------------------------------------
Total increase (decrease) in net assets (57,997,183) 80,822,653
Net assets at beginning of year 273,086,573 192,263,920
- --------------------------------------------------------------------------------------
Net assets at end of year $215,089,390 $273,086,573
======================================================================================
Undistributed (excess of distributions over) net
investment income $ (2,762) $ 349,220
- --------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
22 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource Real Estate Fund (the Fund) is a series of RiverSource Sector
Series, Inc. and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. RiverSource
Sector Series, Inc. has 10 billion authorized shares of capital stock that can
be allocated among the separate series as designated by the Board of Directors
(the Board). The Fund invests primarily in equity securities of companies
operating in the real estate industry, including equities of real estate
investment trusts (REITs), and other real estate related investments.
The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
- - Class W shares are sold without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At June 30, 2008, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager), and the RiverSource affiliated funds-of-funds, owned 100%
of Class I shares, and the Investment Manager owned 100% of Class W shares.
At June 30, 2008, the Investment Manager and the RiverSource affiliated
funds-of-funds owned approximately 53% of the total outstanding Fund shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 23
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Foreign securities are valued based on quotations from the principal market in
which such securities are normally traded. The procedures adopted by the Board
generally contemplate the use of fair valuation in the event that price
quotations or valuations are not readily available, price quotations or
valuations from other sources are not reflective of market value and thus deemed
unreliable, or a significant event has occurred in relation to a security or
class of securities (such as foreign securities) that is not reflected in price
quotations or valuations from other sources. A fair value price is a good faith
estimate of the value of a security at a given point in time.
Many securities markets and exchanges outside the U.S. close prior to the close
of the New York Stock Exchange and therefore the closing prices for securities
in such markets or on such exchanges may not fully reflect events that occur
after such close but before the close of the New York Stock Exchange, including
significant movements in the U.S. market after foreign exchanges have closed.
Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise
Financial), parent company of the Investment Manager, as administrator to the
Fund, will fair value foreign securities pursuant to procedures adopted by the
Board, including utilizing a third party pricing service to determine these fair
values. These procedures take into account multiple factors, including movements
in the U.S. securities markets, to determine a good faith estimate that
reasonably reflects the current market conditions as of the close of the New
York Stock Exchange.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
OPTION TRANSACTIONS
To produce incremental earnings, protect gains, and facilitate buying and
selling of securities for investments, the Fund may buy and write options traded
on any U.S. or foreign exchange or in the over-the-counter market where
completing the obligation depends upon the credit standing of the other party.
Cash collateral may be collected by the Fund to secure certain over-the-counter
options trades. Cash collateral held by the Fund for such option trades must be
returned to the company upon closure, exercise or expiration 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
- --------------------------------------------------------------------------------
24 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
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
June 30, 2008, and for the year then ended, the Fund had no outstanding option
contracts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Futures are valued daily based upon the last sale price at the close of market
on the principal exchange on which they are traded. Upon entering into a futures
contract, the Fund is required to deposit either cash or securities in an amount
(initial margin) equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the Fund each day. The
variation margin payments are equal to the daily changes in the contract value
and are recorded as unrealized gains and losses. The Fund recognizes a realized
gain or loss when the contract is closed or expires. At June 30, 2008, the Fund
had no outstanding futures contracts.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the Statement of Operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Fund may enter into forward foreign currency contracts for operational
purposes and to protect against adverse exchange rate fluctuation. The net U.S.
dollar value of foreign currency underlying all contractual commitments held by
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 25
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 June 30, 2008, the Fund had no outstanding
forward foreign currency contracts.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes," clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB Statement 109,
"Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize
and measure a tax position taken or expected to be taken in a tax return. The
first step is to determine whether a tax position has met the more-likely-than-
not recognition threshold and the second step is to measure a tax position that
meets the threshold to determine the amount of benefit to recognize. Management
of the Fund has concluded that there are no significant uncertain tax positions
that would require recognition in the financial statements. Generally, the tax
authorities can examine all the tax returns filed for the last three years.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of foreign currency
transactions, re-characterization of REIT distributions and losses deferred due
to wash sales. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by
$2,501,059 and accumulated net realized loss has been decreased by $1,926,878
resulting in a net reclassification adjustment to increase paid-in capital by
$574,181.
- --------------------------------------------------------------------------------
26 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED JUNE 30, 2008 2007*
- ----------------------------------------------------------------------------
CLASS A
DISTRIBUTIONS PAID FROM:
Ordinary income.......................... $ 3,187,447 $3,970,339
Long-term capital gain................... 12,977,240 4,846,169
CLASS B
Distributions paid from:
Ordinary income.......................... 397,462 600,260
Long-term capital gain................... 2,215,638 1,018,186
CLASS C
Distributions paid from:
Ordinary income.......................... 38,142 43,858
Long-term capital gain................... 205,734 72,671
CLASS I
Distributions paid from:
Ordinary income.......................... 2,842,136 2,380,300
Long-term capital gain................... 7,705,199 2,319,033
CLASS R4
Distributions paid from:
Ordinary income.......................... 5,293 6,754
Long-term capital gain................... 18,193 7,761
CLASS W
Distributions paid from:
Ordinary income.......................... 120 119
Long-term capital gain................... 485 160
</Table>
* Class W is for the period from Dec. 1, 2006 (inception date) to June 30, 2007.
At June 30, 2008, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income............................. $ --
Undistributed accumulated long-term gain.................. $ 1,376,344
Unrealized appreciation (depreciation).................... $(19,522,013)
</Table>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging
Activities - an amendment of FASB Statement No. 133," which requires enhanced
disclosures about a fund's derivative and hedging activities. Funds are required
to provide enhanced disclosures about (a) how and why a fund uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect a fund's financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
Nov. 15, 2008. As June 30, 2008, management does not
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 27
believe the adoption of SFAS 161 will impact the financial statement amounts;
however, additional footnote disclosures may be required about the use of
derivative instruments and hedging items.
On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards
No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an
authoritative definition of fair value, sets out a hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. The application of SFAS 157
will be effective for the Fund's fiscal year beginning July 1, 2008. The
adoption of SFAS 157 is not anticipated to have a material impact on the Fund's
financial statements; however, additional disclosures will be required about the
inputs used to develop the measurements of fair value and the effect of certain
measurements reported in the Statement of Operations for a fiscal period.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared and paid each calendar quarter,
when available, are reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed along
with the last income dividend of the calendar year.
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.
The Fund receives distributions from holdings in real estate investment trusts
(REITs) which report information on the character components of their
distributions annually. A portion of distributions received from REITS during
the period is estimated to be capital gain and a portion is estimated to be a
return of capital, which is recorded as a reduction of the cost basis of
securities held. These estimates are subsequently adjusted when the actual
character of the distributions are disclosed by the REITs.
2. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.84%
to 0.72% annually as the Fund's assets increase. The fee may be adjusted upward
or downward by a performance incentive adjustment determined monthly by
measuring the percentage difference over a rolling 12-month period between the
annualized performance of one Class A share of the Fund and the annualized
- --------------------------------------------------------------------------------
28 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
performance of the Lipper Real Estate 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 $190,002 for the year ended June 30,
2008. The management fee for the year ended June 30, 2008, was 0.75% of the
Fund's average daily net assets, including the adjustment under the terms of the
performance incentive arrangement.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.06% to 0.03% annually as the
Fund's assets increase. The fee for the year ended June 30, 2008, was 0.06% of
the Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended June 30,
2008, other expenses paid to this company were $865.
COMPENSATION OF BOARD MEMBERS
Compensation of board members includes, for a former Board Chair, compensation
as well as retirement benefits. Certain other aspects of a former Board Chair's
compensation, including health benefits and payment of certain other expenses,
are included under other expenses.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
RiverSource funds. The Fund's liability for these amounts is adjusted for market
value changes and remains in the Fund until distributed in accordance with the
Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual account-based fee at a rate equal to $19.50 for Class A, $20.50
for Class B and $20.00 for Class C for this service. The Fund also pays the
Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's
average daily net assets attributable to Class R4 shares and an annual
asset-based fee at a rate of 0.20% of the Fund's average daily net assets
attributable to Class W shares.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 29
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statement of Operations.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R4 shares for the provision of various administrative,
recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor)
for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise
Financial Services, Inc. also served as a principal underwriter and distributor
to the Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1,
the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily
net assets attributable to Class A and Class W shares and a fee at an annual
rate of up to 1.00% of the Fund's average daily net assets attributable to Class
B and Class C shares.
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$186,814 for Class A, $23,908 for Class B and $1,193 for Class C for the year
ended June 30, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended June 30, 2008, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*) were as follows:
<Table>
Class A..................................................... 1.40%
Class B..................................................... 2.16
Class C..................................................... 2.16
Class R4.................................................... 0.96
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A..................................................... $49,930
Class B..................................................... 9,726
Class C..................................................... 787
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R4.................................................... $380
</Table>
Under an agreement which was effective until June 30, 2008, the Investment
Manager and its affiliates contractually agreed to waive certain fees and
expenses such that net expenses (excluding fees and expenses of acquired
funds*), before
- --------------------------------------------------------------------------------
30 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
giving effect to any performance incentive adjustment, would not exceed the
following percentage of the Fund's average daily net assets:
<Table>
Class A..................................................... 1.49%
Class B..................................................... 2.25
Class C..................................................... 2.25
Class I..................................................... 1.08
Class R4.................................................... 1.31
Class W..................................................... 1.53
</Table>
Effective July 1, 2008, the Investment Manager and its affiliates have
contractually agreed to waive certain fees and expenses until June 30, 2009,
unless sooner terminated at the discretion of the Board, such that net expenses
(excluding fees and expenses of acquired funds*), before giving effect to any
performance incentive adjustment, will not exceed the following percentage of
the Fund's average daily net assets:
<Table>
Class A..................................................... 1.46%
Class B..................................................... 2.23
Class C..................................................... 2.22
Class I..................................................... 1.01
Class R4.................................................... 1.31
Class W..................................................... 1.46
</Table>
* In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
funds in which it invests (also referred to as "acquired funds"), including
affiliated and non-affiliated pooled investment vehicles (including mutual
funds and exchange traded funds). Because the acquired funds have varied
expense and fee levels and the Fund may own different proportions of
acquired funds at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
EARNINGS AND BANK FEE CREDITS
During the year ended June 30, 2008, the Fund's custodian and transfer agency
fees were reduced by $3,786 as a result of earnings and bank fee credits from
overnight cash balances. The Fund pays custodian fees to Ameriprise Trust
Company, a subsidiary of Ameriprise Financial.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $113,851,810 and $135,281,282, respectively, for the
year ended June 30, 2008. Realized gains and losses are determined on an
identified cost basis.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 31
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<Table>
<Caption>
YEAR ENDED JUNE 30, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------------------
Class A 1,620,097 1,327,612 (4,675,335) (1,727,626)
Class B 193,231 217,558 (1,021,054) (610,265)
Class C 44,818 20,266 (88,461) (23,377)
Class I 5,791,409 883,959 (2,746,559) 3,928,809
Class R4 569 1,795 (4,775) (2,411)
- ----------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED JUNE 30, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------------------
Class A 4,147,287 511,609 (2,380,595) 2,278,301
Class B 682,014 94,005 (660,721) 115,298
Class C 77,195 6,462 (40,753) 42,904
Class I 2,430,646 278,457 (463,573) 2,245,530
Class R4 2,788 798 (7,005) (3,419)
Class W* 275 -- -- 275
- ----------------------------------------------------------------------------------------------
</Table>
* Inception date is Dec. 1, 2006.
5. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the RiverSource funds
and other institutional clients of RiverSource Investment. The cost of the
Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term
Cash Fund aggregated $116,361,703 and $101,225,813, respectively, for the year
ended June 30, 2008. The income distributions received with respect to the
Fund's investment in RiverSource Short-Term Cash Fund can be found on the
Statement of Operations and the Fund's invested balance in RiverSource
Short-Term Cash Fund at June 30, 2008, can be found in the Portfolio of
Investments.
6. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the
temporary funding of shareholder redemptions or for other temporary or emergency
purposes. The credit facility became effective on Oct. 18, 2007, replacing a
prior credit facility. The credit facility agreement, which is a collective
agreement between the Fund and certain other RiverSource funds, severally and
not jointly, permits collective borrowings up to $500 million. Interest is
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus
- --------------------------------------------------------------------------------
32 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
0.30%. Each borrowing under the credit facility matures no later than 60 days
after the date of borrowing. The Fund also pays a commitment fee equal to its
pro rata share of the amount of the credit facility at a rate of 0.06% per
annum. Under the prior credit facility, a Fund paid interest on its outstanding
borrowings at a rate equal to either the higher of the federal funds effective
rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. The Fund had no
borrowings during the year ended June 30, 2008.
7. RISKS RELATING TO CERTAIN INVESTMENTS
REAL ESTATE INDUSTRY RISK
Because of the Fund's policy of concentrating its investments in securities of
companies operating in the real estate industry, the Fund is more susceptible to
risks associated with the ownership of real estate and with the real estate
industry in general. These risks can include fluctuations in the value of the
underlying properties, defaults by borrowers or tenants, market saturation,
decreases in market rates for rents, and other economic, political, or
regulatory occurrences affecting the real estate industry, including REITs.
REITs depend upon specialized management skills, may have limited financial
resources, may have less trading volume, and may be subject to more abrupt or
erratic price movements than the overall securities markets. REITs are also
subject to the risk of failing to qualify for tax-free pass-through of income.
Some REITs (especially mortgage REITs) are affected by risks similar to those
associated with investments in debt securities including changes in interest
rates and the quality of credit extended.
8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. In response to defendants' motion to dismiss the
complaint, the Court dismissed one of plaintiffs' four claims and granted
plaintiffs limited discovery. Defendants moved for summary judgment in April
2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The
plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on
August 8, 2007.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 33
Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with
the Securities and Exchange Commission (SEC) and Minnesota Department of
Commerce (MDOC) related to market timing activities. As a result, AEFC was
censured and ordered to cease and desist from committing or causing any
violations of certain provisions of the Investment Advisers Act of 1940, the
Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to retain an independent distribution consultant to assist in developing
a plan for distribution of all disgorgement and civil penalties ordered by the
SEC in accordance with various undertakings detailed at
http://www.sec.gov/litigation/ admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of
Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the 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.
- --------------------------------------------------------------------------------
34 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
9. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004(B)
Net asset value, beginning of period $15.83 $15.30 $13.44 $10.46 $10.35
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .33(c) .21 .30 .32 .06
Net gains (losses) (both realized and
unrealized) (2.55) 1.37 2.76 2.94 .05
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (2.22) 1.58 3.06 3.26 .11
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.19) (.14) (.18) --
Distributions from realized gains (1.99) (.86) (1.06) (.10) --
- -----------------------------------------------------------------------------------------------------------
Total distributions (2.19) (1.05) (1.20) (.28) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.42 $15.83 $15.30 $13.44 $10.46
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $86 $147 $107 $62 $17
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.45% 1.51% 1.55% 1.57% 3.86%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.40% 1.51% 1.53% 1.49% 1.49%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.41% 1.41% 2.37% 3.56% 3.76%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 38% 47% 63% 49%
- -----------------------------------------------------------------------------------------------------------
Total return(i) (14.32%) 9.97% 24.02% 31.32% 1.06%(j)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (when shares became publicly available)
to June 30, 2004.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 35
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004(B)
Net asset value, beginning of period $15.72 $15.20 $13.37 $10.43 $10.35
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .22(c) .05 .18 .22 .05
Net gains (losses) (both realized and
unrealized) (2.52) 1.39 2.75 2.93 .03
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (2.30) 1.44 2.93 3.15 .08
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.06) (.04) (.11) --
Distributions from realized gains (1.99) (.86) (1.06) (.10) --
- -----------------------------------------------------------------------------------------------------------
Total distributions (2.08) (.92) (1.10) (.21) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.34 $15.72 $15.20 $13.37 $10.43
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $14 $29 $27 $18 $4
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 2.21% 2.27% 2.32% 2.34% 4.63%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 2.16% 2.27% 2.30% 2.27% 2.26%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.62% .64% 1.59% 2.77% 3.12%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 38% 47% 63% 49%
- -----------------------------------------------------------------------------------------------------------
Total return(i) (14.92%) 9.13% 23.06% 30.31% .77%(j)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (when shares became publicly available)
to June 30, 2004.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
36 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004(B)
Net asset value, beginning of period $15.72 $15.20 $13.37 $10.43 $10.35
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23(c) .05 .18 .21 .05
Net gains (losses) (both realized and
unrealized) (2.54) 1.40 2.75 2.93 .03
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (2.31) 1.45 2.93 3.14 .08
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.07) (.04) (.10) --
Distributions from realized gains (1.99) (.86) (1.06) (.10) --
- -----------------------------------------------------------------------------------------------------------
Total distributions (2.08) (.93) (1.10) (.20) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.33 $15.72 $15.20 $13.37 $10.43
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $1 $2 $2 $1 $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 2.21% 2.26% 2.32% 2.33% 4.64%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 2.16% 2.26% 2.29% 2.27% 2.27%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.66% .66% 1.61% 2.79% 3.20%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 38% 47% 63% 49%
- -----------------------------------------------------------------------------------------------------------
Total return(i) (14.96%) 9.18% 23.07% 30.29% .77%(j)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (when shares became publicly available)
to June 30, 2004.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 37
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004(B)
Net asset value, beginning of period $15.87 $15.33 $13.46 $10.46 $10.35
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .40(c) .32 .36 .35 .06
Net gains (losses) (both realized and
unrealized) (2.56) 1.35 2.76 2.95 .05
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (2.16) 1.67 3.12 3.30 .11
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.27) (.27) (.19) (.20) --
Distributions from realized gains (1.99) (.86) (1.06) (.10) --
- -----------------------------------------------------------------------------------------------------------
Total distributions (2.26) (1.13) (1.25) (.30) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.45 $15.87 $15.33 $13.46 $10.46
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $113 $95 $57 $53 $10
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .91% 1.04% 1.09% 1.10% 3.54%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .91% 1.04% 1.09% 1.10% 1.17%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.89% 1.87% 2.85% 4.04% 5.50%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 38% 47% 63% 49%
- -----------------------------------------------------------------------------------------------------------
Total return (13.90%) 10.52% 24.55% 31.78% 1.06%(i)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (when shares became publicly available)
to June 30, 2004.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
- --------------------------------------------------------------------------------
38 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007 2006 2005 2004(B)
Net asset value, beginning of period $15.79 $15.26 $13.41 $10.47 $10.35
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .40(c) .24 .32 .38 .06
Net gains (losses) (both realized and
unrealized) (2.53) 1.37 2.75 2.89 .06
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (2.13) 1.61 3.07 3.27 .12
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.29) (.22) (.16) (.23) --
Distributions from realized gains (1.99) (.86) (1.06) (.10) --
- -----------------------------------------------------------------------------------------------------------
Total distributions (2.28) (1.08) (1.22) (.33) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.38 $15.79 $15.26 $13.41 $10.47
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $-- $-- $-- $-- $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.21% 1.34% 1.36% 1.39% 3.50%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .96% 1.34% 1.35% 1.34% 1.13%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.86% 1.58% 2.53% 3.79% 3.62%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 38% 47% 63% 49%
- -----------------------------------------------------------------------------------------------------------
Total return (13.74%) 10.17% 24.22% 31.48% 1.16%(i)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (when shares became publicly available)
to June 30, 2004.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 39
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JUNE 30, 2008 2007(B)
Net asset value, beginning of period $15.78 $18.17
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .34(c) .24
Net gains (losses) (both realized and
unrealized) (2.55) (1.62)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (2.21) (1.38)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.15)
Distributions from realized gains (1.99) (.86)
- -----------------------------------------------------------------------------------------------------------
Total distributions (2.20) (1.01)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.37 $15.78
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $-- $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.35% 1.48%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.35% 1.48%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.48% 1.19%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 38%
- -----------------------------------------------------------------------------------------------------------
Total return (14.30%) (7.90%)(i)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (inception date) to June 30, 2007.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended June 30, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
- --------------------------------------------------------------------------------
40 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RIVERSOURCE REAL ESTATE FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RiverSource Real Estate Fund (the Fund) (one of
the portfolios constituting the RiverSource Sector Series, Inc.) as of June 30,
2008, 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 periods presented through June 30, 2007, were
audited by other auditors whose report dated August 21, 2007, 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 June 30, 2008, by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audit provides a reasonable basis for our
opinion.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 41
In our opinion, the 2008 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
RiverSource Real Estate Fund of the RiverSource Sector Series, Inc. at June 30,
2008, 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 LLP
Minneapolis, Minnesota
August 20, 2008
- --------------------------------------------------------------------------------
42 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
FEDERAL INCOME TAX INFORMATION -------------------------------------------------
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
Fiscal year ended June 30, 2008
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 15.81%
Dividends Received Deduction for corporations......... 1.69%
U.S. Government Obligations........................... 0.00%
</Table>
<Table>
<Caption>
CAPITAL GAIN DISTRIBUTION - the Fund designates $1.76241
per share to be taxed as long-term capital gain.
</Table>
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 43
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board.
The following is a list of the Fund's Board members. Each member oversees 104
RiverSource funds. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the Board. Under the current Board policy, members may serve until the end of
the meeting following their 75th birthday, or the fifteenth anniversary of the
first Board meeting they attended as members of the Board, whichever occurs
first. This policy does not apply to Ms. Jones who may retire after her 75th
birthday.
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
Kathleen Blatz Board member Chief Justice, Minnesota Supreme None
901 S. Marquette Ave. since 2006 Court, 1998-2006; Attorney
Minneapolis, MN 55402
Age 54
- -----------------------------------------------------------------------------------------------------
Arne H. Carlson Board member Chair, RiverSource Funds, None
901 S. Marquette Ave. since 1999 1999-2006; former Governor of
Minneapolis, MN 55402 Minnesota
Age 73
- -----------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member President, Springboard -- Partners None
901 S. Marquette Ave. since 2007 in Cross Cultural Leadership
Minneapolis, MN 55402 (consulting company)
Age 53
- -----------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member Trustee Professor of Economics and None
901 S. Marquette Ave. since 2004 Management, Bentley College; former
Minneapolis, MN 55402 Dean, McCallum Graduate School of
Age 57 Business, Bentley College
- -----------------------------------------------------------------------------------------------------
Anne P. Jones Board member Attorney and Consultant None
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 73
- -----------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive
901 S. Marquette Ave. since 2005 Asset Management Insurance
Minneapolis, MN 55402
Age 72
- -----------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries,
901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures
Minneapolis, MN 55402 Chair of the irrigation systems)
Age 69 Board since 2007
- -----------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
44 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
Catherine James Paglia Board member Director, Enterprise Asset None
901 S. Marquette Ave. since 2004 Management, Inc. (private real
Minneapolis, MN 55402 estate and asset management
Age 55 company)
- -----------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member Chief Executive Officer and Idera
901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Pharmaceutical, Inc.
Minneapolis, MN 55402 2003 (biotechnology); former (biotechnology);
Age 64 President, Forester Biotech Healthways, Inc.
(health management
programs)
- -----------------------------------------------------------------------------------------------------
</Table>
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
William F. Truscott Board member President -- U.S. Asset Management None
53600 Ameriprise since 2001, and Chief Investment Officer,
Financial Center Vice President Ameriprise Financial, Inc. and
Minneapolis, MN 55474 since 2002 President, Chairman of the Board
Age 47 and Chief Investment Officer,
RiverSource Investments, LLC since
2005; Director, President, and
Chief Executive Officer, Ameriprise
Certificate Company since 2006;
Chairman of the Board, Chief
Executive Officer and President,
RiverSource Distributors, Inc.
since 2006; Senior Vice
President -- Chief Investment
Officer, Ameriprise Financial, Inc.
and Chairman of the Board and Chief
Investment Officer, RiverSource
Investments, LLC, 2001-2005
- -----------------------------------------------------------------------------------------------------
</Table>
* 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 REAL ESTATE FUND -- 2008 ANNUAL REPORT 45
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
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Patrick T. Bannigan President since Director and Senior Vice President, Asset
172 Ameriprise 2006 Management, Products and Marketing,
Financial Center RiverSource Investments, LLC since 2006;
Minneapolis, MN 55474 Director and Vice President -- Asset
Age 42 Management, Products and Marketing,
RiverSource Distributors, Inc. since 2006;
Managing Director and Global Head of Product,
Morgan Stanley Investment Management,
2004-2006; President, Touchstone Investments,
2002-2004
- ------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed
172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and
Financial Center RiverSource Investments, LLC since 2006; Vice
Minneapolis, MN 55474 President -- Investments, Ameriprise
Age 44 Certificate Company since 2003; Senior Vice
President -- Fixed Income, Ameriprise
Financial, Inc., 2002-2006 and RiverSource
Investments, LLC, 2004-2006
- ------------------------------------------------------------------------------------------
Amy K. Johnson Vice President Vice President -- Asset Management and Trust
5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC
Financial Center since 2006; Vice President -- Operations and
Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC,
Age 42 2004-2006; Director of Product
Development -- Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- ------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting,
105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Chief
Financial Center Financial Officer, RiverSource Distributors,
Minneapolis, MN 55474 Inc. since 2006
Age 53
- ------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset
5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since
Financial Center and Secretary 2005; Chief Counsel, RiverSource Distributors,
Minneapolis, MN 55474 since 2006 Inc. since 2006; Vice President, General
Age 49 Counsel and Secretary, Ameriprise Certificate
Company since 2005; Vice President -- Asset
Management Compliance, Ameriprise Financial,
Inc., 2004-2005; Senior Vice President and
Chief Compliance Officer, USBancorp Asset
Management, 2002-2004
- ------------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance
172 Ameriprise Officer since Officer, RiverSource Investments, LLC since
Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset
Minneapolis, MN 55474 Management, 2003-2006; Director of Finance,
Age 47 Voyageur Asset Management, 2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
46 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
FUND OFFICERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering
2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since
Financial Center Officer since 2004; Manager Anti-Money Laundering,
Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004;
Age 44 Compliance Director and Bank Secrecy Act
Officer, American Express Centurion Bank,
2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 47
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT ----------------------------------------------------------------------
RiverSource Investments, LLC ("RiverSource Investments" or the "investment
manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"), serves as the investment manager to the Fund. Under an investment
management services agreement (the "IMS Agreement") RiverSource Investments
provides investment advice and other services to the Fund and all RiverSource
funds (collectively, the "Funds").
On an annual basis, the Fund's Board of Directors (the "Board"), including the
independent Board members (the "Independent Directors"), considers renewal of
the IMS Agreement. RiverSource Investments prepared detailed reports for the
Board and its Contracts Committee in March and April 2008, including reports
based on data provided by independent organizations to assist the Board in
making this determination. In addition, throughout the year, the Board (or its
committees) reviews information prepared by RiverSource Investments addressing
the services RiverSource Investments provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts, Investment Review and Compliance Committees in determining whether to
continue the IMS Agreement. At the April 9-10, 2008 in-person Board meeting,
independent legal counsel to the Independent Directors reviewed with the
Independent Directors various factors relevant to the Board's consideration of
advisory agreements and the Board's legal responsibilities related to such
consideration. Following an analysis and discussion of the factors identified
below, the Board, including all of the Independent Directors, approved renewal
of the IMS Agreement.
Nature, Extent and Quality of Services Provided by RiverSource Investments: The
Board analyzed various reports and presentations it had received detailing the
services performed by RiverSource Investments, as well as its expertise,
resources and capabilities. The Board specifically considered many developments
during the past year concerning the services provided by RiverSource
Investments, including, in particular, the continued investment in, and
resources dedicated to, the Fund's operations, particularly in the areas of
trading systems, new product initiatives, legal and compliance. Further, in
connection with the Board's evaluation of the overall package of services
provided by RiverSource Investments, the Board considered the quality of the
administrative and transfer agency services provided by RiverSource Investments'
affiliates to the Fund. The Board also reviewed the financial condition of
RiverSource Investments (and its affiliates) and each entity's ability to carry
out its responsibilities under the IMS Agreement. The Board also discussed the
acceptability of the terms of the IMS Agreement (including the relatively broad
scope of services required to be performed by RiverSource Investments). The
Board concluded that the services being performed under the
- --------------------------------------------------------------------------------
48 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
IMS Agreement were of a reasonably high quality, particularly in light of recent
market conditions.
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board concluded that RiverSource Investments and
its affiliates were in a position to continue to provide a high quality and
level of services to the Fund.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the IMS Agreement, the Board carefully
reviewed the investment performance of the Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of the Fund, the
performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund; and (ii) a report detailing the
Fund's performance over various periods (including since inception), recent Fund
inflows (and outflows) and a comparison of the Fund's net assets from December
2006 to December 2007. The Board observed that the Fund's investment performance
was appropriate in light of the particular management style and market
conditions involved.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with the
Fund: The Board reviewed comparative fees and the costs of services to be
provided under the IMS Agreement. The Board members considered detailed
comparative information set forth in an annual report on fees and expenses,
including, among other things, data (prepared by an independent organization)
showing a comparison of the Fund's expenses with median expenses paid by funds
in its peer group, as well as data showing the Fund's contribution to
RiverSource Investments' profitability.
The Board accorded particular weight to the notion that the level of fees should
reflect a rational pricing model applied consistently across the various product
lines in the Funds' family, while assuring that the overall fees for each fund
are generally in line with the "pricing philosophy" (i.e., that the total
expense ratio of each fund, with few exceptions, is at or below the median
expense ratio of funds in the same comparison group). The Board took into
account that the Fund's total expense ratio (after considering proposed expense
caps/waivers) approximated the peer group's median expense ratio shown in the
reports. The Board also considered the Fund's performance incentive adjustment
and noted its continued
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT 49
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ----------------------------------------------------------
appropriateness. Based on its review, the Board concluded that the Fund's
management fee was fair and reasonable in light of the extent and quality of
services that the Fund receives.
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to the Fund. In this regard, the Board referred
to a detailed profitability report, discussing the profitability to RiverSource
Investments and Ameriprise Financial from managing and operating the Fund,
including data showing comparative profitability over the past two years. The
Board also considered the services acquired by the investment manager through
the use of commission dollars paid by the Funds on portfolio transactions. The
Board noted that the fees paid by the Fund should permit the investment manager
to offer competitive compensation to its personnel, make necessary investments
in its business and earn an appropriate profit. The Board concluded that
profitability levels were reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as the Fund grows and
took note of the extent to which Fund shareholders might also benefit from such
growth. The Board considered that the IMS Agreement provides for lower fees as
assets increase at pre-established breakpoints and concluded that the IMS
Agreement satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 10, 2008, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement.
PROXY
VOTING ----------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities is filed
with the SEC by August 31 for the most recent 12-month period ending June 30 of
that year, and is available without charge by visiting riversource.com/funds; or
searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
50 RIVERSOURCE REAL ESTATE FUND -- 2008 ANNUAL REPORT
RIVERSOURCE REAL ESTATE FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by
the Fund's current prospectus. RiverSource(R)
mutual funds are distributed by RiverSource
Distributors, Inc., Member FINRA, and managed by
RiverSource Investments, LLC. These companies are
part of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6281 G (8/08)
</Table>
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial officer. A
copy of the code of ethics is filed as an exhibit to this form N-CSR.
(b) During the period covered by this report, there were not any amendments
to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any implicit
or explicit waivers to the provisions of the code of ethics adopted in
2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Pamela G. Carlton, Jeffrey Laikind and Anne P. Jones, each
qualify as audit committee financial experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fund - Related Fees
(a) Audit Fees. The fees for the year ended June 30, to Ernst & Young LLP for
professional services rendered for the audit of the annual financial
statements for RiverSource Sector Series, Inc. were as follows:
2008 - $45,300
(b) Audit - Related Fees. The fees for the year ended June 30, 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 review for RiverSource Sector Series, Inc. were as
follows:
2008 - $1,590
(c) Tax Fees. The fees for the year ended June 30, to Ernst & Young LLP for tax
compliance related services for RiverSource Sector Series, Inc. were as
follows:
2008 - $6,300
(d) All Other Fees. The fees for the year ended June 30, to Ernst & Young LLP
for additional professional services rendered for RiverSource Sector
Series, Inc. were as follows:
2008 - $0
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by Ernst & Young
LLP for the registrant and to the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant must be
pre-approved by the audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above during
2008 were pre-approved by the audit committee.
(f) Not applicable.
(g) Non-Audit Fees. The fees for the year ended June 30, to Ernst & Young LLP
by the registrant for non-audit fees and by the registrant's investment
adviser, and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant were as
follows:
2008 - $619,690
(h) 100% of the services performed in item (g) above during 2008 were
pre-approved by the Ameriprise Financial Audit Committee and/or the
RiverSource Mutual Funds Audit Committee.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not
applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form
N-CSR, the registrant's Principal Financial Officer and Principal Executive
Officer have concluded that those disclosure controls and procedures
provide reasonable assurance
that the material information required to be disclosed by the registrant on
this report is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal executive
officer and principal financial officer, as required to be disclosed under
Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal executive
officer and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company
Act of 1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is
attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Sector Series, Inc.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President and Principal
Executive Officer
Date September 3, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President and Principal
Executive Officer
Date September 3, 2008
By /s/ Jeffrey P. Fox
----------------------------------
Jeffrey P. Fox
Treasurer and Principal
Financial Officer
Date September 3, 2008