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 811-4075
RIVERSOURCE INTERNATIONAL 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: 10/31
Date of reporting period: 10/31
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
DISCIPLINED INTERNATIONAL EQUITY FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
OCTOBER 31, 2008
(Prospectus also enclosed)
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND
SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM CAPITAL
GROWTH.
<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.............. 3
Manager Commentary................. 7
The Fund's Long-term Performance... 14
Fund Expenses Example.............. 16
Portfolio of Investments........... 20
Statement of Assets and
Liabilities...................... 27
Statement of Operations............ 28
Statements of Changes in Net
Assets........................... 30
Financial Highlights............... 32
Notes to Financial Statements...... 41
Report of Independent Registered
Public Accounting Firm........... 57
Federal Income Tax Information..... 59
Board Members and Officers......... 60
Proxy Voting....................... 65
</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.
- --------------------------------------------------------------------------------
2 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Disciplined International Equity Fund (the Fund) Class A shares
declined 52.87% (excluding sales charge) during the 12 months ended Oct. 31,
2008.
> The Fund underperformed its benchmark, the Morgan Stanley Capital
International (MSCI) EAFE Index, which fell 46.34%.
> The Fund also underperformed the Lipper International Large-Cap Core Funds
Index, representing the Fund's peer group, which was down 46.67% during the
same period.
ANNUALIZED TOTAL RETURNS (for period ended Oct. 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Since
1 year inception(a)
- ------------------------------------------------------------------
RiverSource Disciplined International
Equity Fund
Class A (excluding sales charge) -52.87% -14.86%
- ------------------------------------------------------------------
MSCI EAFE Index (unmanaged) -46.34% -12.33%
- ------------------------------------------------------------------
Lipper International Large-Cap Core Funds
Index -46.67% -12.42%
- ------------------------------------------------------------------
</Table>
(a) Fund data is from May 18, 2006. MSCI EAFE Index and Lipper peer group data
is from June 1, 2006.
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 5.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. See the Average Annual Total Returns table for performance of other
share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes. It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
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 Fund
and Acquired
Fund Fees and
Total Fund Expenses(a)
- -----------------------------------------
Class A 1.40% 1.43%
- -----------------------------------------
Class B 2.18% 2.21%
- -----------------------------------------
Class C 2.17% 2.20%
- -----------------------------------------
Class I 0.90% 0.93%
- -----------------------------------------
Class R2 1.69% 1.72%
- -----------------------------------------
Class R3 1.44% 1.47%
- -----------------------------------------
Class R4 1.20% 1.23%
- -----------------------------------------
Class R5 0.94% 0.97%
- -----------------------------------------
Class W 1.35% 1.38%
- -----------------------------------------
</Table>
(a) In addition to the Fund's total annual operating expenses that the Fund
bears directly, the Fund's shareholders indirectly bear the expenses of
acquired funds in which the Fund invests. The Fund's "Acquired fund fees and
expenses," based on its investment in the acquired funds, is 0.03% for the
year ended Oct. 31, 2008.
International investing involves increased risk and volatility due to potential
political and economic instability, currency fluctuations, and differences in
financial reporting and accounting standards and oversight. Risks are
particularly significant in emerging markets.
- --------------------------------------------------------------------------------
4 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT OCT. 31, 2008
SINCE
Without sales charge 1 YEAR INCEPTION
Class A (inception 5/18/06) -52.87% -14.86%
- ----------------------------------------------------------------
Class B (inception 5/18/06) -53.35% -15.61%
- ----------------------------------------------------------------
Class C (inception 5/18/06) -53.30% -15.60%
- ----------------------------------------------------------------
Class I (inception 5/18/06) -52.55% -14.45%
- ----------------------------------------------------------------
Class R2 (inception 8/1/08) N/A -37.23%*
- ----------------------------------------------------------------
Class R3 (inception 8/1/08) N/A -37.23%*
- ----------------------------------------------------------------
Class R4 (inception 5/18/06) -52.46% -14.51%
- ----------------------------------------------------------------
Class R5 (inception 8/1/08) N/A -37.12%*
- ----------------------------------------------------------------
Class W (inception 12/1/06) -52.81% -22.51%
- ----------------------------------------------------------------
With sales charge
Class A (inception 5/18/06) -55.59% -16.88%
- ----------------------------------------------------------------
Class B (inception 5/18/06) -55.64% -16.97%
- ----------------------------------------------------------------
Class C (inception 5/18/06) -53.76% -15.60%
- ----------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 5
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
<Table>
<Caption>
AT SEPT. 30, 2008
SINCE
Without sales charge 1 YEAR INCEPTION
Class A (inception 5/18/06) -34.74% -5.22%
- ----------------------------------------------------------------
Class B (inception 5/18/06) -35.36% -6.01%
- ----------------------------------------------------------------
Class C (inception 5/18/06) -35.31% -6.01%
- ----------------------------------------------------------------
Class I (inception 5/18/06) -34.39% -4.82%
- ----------------------------------------------------------------
Class R2 (inception 8/1/08) N/A -18.14%*
- ----------------------------------------------------------------
Class R3 (inception 8/1/08) N/A -18.14%*
- ----------------------------------------------------------------
Class R4 (inception 5/18/06) -34.30% -4.89%
- ----------------------------------------------------------------
Class R5 (inception 8/1/08) N/A -18.04%*
- ----------------------------------------------------------------
Class W (inception 12/1/06) -34.74% -11.41%
- ----------------------------------------------------------------
With sales charge
Class A (inception 5/18/06) -38.48% -7.55%
- ----------------------------------------------------------------
Class B (inception 5/18/06) -38.53% -7.58%
- ----------------------------------------------------------------
Class C (inception 5/18/06) -35.94% -6.01%
- ----------------------------------------------------------------
</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 R2, Class R3, Class R4, Class R5 and Class W shares.
Class I, Class R2, Class R3, Class R4 and Class R5 shares are available to
institutional investors only. Class W shares are offered through qualifying
discretionary accounts.
*Not annualized.
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.
- --------------------------------------------------------------------------------
6 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
Dear Shareholders,
RiverSource Disciplined International Equity Fund (the Fund) Class A shares
declined 52.87% (excluding sales charge) during the 12 months ended Oct. 31,
2008. The Fund underperformed its benchmark, the MSCI EAFE Index, which fell
46.34%. The Fund also underperformed the Lipper International Large-Cap Core
Funds Index, representing the Fund's peer group, which was down 46.67% during
the same period.
COUNTRY DIVERSIFICATION (at Oct. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Australia 6.5%
- ------------------------------------------------
Austria 0.4%
- ------------------------------------------------
Belgium 1.0%
- ------------------------------------------------
Bermuda 0.1%
- ------------------------------------------------
Denmark 1.6%
- ------------------------------------------------
Finland 2.2%
- ------------------------------------------------
France 9.4%
- ------------------------------------------------
Germany 9.5%
- ------------------------------------------------
Greece 0.2%
- ------------------------------------------------
Hong Kong 2.1%
- ------------------------------------------------
Ireland 0.7%
- ------------------------------------------------
Italy 5.6%
- ------------------------------------------------
Japan 12.9%
- ------------------------------------------------
Luxembourg 1.0%
- ------------------------------------------------
Netherlands 8.8%
- ------------------------------------------------
New Zealand 0.2%
- ------------------------------------------------
Norway 1.0%
- ------------------------------------------------
Singapore 0.7%
- ------------------------------------------------
Spain 2.1%
- ------------------------------------------------
Sweden 1.8%
- ------------------------------------------------
Switzerland 7.4%
- ------------------------------------------------
United Kingdom 16.9%
- ------------------------------------------------
Other(1) 7.9%
- ------------------------------------------------
</Table>
(1) Cash & Cash Equivalents.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
SIGNIFICANT PERFORMANCE FACTORS
It would be putting it mildly to say that international equities experienced
both a sizable correction and heightened volatility during the annual period.
Strains in the financial markets that were first made visible in the U.S.
subprime mortgage industry continued to build. Ultimately, such pressures
resulted in the collapse of the global credit markets, as the balance sheets of
banks worldwide imploded and trust between and among financial institutions
evaporated. Adding to the turmoil were prices of major commodities, including
crude oil, which reached record highs before retreating significantly near the
end of the annual period. This loss of upward commodity price momentum weighed
particularly heavily on the materials and energy sectors of the international
equity markets.
The Fund's performance was driven primarily by the performance of the three
quantitative investment models -- momentum, value and quality-adjusted
value -- that we employ in selecting stocks for the Fund's portfolio. The three
models choose the international stocks for the portfolio, and we then weight the
stocks chosen. During the reporting period, all three quantitative models
underperformed the MSCI EAFE Index. On a relative basis, the momentum model
underperformed least, while both the quality-adjusted value and value models
performed similarly to each other and more than twice as poorly as momentum.
TOP TEN HOLDINGS (at Oct. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Royal Dutch Shell Series A (Netherlands) 3.8%
- ------------------------------------------------
Honda Motor (Japan) 3.2%
- ------------------------------------------------
Eni (Italy) 3.2%
- ------------------------------------------------
BNP Paribas (France) 2.8%
- ------------------------------------------------
E.ON (Germany) 2.4%
- ------------------------------------------------
Nestle (Switzerland) 2.3%
- ------------------------------------------------
Royal Dutch Shell Series B (Netherlands) 2.1%
- ------------------------------------------------
BG Group (United Kingdom) 1.9%
- ------------------------------------------------
BHP Billiton (Australia) 1.7%
- ------------------------------------------------
Barclays (United Kingdom) 1.6%
- ------------------------------------------------
</Table>
For further detail about these holdings, please refer to the section entitled
"Portfolio of Investments."
Fund holding are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
- --------------------------------------------------------------------------------
8 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
Though disappointing, our research indicates that periods of correlated
underperformance, which occasionally occur, are historically short-lived. Such
instances in no way invalidate our belief that the style diversification
provided by the three very different quantitative models may be a significant
investment advantage over time.
In seeking to manage the risks associated with international equity investing,
we use a proprietary risk management system that helps us manage the Fund's
exposure to several key factors, including country, region, industry, sector,
market capitalization and portfolio turnover. We also use quantitative asset
allocation models to determine the mix between developed international markets
and emerging markets. Throughout the period, we used these and other techniques
in our effort to reduce the overall expected risk of the portfolio.
From a sector perspective, only the Fund's sizable allocation to energy
contributed to relative results. All other sector positioning detracted, with
stock selection in financials hurting most. To a lesser degree, having only a
modest allocation to the strong-performing health care sector and a more sizable
allocation to the weaker materials sector also hurt performance, as did stock
selection within each of these sectors.
All of the regions that the Fund invests in generated negative returns.
Performance was hurt most by stock selection in the U.K; stock selection in
Europe overall also detracted. Within Europe, stock selection in Germany, Italy
and Denmark actually contributed to Fund performance as did somewhat sizable
allocations to Germany and Denmark. However, stock selection in France
detracted. Having only a modest exposure to
From a sector perspective, only the Fund's sizable allocation to energy
contributed to relative results.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
Japan, which declined but outpaced the MSCI EAFE Index, also hurt, along with
security selection there. Finally, declining commodity prices particularly
impacted the resource-rich Pacific (excluding Japan) region -- having a
significant exposure to this region detracted from Fund performance.
From a market capitalization perspective, the Fund's emphasis on large-cap
stocks and its more modest exposure to small-cap stocks helped. Individual
stocks that contributed most to the Fund's return were German auto manufacturer
VOLKSWAGEN STAMM, selected by all three of the Fund's quantitative investment
models; Hong Kong electric utility CLP HOLDINGS, chosen by the quality-adjusted
value and value models; and electric utility HONGKONG ELECTRIC HOLDINGS,
selected by all three models. Even in a broad market decline, some individual
stocks performed well. These stocks actually managed to generate gains in what
can only be described as a dismal international equity market during the annual
period.
Stocks that detracted from the Fund's results most were the ROYAL BANK OF
SCOTLAND GROUP, chosen by the quality-adjusted value and value models; U.K.
commercial bank BARCLAYS, selected by the quality-adjusted value and value
models; U.K. diversified metals producer RIO TINTO, selected by all three
models; Netherlands insurance company ING GROEP, chosen by the quality-adjusted
value and value models and U.K. commercial bank HBOS GROUP, also a quality-
adjusted value and value model pick.
CHANGES TO THE FUND'S PORTFOLIO
As a result of consistent application of our disciplined investment process, the
Fund's modest allocations to financials, utilities and health care increased
somewhat. The Fund's exposure to industrials and information technology
decreased.
The Fund's modest exposure to Japan was increased slightly. We decreased the
Fund's sizable allocation to the Pacific (excluding Japan) region, particularly
Australia. We increased the Fund's already significant position in the U.K.
Within Europe, we added to the Fund's exposure to Italy and Switzerland, and
moderately decreased its allocations to Germany and Spain.
- --------------------------------------------------------------------------------
10 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
Toward the end of the annual period, we virtually eliminated the Fund's exposure
to emerging market equities. This move proved prudent, as emerging markets
subsequently underperformed. However, the Fund's emerging market equity
positions still detracted from its performance during the time they were held in
the portfolio.
OUR FUTURE STRATEGY
While the annual period was clearly a most challenging one, it did not alter our
conviction in our process. Indeed, our in-depth research continues to uphold the
validity of our process for investors with a long-term perspective. Certainly,
our quantitative investment models will not produce positive returns for every
reporting period, but the models are operating as designed over time. That said,
we believe that during times like this that the consistent use of multiple
investment disciplines is more critical than ever if we are to serve the Fund
well over the long term.
Employing style diversification remains a key aspect of our management process.
We continue to believe that the combination of our three well-tested
quantitative models should help us deliver value over extended periods of time.
We are equally convinced of the merit of our multifaceted, disciplined approach
to managing risk in the portfolio. We will continue our strategy of monitoring
weightings as a risk control so that no individual security, industry, sector,
country or region becomes too large within the Fund's portfolio. We also intend
to continue to employ the macroscopic aspects of our rigorous risk controls,
including constraints on market capitalization, price, quality, turnover,
transaction costs and more, with a goal of identifying high quality portfolio
holdings.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 11
MANAGER COMMENTARY (continued) -------------------------------------------------
<Table>
(PHOTO - DIMITRIS BERTSIMAS, PhD) (PHOTO - ALEXANDER SAUER-BUDGE,
PhD)
Dimitris Bertsimas, PhD Alexander Sauer-Budge, PhD
Senior 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.
- --------------------------------------------------------------------------------
12 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
THIS PAGE LEFT BLANK INTENTIONALLY
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Disciplined International Equity Fund Class A shares
(from 6/1/06 to 10/31/08)* as compared to the performance of two widely cited
performance indices, the Morgan Stanley Capital International (MSCI) EAFE Index
and the Lipper International Large-Cap Core Funds Index. In comparing the Fund's
Class A shares to these indices, you should take into account the fact that the
Fund's performance reflects the maximum sales charge of 5.75%, while such
charges are not reflected in the performance of the indices. Returns for the
Fund include the reinvestment of any distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The investment return and
principal value of your investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance information shown. You
may obtain performance information current to the most recent month-end by
contacting your financial institution or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
* Fund data is from May 18, 2006. MSCI EAFE Index and Lipper peer group data is
from June 1, 2006.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Oct. 31, 2008 SINCE
1 YEAR INCEPTION(3)
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $4,441 $6,349
- --------------------------------------------------------------------------
Average annual total return -55.59% -16.88%
- --------------------------------------------------------------------------
MSCI EAFE INDEX(1)
Cumulative value of $10,000 $5,366 $7,274
- --------------------------------------------------------------------------
Average annual total return -46.34% -12.33%
- --------------------------------------------------------------------------
LIPPER INTERNATIONAL LARGE-CAP CORE FUNDS INDEX(2)
Cumulative value of $10,000 $5,333 $7,258
- --------------------------------------------------------------------------
Average annual total return -46.67% -12.42%
- --------------------------------------------------------------------------
</Table>
Results for other share classes can be found on pages 5 and 6.
- --------------------------------------------------------------------------------
14 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE DISCIPLINED
INTERNATIONAL EQUITY FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE DISCIPLINED
INTERNATIONAL EQUITY LIPPER INTERNATIONAL
FUND CLASS LARGE-CAP CORE
A (INCLUDES MSCI EAFE FUNDS INDEX
SALES CHARGE) INDEX(1) (2)
----------------------- -------------- --------------------
6/1/06 $ 9,425 $10,000 $10,000
10/06 10,049 10,808 10,727
4/07 11,759 12,503 12,246
10/07 13,471 13,557 13,610
4/08 11,781 12,338 12,343
10/08 6,349 7,274 7,258
</Table>
(1) The Morgan Stanley Capital International (MSCI) EAFE Index, an unmanaged
index, is compiled from a composite of securities markets of Europe,
Australia and the Far East. The index is widely recognized by investors in
foreign markets as the measurement index for portfolios of non-North
American securities. The index reflects reinvestment of all distributions
and changes in market prices.
(2) The Lipper International Large-Cap Core Funds Index includes the 30 largest
large-cap core funds tracked by Lipper Inc. The index's returns include net
reinvested dividends. The Fund's performance is currently measured against
this index for purposes of determining the performance incentive adjustment.
(3) Fund data is from May 18, 2006. MSCI EAFE Index and Lipper peer group data
is from June 1, 2006.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 15
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 indicated and held until Oct. 31, 2008.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
16 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
DIRECT AND
DIRECT INDIRECT
BEGINNING ENDING EXPENSES EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING PAID DURING
MAY 1, 2008(A) OCT. 31, 2008 THE PERIOD(B) THE PERIOD(C)
- -------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------
Actual(d) $1,000 $ 538.90 $ 5.39 $ 5.51
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,018.20 $ 7.07 $ 7.22
- -------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------
Actual(d) $1,000 $ 535.30 $ 8.36 $ 8.47
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,014.32 $10.97 $11.12
- -------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------
Actual(d) $1,000 $ 535.70 $ 8.36 $ 8.48
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,014.32 $10.97 $11.12
- -------------------------------------------------------------------------------------------
Class I
- -------------------------------------------------------------------------------------------
Actual(d) $1,000 $ 541.50 $ 3.34 $ 3.46
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.87 $ 4.38 $ 4.53
- -------------------------------------------------------------------------------------------
Class R2
- -------------------------------------------------------------------------------------------
Actual(e) $1,000 $ 627.70 $ 3.33 $ 3.39
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.94 $ 8.34 $ 8.49
- -------------------------------------------------------------------------------------------
Class R3
- -------------------------------------------------------------------------------------------
Actual(e) $1,000 $ 627.70 $ 2.82 $ 2.88
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,018.20 $ 7.07 $ 7.22
- -------------------------------------------------------------------------------------------
Class R4
- -------------------------------------------------------------------------------------------
Actual(d) $1,000 $ 541.50 $ 4.51 $ 4.62
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,019.36 $ 5.90 $ 6.06
- -------------------------------------------------------------------------------------------
Class R5
- -------------------------------------------------------------------------------------------
Actual(e) $1,000 $ 628.80 $ 1.83 $ 1.89
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.67 $ 4.58 $ 4.74
- -------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 17
FUND EXPENSES EXAMPLE (continued) ----------------------------------------------
<Table>
<Caption>
DIRECT AND
DIRECT INDIRECT
BEGINNING ENDING EXPENSES EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING PAID DURING
MAY 1, 2008(A) OCT. 31, 2008 THE PERIOD(B) THE PERIOD(C)
- -------------------------------------------------------------------------------------------
Class W
- -------------------------------------------------------------------------------------------
Actual(d) $1,000 $ 539.90 $ 5.12 $ 5.24
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,018.55 $ 6.72 $ 6.87
- -------------------------------------------------------------------------------------------
</Table>
ANNUALIZED EXPENSE RATIOS
<Table>
<Caption>
FUND'S ACQUIRED FUND
ANNUALIZED FEES AND NET FUND
EXPENSE RATIO EXPENSES EXPENSES
- ----------------------------------------------------------------------
Class A 1.39% .03% 1.42%
- ----------------------------------------------------------------------
Class B 2.16% .03% 2.19%
- ----------------------------------------------------------------------
Class C 2.16% .03% 2.19%
- ----------------------------------------------------------------------
Class I .86% .03% .89%
- ----------------------------------------------------------------------
Class R2 1.64% .03% 1.67%
- ----------------------------------------------------------------------
Class R3 1.39% .03% 1.42%
- ----------------------------------------------------------------------
Class R4 1.16% .03% 1.19%
- ----------------------------------------------------------------------
Class R5 .90% .03% .93%
- ----------------------------------------------------------------------
Class W 1.32% .03% 1.35%
- ----------------------------------------------------------------------
</Table>
(a) The beginning account values for Classes R2, R3 and R5 are as of Aug. 1,
2008 (when shares of these classes became publicly available) for actual
expense calculations, and as of May 1, 2008 for hypothetical expense
calculations.
(b) Expenses for Classes A, B, C, I, R4 and W are equal to the Fund's annualized
expense ratio as indicated above, multiplied by the average account value
over the period, multiplied by 184/365 (to reflect the one-half year
period). Actual expenses for Classes R2, R3 and R5 are equal to the Fund's
annualized expense ratio as indicated above, multiplied by the average
account value over the period, multiplied by 91/365 (to reflect the period
from Aug. 1, 2008 to Oct. 31, 2008). Hypothetical expenses for Classes R2,
R3 and R5 are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 184/365 (to reflect the one-half year period).
- --------------------------------------------------------------------------------
18 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(c) Expenses for Classes A, B, C, I, R4 and W are equal to the Fund's annualized
expense ratio as indicated above plus the acquired fund fees and expenses,
multiplied by 184/365 (to reflect the one-half year period). Actual expenses
for Classes R2, R3 and R5 are equal to the Fund's annualized expense ratio
as indicated above plus the acquired fund fees and expenses, multiplied by
91/365 (to reflect the period from Aug. 1, 2008 to Oct. 31, 2008).
Hypothetical expenses for Classes R2, R3 and R5 are equal to the Fund's
annualized expense ratio as indicated above, plus the acquired fund fees and
expenses, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
(d) Based on the actual return for the six months ended Oct. 31, 2008: -46.11%
for Class A, -46.47% for Class B, -46.43% for Class C, -45.85% for Class I,
-45.85% for Class R4 and -46.01% for Class W.
(e) Based on the actual return for the period from Aug. 1, 2008 (when shares
became publicly available) to Oct. 31, 2008: -37.23% for Class R2, -37.23%
for Class R3 and -37.12% for Class R5.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 19
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
OCT. 31, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
COMMON STOCKS (93.2%)(c)
ISSUER SHARES VALUE(a)
AUSTRALIA (6.7%)
AGL Energy 63,705 $597,914
Australia & New Zealand Banking Group 60,308 706,589
BHP Billiton 385,534 7,402,685
BlueScope Steel 135,318 397,785
CFS Retail Property Trust 538,379 723,810
Commonwealth Bank of Australia 47,807 1,306,155
CSL 146,666 3,565,008
Dexus Property Group 410,691 204,558
Fortescue Metals Group 164,939(b) 326,042
Leighton Holdings 18,165 301,884
Macquarie Airports 334,144 474,961
Macquarie Infrastructure Group 370,237 485,028
Macquarie Office Trust 943,796 181,444
Newcrest Mining 28,767 395,237
OneSteel 183,820 422,089
Origin Energy 123,159 1,290,924
Qantas Airways 271,919 441,436
Rio Tinto 32,304 1,670,297
Santos 92,687 838,734
Stockland 364,065 978,485
Telstra 475,778 1,308,938
Westpac Banking 110,529 1,515,720
Woodside Petroleum 82,455 2,328,549
WorleyParsons 13,611 136,670
---------------
Total 28,000,942
- -------------------------------------------------------------------------------------
AUSTRIA (0.4%)
OMV 28,720 918,999
Verbund Series A 19,807 936,670
---------------
Total 1,855,669
- -------------------------------------------------------------------------------------
BELGIUM (1.0%)
Belgacom 45,745 1,564,593
Colruyt 2,087 468,900
Dexia 119,174 633,641
Fortis 239,512 277,394
KBC Groep 21,470 922,717
Umicore 11,549 206,461
---------------
Total 4,073,706
- -------------------------------------------------------------------------------------
BERMUDA (0.1%)
SeaDrill 28,750 276,961
- -------------------------------------------------------------------------------------
DENMARK (1.6%)
A P Moller -- Maersk Series B 169 972,570
Danske Bank 34,100 504,780
FLSmidth & Co 4,550 169,704
Novo Nordisk Series B 54,900 2,942,739
Novozymes Series B 4,275 301,790
Vestas Wind Systems 45,150(b) 1,849,299
---------------
Total 6,740,882
- -------------------------------------------------------------------------------------
FINLAND (2.3%)
Fortum 108,133 2,656,542
Neste Oil 15,598 246,622
Nokia 230,955 3,536,563
Nokian Renkaat 9,096 118,881
Outokumpu 32,029 331,800
Stora Enso Series R 224,255 2,084,704
UPM-Kymmene 48,265 682,241
---------------
Total 9,657,353
- -------------------------------------------------------------------------------------
FRANCE (9.5%)
Air France-KLM 43,656 628,760
Air Liquide 19,411 1,674,482
ALSTOM 41,191 2,040,856
AXA 33,032 630,822
BNP Paribas 166,979 12,051,840
Casino Guichard Perrachon 9,376 655,178
CNP Assurances 10,635 856,643
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(a)
FRANCE (CONT.)
Compagnie de Saint-Gobain 12,250 $472,521
Credit Agricole 289,021 4,179,792
France Telecom 60,182 1,516,987
GDF Suez 95,706 4,258,718
Hermes Intl 8,161 1,052,954
Michelin Series B 23,165 1,191,905
Natixis 271,889 601,899
Peugeot 61,716 1,646,301
Renault 48,134 1,474,679
SCOR 37,531 614,676
Societe Generale 62,759 3,419,471
Total 8,893 489,062
Vallourec 5,210 582,579
---------------
Total 40,040,125
- -------------------------------------------------------------------------------------
GERMANY (9.3%)
BASF 69,090 2,318,589
Bayer 45,413 2,539,204
BMW 113,728 2,776,901
Daimler 83,712 2,874,926
Deutsche Bank 56,453 2,144,683
Deutsche Boerse 2,870 225,493
Deutsche Lufthansa 34,132 474,725
Deutsche Telekom 438,501 6,508,750
E.ON 263,683 10,087,801
Fresenius Medical Care & Co 16,240 726,155
Henkel & Co 14,069 402,115
Linde 23,477 1,974,059
MAN 4,616 224,099
Merck 7,749 684,477
RWE 40,397 3,260,577
Salzgitter 3,144 206,682
SAP 37,180 1,311,862
SolarWorld 10,828 269,976
TUI 16,016 192,759
---------------
Total 39,203,833
- -------------------------------------------------------------------------------------
GREECE (0.2%)
Coca-Cola Hellenic Bottling 20,357 283,992
Hellenic Petroleum 28,111 232,803
Public Power 13,452 166,277
---------------
Total 683,072
- -------------------------------------------------------------------------------------
HONG KONG (2.1%)
Cheung Kong Holdings 85,000 816,176
CLP Holdings 287,000 1,935,632
Hang Seng Bank 61,300 764,914
Henderson Land Development 63,000 227,846
Hong Kong & China Gas 609,900 1,074,574
Hongkong Electric Holdings 379,000 2,042,884
MTR 268,689 595,431
Orient Overseas Intl 119,500 213,409
Sun Hung Kai Properties 41,000 359,226
Swire Pacific Series A 80,000 563,452
Wharf Holdings 85,000 169,604
---------------
Total 8,763,148
- -------------------------------------------------------------------------------------
IRELAND (0.7%)
Allied Irish Banks 127,824 680,632
Bank of Ireland 258,381 762,664
CRH 18,415 404,471
Elan 94,469(b) 712,488
Irish Life & Permanent 79,879 273,144
---------------
Total 2,833,399
- -------------------------------------------------------------------------------------
ITALY (5.7%)
Banca Monte dei Paschi di Siena 308,674 599,069
Banco Popolare 115,231 1,436,992
Eni 568,578 13,566,107
Intesa Sanpaolo 481,326 1,686,280
Telecom Italia 3,124,904 2,857,572
Terna -- Rete Elettrica Nationale 229,682 740,493
UniCredit 585,802 1,433,548
Unione di Banche Italiane 72,118 1,216,209
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 21
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(a)
ITALY (CONT.)
Unipol Gruppo Finanziario 204,048 $223,859
---------------
Total 23,760,129
- -------------------------------------------------------------------------------------
JAPAN (13.1%)
Aisin Seiki 30,500 539,863
Alps Electric 63,000 346,673
Astellas Pharma 33,600 1,353,745
Bridgestone 73,100 1,278,364
Chugai Pharmaceutical 40,900 581,842
Chuo Mitsui Trust Holdings 144,400 569,874
Dai Nippon Printing 150,000 1,772,766
FamilyMart 12,700 503,303
Fast Retailing 7,100 757,129
Fuji Heavy Inds 215,000 756,510
FUJIFILM Holdings 46,700 1,075,351
Hitachi 931,000 4,372,316
Honda Motor 548,400 13,639,991
Japan Steel Works 61,000 432,228
Konami 22,300 403,539
Kurita Water Inds 14,400 328,643
Lawson 13,200 645,348
Meiji Dairies 112,000 510,971
Mitsubishi 128,700 2,157,853
Mitsui Chemicals 166,000 579,749
Mitsui Mining & Smelting 250,000 457,351
Mitsui OSK Lines 88,000 459,657
Mizuho Financial Group 503 1,228,569
NEC 220,000 652,430
Nikon 21,000 296,039
Nippon Express 189,900 766,698
Nippon Mining Holdings 169,000 517,513
Nippon Oil 139,000 570,722
Nippon Paper Group 243 649,634
Nippon Telegraph & Telephone 467 1,906,230
Nissan Motor 424,500 2,108,824
NTT DoCoMo 943 1,495,967
Panasonic 101,000 1,626,932
Promise 16,650 298,937
Resona Holdings 1,295 1,358,354
Sega Sammy Holdings 49,500 374,315
Seiko Epson 13,800 207,314
Seven & I Holdings 68,100 1,912,644
Shinsei Bank 382,000 586,117
Shionogi & Co 50,000 851,220
Sojitz 230,400 385,120
SUMCO 38,300 414,867
Takeda Pharmaceutical 9,500 472,141
Takefuji 29,420 236,594
TERUMO 20,400 850,448
Tohoku Electric Power 23,200 521,256
Toyo Seikan Kaisha 43,400 535,600
Yamaha Motor 55,400 612,671
---------------
Total 54,960,222
- -------------------------------------------------------------------------------------
LUXEMBOURG (1.0%)
ArcelorMittal 144,150 3,747,930
SES FDR 31,193 560,950
---------------
Total 4,308,880
- -------------------------------------------------------------------------------------
NETHERLANDS (8.9%)
Aegon 527,776 2,192,222
Corio 8,350 446,064
Fugro 7,091 253,302
ING Groep 482,470 4,524,139
Koninklijke (Royal) KPN 46,005 647,668
Koninklijke DSM 16,245 452,237
Reed Elsevier 48,732 651,124
Royal Dutch Shell Series A 587,942 16,152,062
Royal Dutch Shell Series B 326,656 8,855,400
Unilever 135,124 3,255,267
---------------
Total 37,429,485
- -------------------------------------------------------------------------------------
NEW ZEALAND (0.2%)
Fletcher Building 76,963 261,152
Telecom Corporation of New Zealand 300,833 407,504
---------------
Total 668,656
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
22 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(a)
NORWAY (1.0%)
DNB NOR 209,100 $1,212,489
Norsk Hydro 187,450 783,663
Orkla 90,700 604,150
StatoilHydro 40,677 818,624
Yara Intl 45,880 959,076
---------------
Total 4,378,002
- -------------------------------------------------------------------------------------
SINGAPORE (0.7%)
Neptune Orient Lines 305,000 257,727
Singapore Airlines 107,000 820,169
SingTel 1,200,000 2,020,454
---------------
Total 3,098,350
- -------------------------------------------------------------------------------------
SPAIN (2.1%)
Banco Santander 235,384 2,544,816
Gamesa Tecnologica 25,221 413,346
Repsol YPF 69,901 1,328,760
Telefonica 249,484 4,617,548
---------------
Total 8,904,470
- -------------------------------------------------------------------------------------
SWEDEN (1.9%)
Electrolux Series B 84,700 780,203
Investor Cl B 173,800 2,622,615
Nordea Bank 147,900 1,186,103
SSAB Svenskt Stal Series B 28,900 262,149
Svenska Cellulosa Series B 219,320 1,620,455
Svenska Handelsbanken Series A 35,200 647,234
Swedbank 33,000 272,862
Swedish Match 33,400 464,082
---------------
Total 7,855,703
- -------------------------------------------------------------------------------------
SWITZERLAND (7.5%)
ABB 262,937(b) 3,449,579
Lonza Group 11,537 957,364
Nestle 254,370 9,890,405
Novartis 85,856 4,357,317
Swisscom 1,011 308,883
Syngenta 19,148 3,578,935
Synthes 6,861 885,245
UBS 286,591(b) 4,862,039
Xstrata 76,541 1,309,060
Zurich Financial Services 9,298 1,886,112
---------------
Total 31,484,939
- -------------------------------------------------------------------------------------
UNITED KINGDOM (17.2%)
3i Group 81,492 710,749
AMEC 45,764 382,852
AstraZeneca 87,900 3,724,724
Aviva 252,158 1,503,986
Barclays 2,378,597 6,817,814
BG Group 556,824 8,186,754
BHP Billiton 276,170 4,689,082
BP 451,600 3,680,868
British American Tobacco 43,951 1,205,434
British Energy Group 418,922 5,010,227
BT Group 713,000 1,339,636
Carnival 17,077 375,514
Compass Group 227,267 1,056,714
GKN 106,852 204,873
GlaxoSmithKline 140,269 2,696,275
HBOS 1,435,084 2,349,630
Home Retail Group 134,462 428,527
Kingfisher 762,600 1,407,435
Ladbrokes 140,925 359,102
Liberty Intl 37,319 415,196
Lloyds TSB Group 761,090 2,459,696
Old Mutual 1,511,329 1,223,717
Persimmon 84,306 408,106
Reed Elsevier 140,330 1,231,188
Rio Tinto 101,757 4,752,847
Royal Bank of Scotland Group 5,413,857 5,962,903
Tomkins 249,133 457,241
Unilever 74,555 1,674,785
Vodafone Group 3,456,956 6,649,584
Wolseley 156,124 854,331
---------------
Total 72,219,790
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $762,682,924) $391,197,716
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 23
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
PREFERRED STOCKS & OTHER (0.4%)(c)
ISSUER SHARES VALUE(a)
BELGIUM
Fortis
Rights 239,512(b,d) $--
- -------------------------------------------------------------------------------------
GERMANY
Volkswagen 23,935 1,517,727
- -------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS & OTHER
(Cost: $3,371,504) $1,517,727
- -------------------------------------------------------------------------------------
<Caption>
MONEY MARKET FUND (8.1%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 1.60% 33,873,844(e) $33,873,844
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $33,873,844) $33,873,844
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $799,928,272)(f) $426,589,287
=====================================================================================
</Table>
SUMMARY OF INVESTMENTS IN SECURITIES BY INDUSTRY
The following table represents the portfolio investments of the Fund by industry
classifications as a percentage of total net assets at Oct. 31, 2008:
<Table>
<Caption>
PERCENTAGE OF
INDUSTRY NET ASSETS VALUE
- -----------------------------------------------------------------------
Airlines 0.6% $2,365,090
Auto Components 0.8 3,333,886
Automobiles 6.2 25,890,803
Automotive 0.4 1,517,727
Beverages 0.1 283,992
Biotechnology 0.8 3,565,008
Building Products 0.1 472,521
Capital Markets 1.8 7,717,471
Chemicals 2.9 12,045,378
Commercial Banks 14.6 61,619,373
Commercial Services & Supplies 0.4 1,772,766
Communications Equipment 0.8 3,536,563
Computers & Peripherals 0.2 859,744
Construction & Engineering 0.1 471,588
Construction Materials 0.2 665,623
Consumer Finance 0.1 535,531
Containers & Packaging 0.1 535,600
Diversified Financial Services 1.8 7,649,641
Diversified Telecommunication Services 6.0 25,004,763
Electric 0.1 289,155
Electric Utilities 5.7 24,097,782
Electrical Equipment 1.9 8,023,056
Electronic Equipment & Instruments &
Components 1.4 5,794,340
Energy Equipment & Services 0.3 1,049,785
Food & Staples Retailing 1.0 4,185,373
Food Products 3.7 15,331,428
Gas Utilities 0.3 1,074,574
Health Care Equipment & Supplies 0.4 1,735,693
Health Care Providers & Services 0.2 726,155
Hotels, Restaurants & Leisure 0.5 1,984,089
Household Durables 0.7 2,815,241
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
24 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
INDUSTRY NET ASSETS VALUE
- -----------------------------------------------------------------------
Household Products 0.1% $402,115
Industrial Conglomerates 0.3 1,061,391
Insurance 2.2 9,405,181
Internet & Catalog Retail 0.1 428,527
Leisure Equipment & Products 0.2 670,354
Life Sciences Tools & Services 0.2 957,364
Machinery 0.4 1,567,549
Marine 0.5 1,903,363
Media 0.6 2,443,262
Metals & Mining 6.4 27,154,699
Multi-Utilities 1.9 7,828,054
Oil, Gas & Consumable Fuels 14.2 60,022,503
Paper & Forest Products 1.2 5,037,034
Pharmaceuticals 5.0 20,916,172
Real Estate Investment Trusts (REITs) 0.7 2,949,557
Real Estate Management & Development 0.5 2,136,304
Road & Rail 0.3 1,362,129
Semiconductors & Semiconductor
Equipment 0.1 414,867
Software 0.4 1,715,401
Specialty Retail 0.5 2,164,564
Textiles, Apparel & Luxury Goods 0.3 1,052,954
Tobacco 0.4 1,669,516
Trading Companies & Distributors 0.8 3,397,304
Transportation Infrastructure 0.2 959,989
Wireless Telecommunication Services 1.9 8,145,551
Other(1) 8.1 33,873,844
- -----------------------------------------------------------------------
Total $426,589,287
- -----------------------------------------------------------------------
</Table>
(1) Cash & Cash Equivalents.
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT OCT. 31, 2008
At Oct. 31, 2008, $2,239,350 was held in a margin deposit account as collateral
to cover initial margin deposits on open stock index futures contracts.
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION
CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION)
- ------------------------------------------------------------------------------------
Dow Jones Euro STOXX 50 372 $12,285,174 Dec. 2008 $(3,301,218)
Financial Times Stock
Exchange 100 Index 80 5,636,704 Dec. 2008 (1,346,800)
Nikkei 225 13 580,775 Dec. 2008 (218,123)
- ------------------------------------------------------------------------------------
Total $(4,866,141)
- ------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 25
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
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.
(d) Negligible market value.
(e) Affiliated Money Market Fund -- See Note 5 to the financial statements. The
rate shown is the seven-day current annualized yield at Oct. 31, 2008.
(f) At Oct. 31, 2008, the cost of securities for federal income tax purposes
was $800,171,091 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $147,922
Unrealized depreciation (373,729,726)
- ------------------------------------------------------------
Net unrealized depreciation $(373,581,804)
- ------------------------------------------------------------
</Table>
The industries 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.
- --------------------------------------------------------------------------------
26 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
OCT. 31, 2008
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $766,054,428) $ 392,715,443
Affiliated money market fund (identified cost $33,873,844) 33,873,844
- --------------------------------------------------------------------------------
Total investments in securities (identified cost $799,928,272) 426,589,287
Foreign currency holdings (identified cost $10,579) 10,579
Capital shares receivable 1,413,774
Dividends and accrued interest receivable 1,150,373
Receivable for investment securities sold 1,934
Variation margin receivable 475,465
Margin deposits on futures contracts 2,239,350
- --------------------------------------------------------------------------------
Total assets 431,880,762
- --------------------------------------------------------------------------------
LIABILITIES
Capital shares payable 12,157,576
Accrued investment management services fees 9,304
Accrued distribution fees 2,463
Accrued transfer agency fees 2,191
Accrued administrative services fees 943
Other accrued expenses 128,550
- --------------------------------------------------------------------------------
Total liabilities 12,301,027
- --------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $ 419,579,735
- --------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 695,852
Additional paid-in capital 806,085,887
Undistributed net investment income 15,846,988
Accumulated net realized gain (loss) (24,555,883)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies (378,493,109)
- --------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $ 419,579,735
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $ 56,469,388 9,374,248 $6.02(1)
Class B $ 9,774,655 1,653,855 $5.91
Class C $ 1,125,907 190,230 $5.92
Class I $103,041,181 16,963,698 $6.07
Class R2 $ 3,062 509 $6.02
Class R3 $ 3,064 509 $6.02
Class R4 $ 60,625 9,985 $6.07
Class R5 $ 3,068 509 $6.03
Class W $249,098,785 41,391,645 $6.02
- -----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $6.39. The offering
price is calculated by dividing the net asset value by 1.0 minus the maximum
sales charge of 5.75%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 27
STATEMENT OF OPERATIONS --------------------------------------------------------
YEAR ENDED OCT. 31, 2008
<Table>
<Caption>
INVESTMENT INCOME
Income:
Dividends $ 29,056,148
Interest 31,867
Income distributions from affiliated money market fund 468,839
Less foreign taxes withheld (3,397,408)
- --------------------------------------------------------------------------------
Total income 26,159,446
- --------------------------------------------------------------------------------
Expenses:
Investment management services fees 5,209,129
Distribution fees
Class A 188,884
Class B 135,656
Class C 14,024
Class R2 6
Class R3 3
Class W 1,073,689
Transfer agency fees
Class A 193,940
Class B 36,942
Class C 3,738
Class R2 1
Class R3 1
Class R4 49
Class R5 1
Class W 858,951
Administrative services fees 549,173
Plan administration services fees
Class R2 3
Class R3 3
Class R4 245
Compensation of board members 15,237
Custodian fees 262,300
Printing and postage 54,030
Registration fees 101,463
Professional fees 44,874
Other 36,226
- --------------------------------------------------------------------------------
Total expenses 8,778,568
Expenses waived/reimbursed by the Investment Manager and its
affiliates (250)
Earnings and bank fee credits on cash balances (1,087)
- --------------------------------------------------------------------------------
Total net expenses 8,777,231
- --------------------------------------------------------------------------------
Investment income (loss) -- net 17,382,215
- --------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
28 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions $ (21,432,540)
Foreign currency transactions (12,919)
Futures contracts (2,347,656)
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (23,793,115)
Net change in unrealized appreciation (depreciation) on
investments
and on translation of assets and liabilities in foreign
currencies (443,449,500)
- --------------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies (467,242,615)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(449,860,400)
- --------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 29
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 17,382,215 $ 4,217,413
Net realized gain (loss) on investments (23,793,115) 8,741,163
Net change in unrealized appreciation (depreciation) on
investments and on translation of assets and liabilities in
foreign currencies (443,449,500) 80,411,851
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (449,860,400) 93,370,427
- -----------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (219,304) (86,059)
Class B (20,185) (2,025)
Class C (2,341) (329)
Class I (1,888,673) (594,901)
Class R4 (455) (160)
Class W (3,602,017) (1,390)
Net realized gain
Class A (376,594) (15,617)
Class B (53,303) (412)
Class C (6,874) (75)
Class I (2,534,781) (90,562)
Class R4 (682) (26)
Class W (5,906,335) (212)
- -----------------------------------------------------------------------------------------------
Total distributions (14,611,544) (791,768)
- -----------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
30 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008 2007
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 22,873,991 21,671,881
Class B shares 3,465,525 2,829,159
Class C shares 433,769 362,684
Class I shares 51,510,120 131,574,801
Class R2 shares 5,000 --
Class R3 shares 5,000 --
Class R4 shares -- 46,519
Class R5 shares 5,000 --
Class W shares 320,633,250 484,392,876
Fund merger (Note 7)
Class A shares 87,278,661 N/A
Class B shares 18,592,350 N/A
Class C shares 1,583,146 N/A
Class I shares 68,640,981 N/A
Class R4 shares 115,274 N/A
Reinvestment of distributions at net asset value
Class A shares 587,287 17,767
Class B shares 72,134 2,295
Class C shares 8,218 131
Class I shares 4,423,174 685,366
Class R4 shares 870 94
Class W shares 9,508,225 1,554
Payments for redemptions
Class A shares (29,756,699) (12,479,950)
Class B shares (7,000,624) (266,973)
Class C shares (378,009) (22,158)
Class I shares (102,217,635) (36,917,886)
Class R4 shares (69,561) (3,138)
Class W shares (215,203,076) (109,572,864)
- -----------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions 235,116,371 482,322,158
- -----------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (229,355,573) 574,900,817
Net assets at beginning of year 648,935,308 74,034,491
- -----------------------------------------------------------------------------------------------
Net assets at end of year $ 419,579,735 $ 648,935,308
- -----------------------------------------------------------------------------------------------
Undistributed net investment income $ 15,846,988 $ 3,874,592
- -----------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 31
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006(b)
Net asset value, beginning of period $13.06 $9.82 $9.21
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .27(c) .15(c) .01
Net gains (losses) (both realized and
unrealized) (7.06) 3.17 .60
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (6.79) 3.32 .61
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.07) --
Distributions from realized gains (.16) (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.08) --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.02 $13.06 $9.82
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $56 $25 $11
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.40% 1.43% 1.92%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.40% 1.43% 1.42%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.75% 1.37% 1.48%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 47% 10%
- --------------------------------------------------------------------------------------------------------------
Total return(i) (52.87%) 34.06% 6.62%(j)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
32 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006(b)
Net asset value, beginning of period $12.92 $9.79 $9.21
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20(c) .08(c) --
Net gains (losses) (both realized and
unrealized) (6.99) 3.13 .58
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (6.79) 3.21 .58
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) (.07) --
Distributions from realized gains (.16) (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.08) --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.91 $12.92 $9.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $10 $3 $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 2.18% 2.20% 2.71%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 2.18% 2.20% 2.21%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.11% .73% (.03%)(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 47% 10%
- --------------------------------------------------------------------------------------------------------------
Total return(i) (53.35%) 32.94% 6.30%(j)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 33
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006(b)
Net asset value, beginning of period $12.92 $9.79 $9.21
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .19(c) .08(c) --
Net gains (losses) (both realized and
unrealized) (6.98) 3.12 .58
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (6.79) 3.20 .58
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.06) --
Distributions from realized gains (.16) (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.07) --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.92 $12.92 $9.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1 $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 2.17% 2.19% 2.71%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 2.17% 2.19% 2.21%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.98% .71% .74%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 47% 10%
- --------------------------------------------------------------------------------------------------------------
Total return(i) (53.30%) 32.85% 6.30%(j)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
34 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006(b)
Net asset value, beginning of period $13.11 $9.83 $9.21
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .29(c) .24(c) .02
Net gains (losses) (both realized and
unrealized) (7.05) 3.14 .60
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (6.76) 3.38 .62
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.09) --
Distributions from realized gains (.16) (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.28) (.10) --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.07 $13.11 $9.83
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $103 $195 $63
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .90% 1.05% 1.65%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .90% 1.05% 1.15%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.84% 2.06% 1.17%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 47% 10%
- --------------------------------------------------------------------------------------------------------------
Total return (52.55%) 34.61% 6.73%(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 35
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS R2
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008(b)
Net asset value, beginning of period $9.59
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .03
Net gains (losses) (both realized and
unrealized) (3.60)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (3.57)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.02
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.64%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.44%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.61%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61%
- --------------------------------------------------------------------------------------------------------------
Total return (37.23%)(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Aug. 1, 2008 (when shares became publicly available) to
Oct. 31, 2008.
(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 ratio.
(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 Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
36 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS R3
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008(b)
Net asset value, beginning of period $9.59
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .04
Net gains (losses) (both realized and
unrealized) (3.61)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (3.57)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.02
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.39%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.19%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.86%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61%
- --------------------------------------------------------------------------------------------------------------
Total return (37.23%)(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Aug. 1, 2008 (when shares became publicly available) to
Oct. 31, 2008.
(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 ratio.
(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 Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 37
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006(b)
Net asset value, beginning of period $13.07 $9.83 $9.21
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .33(c) .20(c) .02
Net gains (losses) (both realized and
unrealized) (7.06) 3.13 .60
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (6.73) 3.33 .62
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.08) --
Distributions from realized gains (.16) (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.27) (.09) --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.07 $13.07 $9.83
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.20% 1.35% 1.77%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .95% 1.35% 1.27%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.27% 1.79% 1.72%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 47% 10%
- --------------------------------------------------------------------------------------------------------------
Total return (52.46%) 34.13% 6.73%(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
38 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS R5
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008(b)
Net asset value, beginning of period $9.59
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .04
Net gains (losses) (both realized and
unrealized) (3.60)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (3.56)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.03
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .90%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .90%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.14%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61%
- --------------------------------------------------------------------------------------------------------------
Total return (37.12%)(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Aug. 1, 2008 (when shares became publicly available) to
Oct. 31, 2008.
(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 ratio.
(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 earning and bank fee credits on cash balances.
Earnings and bank fee credits for the year ended Oct. 31, 2008 were less
than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 39
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007(b)
Net asset value, beginning of period $13.05 $10.13
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .23 .13
Net gains (losses) (both realized and
unrealized) (7.00) 2.89
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (6.77) 3.02
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.09)
Distributions from realized gains (.16) (.01)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.10)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.02 $13.05
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $249 $426
- --------------------------------------------------------------------------------------------------------------
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) 2.32% 1.17%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 47%
- --------------------------------------------------------------------------------------------------------------
Total return (52.81%) 30.03%(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (when shares became publicly available) to
Oct. 31, 2007.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
40 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource Disciplined International Equity Fund (the Fund) is a series of
RiverSource International Series, Inc. and is registered under the Investment
Company Act of 1940 (as amended) as a diversified, open-end management
investment company. RiverSource International 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 foreign issuers or in instruments that provide
exposure to foreign equity markets. The Fund may invest in securities of or
instruments that provide exposure to both developed and emerging markets
issuers.
The Fund offers Class A, Class B, Class C, Class I, Class R2, Class R3, Class
R4, Class R5 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, Class R2, Class R3, Class R4 and Class R5 shares are sold without a
front-end sales charge or CDSC and are offered to qualifying institutional
investors. Class R2, Class R3 and Class R5 shares became available effective
Aug. 1, 2008.
- - Class W shares are sold without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At Oct. 31, 2008, RiverSource Investments, LLC (the Investment Manager) and the
RiverSource affiliated funds-of-funds owned 100% of Class I shares, and the
Investment Manager owned 100% of Class R2, Class R3 and Class R5 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,
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 41
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
When market quotes are not readily available, the pricing service, in
determining fair values of debt securities, takes into consideration such
factors as current quotations by broker/dealers, coupon, maturity, quality, type
of issue, trading characteristics, and other yield and risk factors it deems
relevant in determining valuations. 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, which
approximates fair value.
- --------------------------------------------------------------------------------
42 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
OPTION TRANSACTIONS
To produce incremental earnings, protect gains, and facilitate buying and
selling of securities for investments, the Fund may buy and write options traded
on any U.S. or foreign exchange or in the over-the-counter market where
completing the obligation depends upon the credit standing of the other party.
Cash collateral may be collected by the Fund to secure certain over-the-counter
options (OTC 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. Option
contracts, including OTC option contracts, with no readily available market
value are valued using quotations obtained from independent brokers as of the
close of the New York Stock Exchange. 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 Oct. 31, 2008, and for the year
then ended, the Fund had no outstanding option contracts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Futures and options on 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
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 43
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
in the contract value and are recorded as unrealized gains and losses. The Fund
recognizes a realized gain or loss when the contract is closed or expires.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the Statement of Operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes. At Oct. 31, 2008, foreign currency holdings consisted of
primarily Australian Dollars.
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 counterparty will not
complete its contract obligations. At Oct. 31, 2008, the Fund had no outstanding
forward foreign currency contracts.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes," clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB Statement 109,
- --------------------------------------------------------------------------------
44 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
"Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the
financial statements. Management of the Fund has concluded that there are no
significant uncertain tax positions that would require recognition in the
financial statements. Generally, the tax authorities can examine all the tax
returns filed for the last three years.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures contracts,
foreign currency transactions, passive foreign investment company (PFIC)
holdings, 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 $325,082
and accumulated net realized loss has been increased by $325,082.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008* 2007**
- ---------------------------------------------------------------
CLASS A
Distributions paid from:
Ordinary income...................... $ 545,929 $ 94,945
Long-term capital gain............... 49,969 6,731
CLASS B
Distributions paid from:
Ordinary income...................... 66,415 2,259
Long-term capital gain............... 7,073 178
CLASS C
Distributions paid from:
Ordinary income...................... 8,303 371
Long-term capital gain............... 912 33
CLASS I
Distributions paid from:
Ordinary income...................... 4,087,117 646,429
Long-term capital gain............... 336,337 39,034
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 45
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008* 2007**
- ---------------------------------------------------------------
CLASS R4
Distributions paid from:
Ordinary income...................... $ 1,047 $ 175
Long-term capital gain............... 90 11
CLASS W
Distributions paid from:
Ordinary income...................... 8,724,681 1,511
Long-term capital gain............... 783,671 91
</Table>
* Class R2, Class R3 and Class R5 are for the period from Aug. 1, 2008 (when
shares became publicly available) to Oct. 31, 2008.
** Class W is for the period from Dec. 1, 2006 (inception date) to Oct. 31,
2007.
At Oct. 31, 2008, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income................. $ 15,854,186
Undistributed accumulated long-term gain...... $ --
Accumulated realized loss..................... $ (23,521,188)
Unrealized appreciation (depreciation)........ $(379,535,002)
</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 periods beginning after Nov. 15, 2008. As of
Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact
the financial statement amounts; however, additional footnote disclosures may be
required about the use of derivative instruments and hedging items.
On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards
No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an
authoritative definition of fair value, sets out a hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. The application of SFAS 157
will be effective for the Fund's fiscal year beginning Nov. 1, 2008. The
adoption of SFAS 157 is not anticipated to have a material impact on the
- --------------------------------------------------------------------------------
46 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
Fund's financial statements; however, additional disclosures will be required
about the inputs used to develop the measurements of fair value and the effect
of certain measurements reported in the Statement of Operations for a fiscal
period.
DIVIDENDS TO SHAREHOLDERS
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date or upon receipt of
ex-dividend notification in the case of certain foreign securities. Interest
income, including amortization of premium, market discount and original issue
discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.80%
to 0.57% 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 International Large-Cap Core Funds Index. In certain
circumstances, the Board may approve a change in the index. The maximum
adjustment is 0.12% per year. If the performance difference is less than 0.50%,
the adjustment will be zero. The adjustment decreased the management fee by
$213,635 for the year ended Oct. 31, 2008. The management fee for the year ended
Oct. 31, 2008 was 0.75% of the Fund's average daily net assets, including the
adjustment under the terms of the performance incentive arrangement.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.08% to 0.05% annually as the
Fund's assets increase. The fee for the year ended Oct. 31, 2008 was 0.08% of
the Fund's average daily net assets.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 47
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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 Oct. 31,
2008, other expenses paid to this company were $3,700.
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 R2, Class R3, Class R4 and Class
R5 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 R2, Class R3 and Class R4 shares for the provision of
various administrative, recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor)
for distribution and shareholder services. Under a Plan and Agreement of
- --------------------------------------------------------------------------------
48 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
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, Class
R3 and Class W shares, a fee at an annual rate of up to 0.50% of the Fund's
average daily net assets attributable to Class R2 shares and a fee at an annual
rate of up to 1.00% of the Fund's average daily net assets attributable to Class
B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is
reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed expense") was approximately $479,000 and $13,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of Oct. 31, 2008, and may be recovered from
future payments under the distribution plan or CDSC. To the extent the
unreimbursed expense has been fully recovered, the distribution fee is reduced.
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$159,312 for Class A, $8,969 for Class B and $411 for Class C for the year ended
Oct. 31, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended Oct. 31, 2008, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*), including the adjustment under the terms
of a performance incentive arrangement, were as follows:
<Table>
Class R2............................................ 1.44%
Class R3............................................ 1.19
Class R4............................................ 0.95
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R2........................................... $ 3
Class R3........................................... 3
Class R4........................................... 244
</Table>
Under an agreement which was effective until Oct. 31, 2008, the Investment
Manager and its affiliates contractually agreed to waive certain fees and
expenses such that net expenses (excluding fees and expenses of acquired
funds*), before
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 49
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
giving effect to any performance incentive adjustment, would not exceed the
following percentage of the Fund's average daily net assets:
<Table>
Class A............................................. 1.50%
Class B............................................. 2.26
Class C............................................. 2.26
Class I............................................. 1.12
Class R2............................................ 1.92
Class R3............................................ 1.67
Class R4............................................ 1.37
Class R5............................................ 1.17
Class W............................................. 1.57
</Table>
Effective Nov. 1, 2008, the Investment Manager and its affiliates have
contractually agreed to waive certain fees and expenses until Oct. 31, 2009,
unless sooner terminated at the discretion of the Board, such that net expenses
(excluding fees and expenses of acquired funds*), before giving effect to any
performance incentive adjustment, will not exceed the following percentage of
the Fund's average daily net assets:
<Table>
Class R4............................................ 1.37%
</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 Oct. 31, 2008, the Fund's custodian and transfer agency
fees were reduced by $1,087 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 $661,748,768 (including $192,198,944 from RiverSource
International Equity Fund that was acquired in the fund merger as described in
Note 7) and $407,007,626, respectively, for the year ended Oct. 31, 2008.
Realized gains and losses are determined on an identified cost basis.
- --------------------------------------------------------------------------------
50 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008*
ISSUED FOR
FUND REINVESTED NET
SOLD MERGER DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- --------------------------------------------------------------------------------------
Class A 2,149,576 8,485,254 52,111 (3,214,704) 7,472,237
Class B 320,154 1,827,044 6,458 (744,124) 1,409,532
Class C 41,521 155,443 735 (40,730) 156,969
Class I 4,794,438 6,653,955 391,778 (9,744,855) 2,095,316
Class R2 509 -- -- -- 509
Class R3 509 -- -- -- 509
Class R4 -- 11,178 77 (6,457) 4,798
Class R5 509 -- -- -- 509
Class W 30,213,146 -- 844,425 (22,281,511) 8,776,060
- --------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED OCT. 31, 2007**
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- -------------------------------------------------------------------------------------
Class A 1,880,774 1,710 (1,087,486) 794,998
Class B 247,006 222 (22,404) 224,824
Class C 32,008 13 (1,955) 30,066
Class I 11,624,967 65,964 (3,221,752) 8,469,179
Class R4 4,271 9 (302) 3,978
Class W 41,757,212 150 (9,141,777) 32,615,585
- -------------------------------------------------------------------------------------
</Table>
* Class R2, Class R3 and Class R5 are for the period from Aug. 1, 2008 (when
shares became publicly available) to Oct. 31, 2008.
** Class W is for the period from Dec. 1, 2006 (inception date) to Oct. 31,
2007.
5. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the RiverSource funds
and other institutional clients of RiverSource Investments. The cost of the
Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term
Cash Fund aggregated $319,060,387 and $306,820,457, respectively, for the year
ended Oct. 31, 2008. The income distributions received with respect to the
Fund's investment in RiverSource Short-Term Cash Fund can be found on the
Statement of Operations and the Fund's invested balance in RiverSource Short-
Term Cash Fund at Oct. 31, 2008, can be found in the Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 51
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
6. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
led 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. 16, 2008, 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 $475 million. The borrowers
shall have the right, upon written notice to the Administrative Agent to request
an increase of up to $175 million in the aggregate amount of the credit facility
from new or existing lenders, provided that the aggregate amount of the credit
facility shall at no time exceed $650 million. Participation in such increase by
any existing lender shall be at such lender's sole discretion. Interest is
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.75%. 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, in addition to an upfront fee equal to its pro rata share of
0.02% of the amount of the credit facility. The Fund had no borrowings during
the year ended Oct. 31, 2008.
Under the prior credit facility which was effective until Oct. 15, 2008, the
Fund had entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to
borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. The credit facility agreement, which was a
collective agreement between the Fund and certain other RiverSource funds,
severally and not jointly, permitted collective borrowings up to $500 million.
Interest was 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 matured
no later than 60 days after the date of borrowing. The Fund also paid a
commitment fee equal to its pro rata share of the amount of the credit facility
at a rate of 0.06% per annum.
7. FUND MERGER
At the close of business on March 14, 2008, RiverSource Disciplined
International Equity Fund acquired the assets and assumed the identified
liabilities of RiverSource International Equity Fund. The reorganization was
completed after shareholders approved the plan on Jan. 29, 2008.
- --------------------------------------------------------------------------------
52 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
The aggregate net assets of RiverSource Disciplined International Equity Fund
immediately before the acquisition were $608,113,836 and the combined net assets
immediately after the acquisition were $784,324,248.
The merger was accomplished by a tax-free exchange of 31,950,545 shares of
RiverSource International Equity Fund valued at $176,210,412.
In exchange for the RiverSource International Equity Fund shares and net assets,
RiverSource Disciplined International Equity Fund issued the following number of
shares:
<Table>
<Caption>
SHARES
- ------------------------------------------------------------
Class A.......................................... 8,485,254
Class B.......................................... 1,827,044
Class C.......................................... 155,443
Class I.......................................... 6,653,955
Class R4......................................... 11,178
</Table>
RiverSource International Equity Fund's net assets after adjustments for any
permanent book-to-tax differences at the merger date were as follows:
<Table>
<Caption>
EXCESS OF
ACCUMULATED DISTRIBUTIONS OVER
TOTAL CAPITAL UNREALIZED NET NET INVESTMENT
NET ASSETS STOCK DEPRECIATION REALIZED LOSS INCOME
- ----------------------------------------------------------------------------------------------
RiverSource
International
Equity Fund.... $176,210,412 $195,593,605 $(19,207,049) $(174,218) $(1,926)
</Table>
8. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$23,521,188 at Oct. 31, 2008, that if not offset by capital gains will expire in
2016. 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.
9. RISKS RELATING TO CERTAIN INVESTMENTS
FOREIGN\EMERGING MARKETS RISK
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuation
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities. Investing in
emerging markets may accentuate these risks.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 53
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
10. 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.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003,
Seligman conducted an extensive internal review concerning mutual fund trading
practices. Seligman's review, which covered the period 2001-2003, noted one
arrangement that permitted frequent trading in certain open-end registered
investment companies managed by Seligman (the Seligman Funds);
- --------------------------------------------------------------------------------
54 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
this arrangement was in the process of being closed down by Seligman before
September 2003. Seligman identified three other arrangements that permitted
frequent trading, all of which had been terminated by September 2002. In January
2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements
to its clients and to shareholders of the Seligman Funds. Seligman also provided
information concerning mutual fund trading practices to the SEC and the Office
of the Attorney General of the State of New York (NYAG). In September 2005, the
New York staff of the SEC indicated that it was considering recommending to the
Commissioners of the SEC the instituting of a formal action against Seligman and
the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to
frequent trading in the Seligman Funds. Seligman responded to the staff in
October 2005 that it believed that any action would be both inappropriate and
unnecessary, especially in light of the fact that Seligman had previously
resolved the underlying issue with the Independent Directors of the Seligman
Funds and made recompense to the affected Seligman Funds.
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer
agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman
Parties), alleging, in substance, that, in addition to the four arrangements
noted above, the Seligman Parties permitted other persons to engage in frequent
trading and, as a result, the prospectus disclosure used by the registered
investment companies managed by Seligman is and has been misleading. The NYAG
included other related claims and also claimed that the fees charged by Seligman
to the Seligman Funds were excessive. The NYAG is seeking damages of at least
$80 million and restitution, disgorgement, penalties and costs and injunctive
relief. The Seligman Parties answered the complaint in December 2006 and believe
that the claims are without merit. Any resolution of these matters may include
the relief noted above or other sanctions or changes in procedures. Any damages
would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains
injunctive relief, Seligman and its affiliates could, in the absence of the SEC
in its discretion granting exemptive relief, be enjoined from providing advisory
and underwriting services to the Seligman Funds and other registered investment
companies. Seligman does not believe that the foregoing legal action or other
possible actions will have a material adverse impact on Seligman or its clients,
including the Seligman Funds and other investment companies managed by it;
however, there can be no assurance of this or that these matters and any related
publicity will not affect demand for shares of the Seligman Funds and such other
investment companies or have other adverse consequences.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 55
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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.
11. SUBSEQUENT EVENT
Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase
Bank, NA.
- --------------------------------------------------------------------------------
56 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RiverSource Disciplined International Equity
Fund (the Fund) (one of the portfolios constituting the RiverSource
International Series, Inc) as of October 31, 2008, and the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the two years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the Fund for the periods presented through October 31, 2006, were
audited by other auditors whose report dated December 20, 2006, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of October 31, 2008, by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) ------------
In our opinion, the financial statements and financial highlights audited by us
as referred to above present fairly, in all material respects, the financial
position of RiverSource Disciplined International Equity Fund of the RiverSource
International Series, Inc. at October 31, 2008, the results of its operations
for the year then ended, and changes in its net assets and the financial
highlights for each of the two years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
December 19, 2008
- --------------------------------------------------------------------------------
58 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY 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 Oct. 31, 2008
<Table>
<Caption>
INCOME DISTRIBUTIONS -- the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals.................... 100%
Dividends Received Deduction for corporations................ 0.54%
U.S. Government Obligations.................................. 0.00%
CAPITAL GAIN DISTRIBUTION -- the Fund designates $1,178,052 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 DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 59
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.
The RiverSource complex of funds that each Board member oversees consists of 162
funds, which includes 104 RiverSource funds and 58 Seligman 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 since Chief Justice, Minnesota Supreme Court, 1998-2006; None
901 S. Marquette Ave. 2006 Attorney
Minneapolis, MN 55402
Age 54
- ------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member since Chair, RiverSource Funds, 1999-2006; former Governor of None
901 S. Marquette Ave. 1999 Minnesota
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None
901 S. Marquette Ave. 2007 Leadership (consulting company)
Minneapolis, MN 55402
Age 54
- ------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None
901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of
Minneapolis, MN 55402 Business, Bentley College
Age 58
- ------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member since Attorney and Consultant None
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive
901 S. Marquette Ave. 2005 Insurance
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Chair of the Board President Emeritus and Professor of Economics, Carleton Valmont Industries,
901 S. Marquette Ave. since 2007, College Inc. (manufactures
Minneapolis, MN 55402 Board member since irrigation systems)
Age 69 2002
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
60 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY 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
- ------------------------------------------------------------------------------------------------------------------------------
John F. Maher Board member since Retired President and Chief Executive Officer and None
901 S. Marquette Ave. 2008 former Director, Great Western Financial Corporation
Minneapolis, MN 55402 (bank holding company) and its principal subsidiary,
Age 64 Great Western Bank (federal savings bank)
- ------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None
901 S. Marquette Ave. 2004 real estate and asset management company)
Minneapolis, MN 55402
Age 56
- ------------------------------------------------------------------------------------------------------------------------------
Leroy C. Richie Board member since Counsel, Lewis & Munday, P.C.; Director, Vibration Lead Outside
901 S. Marquette Ave. 2008 Control Technologies, LLC (auto vibration technology); Director, Digital
Minneapolis, MN 55402 Director and Chairman, Highland Park Michigan Economic Ally, Inc. (digital
Age 66 Development Corp; and Chairman, Detroit Public Schools imaging); and
Foundation. Formerly, Chairman and Chief Executive Infinity, Inc. (oil
Officer, Q Standards Worldwide, Inc. (library of and gas exploration
technical standards); Director, Kerr-McGee Corporation and production);
(diversified energy and chemical company); Trustee, New Director, OGE Energy
York University Law Center Foundation; Vice Chairman, Corp. (energy and
Detroit Medical Center and Detroit Economic Growth energy services
Corp. provider offering
physical delivery
and related services
for both electricity
and natural gas)
- ------------------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera
901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceutical, Inc.
Minneapolis, MN 55402 Biotech (biotechnology);
Age 64 Healthways, Inc.
(health management
programs)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 61
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
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 since President -- U.S. Asset Management and Chief Investment None
53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. and President,
Financial Center Vice President since Chairman of the Board and Chief Investment Officer,
Minneapolis, MN 55474 2002 RiverSource Investments, LLC since 2005; Director,
Age 48 President and Chief Executive Officer, Ameriprise
Certificate Company and 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.
- --------------------------------------------------------------------------------
62 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
Patrick T. Bannigan President since 2006 Director and Senior Vice President -- Asset Management,
172 Ameriprise Financial Products and Marketing, RiverSource Investments, LLC
Center since 2006; Director and Vice President -- Asset
Minneapolis, MN 55474 Management, Products and Marketing, RiverSource
Age 43 Distributors, Inc. since 2006; Managing Director and
Global Head of Product, Morgan Stanley Investment
Management, 2004-2006; President, Touchstone
Investments, 2002-2004
- --------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income,
172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments,
Center LLC since 2006; Vice President -- Investments,
Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice
Age 44 President -- Fixed Income, Ameriprise Financial, Inc.,
2002-2006 and RiverSource Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President since Vice President -- Asset Management and Trust Company
5228 Ameriprise Financial 2006 Services, RiverSource Investments, LLC since 2006; Vice
Center Minneapolis, MN President -- Operations and Compliance, RiverSource
55474 Investments, LLC, 2004-2006; Director of Product
Age 43 Development -- Mutual Funds, Ameriprise Financial,
Inc., 2001-2004
- --------------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise
105 Ameriprise Financial Financial, Inc. since 2002; Chief Financial Officer,
Center RiverSource Distributors, Inc. since 2006
Minneapolis, MN 55474
Age 53
- --------------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management,
5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel,
Center Secretary since 2006 RiverSource Distributors, Inc. and Chief Legal Officer
Minneapolis, MN 55474 and Assistant Secretary, RiverSource Investments, LLC
Age 49 since 2006; Vice President, General 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 Officer,
172 Ameriprise Financial Officer since 2006 RiverSource Investments, LLC since 2006;
Center Director -- Mutual Funds, Voyageur Asset Management,
Minneapolis, MN 55474 2003-2006; Director of Finance, Voyageur Asset
Age 48 Management, 2000-2003
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 63
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
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 Officer,
2934 Ameriprise Financial Prevention Officer Ameriprise Financial, Inc. since 2004; Manager Anti-
Center since 2004 Money Laundering, Ameriprise Financial, Inc., 2003-
Minneapolis, MN 55474 2004; Compliance Director and Bank Secrecy Act Officer,
Age 44 American Express Centurion Bank, 2000-2003
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
64 RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT
PROXY VOTING -------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities is filed
with the SEC by August 31 for the most recent 12-month period ending June 30 of
that year, and is available without charge by visiting riversource.com/funds; or
searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND -- 2008 ANNUAL REPORT 65
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY 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-6506E (12/08)
</Table>
Annual Report
and Prospectus (THREADNEEDLE LOGO)
THREADNEEDLE
EUROPEAN EQUITY FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
OCTOBER 31, 2008
(Prospectus also enclosed)
THREADNEEDLE EUROPEAN EQUITY FUND SEEKS TO PROVIDE
SHAREHOLDERS WITH 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.............. 3
Manager Commentary................. 6
The Fund's Long-term Performance... 12
Fund Expenses Example.............. 14
Portfolio of Investments........... 16
Statement of Assets and
Liabilities...................... 19
Statement of Operations............ 20
Statements of Changes in Net
Assets........................... 21
Financial Highlights............... 22
Notes to Financial Statements...... 27
Report of Independent Registered
Public Accounting Firm........... 42
Federal Income Tax Information..... 44
Board Members and Officers......... 45
Proxy Voting....................... 50
</Table>
RIVERSOURCE FAMILY OF FUNDS
Threadneedle Funds are a part of the RiverSource
family of funds that includes funds branded
"RiverSource," "RiverSource Partners," and
"Threadneedle." These funds share the same Board of
Directors/Trustees and officers.
Please see the pages that follow this report for a
list of mutual funds that are included in the
RiverSource family of funds.
(DALBAR LOGO)
The RiverSource mutual fund shareholder reports have
been awarded the Communications Seal from Dalbar Inc.,
an independent financial services research firm. The
Seal recognizes communications demonstrating a level
of excellence in the industry.
- --------------------------------------------------------------------------------
2 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
> Threadneedle European Equity Fund (the Fund) Class A shares declined 42.70%
(excluding sales charge) for the 12 months ended Oct. 31, 2008.
> The Fund outperformed its benchmark, the Morgan Stanley Capital International
(MSCI) Europe Index, which fell 47.71%.
> The Lipper European Funds Index, representing the Fund's peer group, declined
49.06% for the same time frame.
ANNUALIZED TOTAL RETURNS (for period ended Oct. 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Since
1 year 3 years 5 years inception(a)
- ------------------------------------------------------------------------
Threadneedle European Equity
Fund Class A (excluding sales
charge) -42.70% -1.36% +4.68% -2.05%
- ------------------------------------------------------------------------
MSCI Europe Index (unmanaged) -47.71% -3.83% +4.93% -0.27%
- ------------------------------------------------------------------------
Lipper European Funds Index -49.06% -3.56% +5.55% -0.45%
- ------------------------------------------------------------------------
</Table>
(a) Fund data is from June 26, 2000. MCSI Europe Index and Lipper peer group
data is from July 1, 2000.
(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.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
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>
Total Net
expenses expenses(a)
- ----------------------------------------
Class A 1.58% 1.48%
- ----------------------------------------
Class B 2.32% 2.25%
- ----------------------------------------
Class C 2.33% 2.24%
- ----------------------------------------
Class I 1.08% 1.03%
- ----------------------------------------
Class R4 1.36% 1.33%
- ----------------------------------------
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until Oct. 31, 2009, unless
sooner terminated at the discretion of the Fund's Board. Any amounts waived
will not be reimbursed by the Fund. Under this agreement, net fund expenses
(excluding fees and expenses of acquired funds), before giving effect to any
performance incentive adjustment (that increased the management fee by 0.02%
for the year ended Oct. 31, 2008), will not exceed 1.46% for Class A, 2.23%
for Class B, 2.22% for Class C, 1.01% for Class I and 1.31% for Class R4.
International investing involves increased risk and volatility due to potential
political and economic instability, currency fluctuations, and differences in
financial reporting and accounting standards and oversight. Risks are
particularly significant in emerging markets.
- --------------------------------------------------------------------------------
4 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT OCT. 31, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS INCEPTION*
Class A (inception 6/26/00) -42.70% -1.36% +4.68% -2.05%
- -----------------------------------------------------------------------
Class B (inception 6/26/00) -43.24% -2.13% +3.91% -2.81%
- -----------------------------------------------------------------------
Class C (inception 6/26/00) -43.30% -2.10% +3.92% -2.80%
- -----------------------------------------------------------------------
Class I (inception 7/15/04) -42.38% -0.86% N/A +4.11%
- -----------------------------------------------------------------------
Class R4 (inception 6/26/00) -42.29% -1.02% +5.02% -1.83%
- -----------------------------------------------------------------------
With sales charge
Class A (inception 6/26/00) -46.02% -3.32% +3.45% -2.74%
- -----------------------------------------------------------------------
Class B (inception 6/26/00) -46.08% -3.44% +3.56% -2.81%
- -----------------------------------------------------------------------
Class C (inception 6/26/00) -43.67% -2.10% +3.92% -2.80%
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
AT SEPT. 30, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS INCEPTION*
Class A (inception 6/26/00) -24.82% +4.82% +10.63% +0.48%
- ----------------------------------------------------------------------
Class B (inception 6/26/00) -25.51% +3.93% +9.78% -0.30%
- ----------------------------------------------------------------------
Class C (inception 6/26/00) -25.40% +3.98% +9.80% -0.28%
- ----------------------------------------------------------------------
Class I (inception 7/15/04) -24.61% +5.26% N/A +9.53%
- ----------------------------------------------------------------------
Class R4 (inception 6/26/00) -24.48% +5.15% +10.96% +0.70%
- ----------------------------------------------------------------------
With sales charge
Class A (inception 6/26/00) -29.12% +2.80% +9.30% -0.23%
- ----------------------------------------------------------------------
Class B (inception 6/26/00) -29.24% +2.68% +9.50% -0.30%
- ----------------------------------------------------------------------
Class C (inception 6/26/00) -26.15% +3.98% +9.80% -0.28%
- ----------------------------------------------------------------------
</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 and Class R4 shares. Class I and Class R4 shares are
available to institutional investors only.
* For classes with less than 10 years performance.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 5
MANAGER COMMENTARY -------------------------------------------------------------
Below, Threadneedle European Equity Fund's portfolio manager Rob Jones of
Threadneedle International Limited (Threadneedle) discusses the Fund's results
and positioning for the fiscal year ended Oct. 31, 2008. Threadneedle, an
indirect wholly-owned subsidiary of Ameriprise Financial, Inc., acts as the
subadvisor to the Fund.
Dear Shareholders,
Threadneedle European Equity Fund (the Fund) Class A shares declined 42.70%
(excluding sales charge) for the 12 months ended Oct. 31, 2008. The Fund
outperformed its benchmark, the Morgan Stanley Capital International (MSCI)
Europe Index (MSCI Europe Index), which fell 47.71%. The Lipper European Funds
Index, representing the Fund's peer group, declined 49.06% for the same time
frame.
SIGNIFICANT PERFORMANCE FACTORS
As the Fund's fiscal year began, the investment markets were already quite
concerned about financial stocks, particularly companies with exposure to credit
vehicles. However, problems in the financial sector were not yet affecting
global economic activity and emerging market economies were still growing.
Investors pondered whether commodity prices would remain high and whether
emerging market economies could "decouple" from the rest of the world,
continuing to grow despite slower economic activity in developed regions. Thus,
the first part of the fiscal
COUNTRY DIVERSIFICATION (at Oct. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Belgium 2.0%
- ------------------------------------------------
Finland 2.4%
- ------------------------------------------------
France 19.4%
- ------------------------------------------------
Germany 11.5%
- ------------------------------------------------
Ireland 0.7%
- ------------------------------------------------
Netherlands 6.4%
- ------------------------------------------------
Portugal 1.0%
- ------------------------------------------------
Spain 1.2%
- ------------------------------------------------
Sweden 0.5%
- ------------------------------------------------
Switzerland 18.9%
- ------------------------------------------------
United Kingdom 34.6%
- ------------------------------------------------
Other(1) 1.4%
- ------------------------------------------------
</Table>
(1) Cash & Cash Equivalents.
- --------------------------------------------------------------------------------
6 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
year was characterized by financial sector weakness and robust gains in
companies with exposure to commodities or emerging markets.
Subsequently, the situation for many financial companies deteriorated
dramatically, lack of liquidity paralyzed the credit markets and there were
clear signs of economic deterioration, even in emerging economies. Equity
markets across the globe fell sharply and governments stepped in, rescuing
failing companies and attempting to calm the markets by adding liquidity to the
financial system.
Though the Fund's performance reflects the difficult environment, results
relative to the MSCI Europe Index benefited from the Fund's sector positioning
throughout the period. At the beginning of the fiscal year, the Fund was
underweight in financials relative to the MSCI Europe Index, with minimal
exposure to the banking sector. At the same time, we emphasized holdings of
commodity stocks, especially mining firms. The Fund also had notable holdings of
European companies with exposure to emerging markets. Examples included JERONIMO
MARTINS, a Portuguese food retailer focused on Poland, STANDARD CHARTERED, a
U.K. banking firm with a significant Asian business, and several Greek banks.
Over the course of the year, we increased the Fund's focus on defensive stocks,
building exposure to pharmaceutical, health care and consumer staples stocks.
Our rationale was that consumer staples companies such as NESTLE and BRITISH
AMERICAN TOBACCO and pharmaceutical firms such as
TOP TEN HOLDINGS (at Oct. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Roche Holding (Switzerland) 5.4%
- ------------------------------------------------
Nestle (Switzerland) 4.5%
- ------------------------------------------------
Total (France) 3.9%
- ------------------------------------------------
BP (United Kingdom) 3.3%
- ------------------------------------------------
BG Group (United Kingdom) 3.1%
- ------------------------------------------------
British American Tobacco (United Kingdom) 3.1%
- ------------------------------------------------
Koninklijke (Royal) KPN (Netherlands) 2.8%
- ------------------------------------------------
HSBC Holdings (United Kingdom) 2.5%
- ------------------------------------------------
Fresenius Medical Care & Co (Germany) 2.5%
- ------------------------------------------------
Vodafone Group (United Kingdom) 2.4%
- ------------------------------------------------
</Table>
For further detail about these holdings, please refer to the section entitled
"Portfolio of Investments."
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
ROCHE HOLDING, ASTRAZENECA and NOVARTIS had relatively steady earnings streams,
were less dependent on economic activity and were trading at historically low
valuations. We saw these as compelling opportunities. Simultaneously, we reduced
holdings of industrial and technology companies, which we considered vulnerable
to the economic slowdown. We also maintained the Fund's underweight in
financials, believing there was still downside risk in the sector. The shift
toward more defensive positioning was beneficial.
To summarize how the Fund's positioning contributed to its outperformance of the
MSCI Europe Index, having a smaller financials positions than the MSCI Europe
Index added to relative performance, as did our reduction in the industrials
position. Having larger positions in pharmaceuticals, other health care stocks
and consumer staples stocks also added to relative performance.
Early in the period, the Fund had smaller weightings in telecommunications and
utilities than the MSCI Europe Index. Though we later added to those positions,
the initial underweights detracted. The Fund's emphasis on companies with
exposure to emerging markets was beneficial in the first half of the period, but
continuing to hold those stocks in the latter part of the year was
disadvantageous.
CHANGES TO THE FUND'S PORTFOLIO
As we became more concerned about the extent of the global economic slowdown
during the first calendar quarter of 2008, we reduced exposure to European
industrial stocks, particularly mid-cap companies that depended on the domestic
European economies. We sold several German stocks including truck manufacturer
MAN, sports car maker PORSCHE AUTOMOBIL HOLDING and tire and auto parts maker
CONTINENTAL. We also sold VALLOUREC, a French company that makes seamless pipes
for the oil industry, and ROLLS-ROYCE, the U.K. civil aviation engine company.
The portfolio had been underweight in pharmaceutical companies and overweight in
consumer defensive areas. As discussed above, we added to both sectors, moving
to an overweight in pharmaceuticals and increasing the overweight in defensive
consumer stocks. In addition to the pharmaceutical stocks noted above, we also
added health care stocks FRESENIUS MEDICAL CARE & CO., a renal care company, and
SYNTHES, a company that produces equipment used in reconstructive surgery for
trauma victims.
Through most of the year, we remained optimistic that emerging markets could
continue to grow faster than the developed nations, so we continued
- --------------------------------------------------------------------------------
8 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
to emphasize companies with exposure to the emerging markets. We bought
PRUDENTIAL which has a large Asian insurance business. Later in the period, as
we became more concerned that difficulties in the developed markets would hinder
emerging markets, we repositioned the Fund's commodity holdings, selling two
mining companies ANGLO AMERICAN and LONMIN, as well as SAIPEM, an Italian oil
services company. In their place, we bought larger, high dividend yield stocks
such as ROYAL DUTCH SHELL and BP. We consider these stocks more defensive and
believe their earnings streams are more secure. Toward the end of the period, we
also reduced our holdings of companies with significant business in the emerging
markets.
We added to the Fund's telecommunications holdings including purchases of
KONINKLIJKE (ROYAL) KPN, the Dutch telecommunications company, and FRANCE
TELECOM and increased the weighting in utilities with purchases of French
utility GDF SUEZ and U.K. electricity supplier CENTRICA. The Fund's turnover
rate for the fiscal year was 180%.
To summarize current positioning, the Fund has greater emphasis on defensive
stocks compared to the MSCI Europe Index, which includes overweights in health
care firms and consumer staples companies, for example food retailers. The Fund
has less emphasis on companies that depend on a strong economy, which means
smaller positions in industrial, technology and financial companies compared to
the MSCI Europe Index.
OUR FUTURE STRATEGY
We believe economic activity is likely to be weak for a while, but to some
extent, that is already reflected in stock prices. We have kept the portfolio
defensively positioned, but on the periphery we are finding some economically
sensitive stocks whose valuations seem to
As we evaluate current opportunities, we are particularly focused on companies
with solid balance sheets and high cash flow.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
adequately reflect future challenges. As we evaluate current opportunities, we
are particularly focused on companies with solid balance sheets and high cash
flow. Our goal is to minimize risk by staying away from companies that we
believe could get into financial difficulty.
European authorities have begun to aggressively reduce interest rates and have
talked about increasing government spending to pump money into the economies.
Ultimately, we believe these steps will have a favorable impact. Thus, in the
short-term, we expect weaker earnings news, but we are optimistic that
government actions will have a positive long-term effect.
(PHOTO - ROB JONES)
Rob Jones
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 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
THIS PAGE LEFT BLANK INTENTIONALLY
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in Threadneedle European Equity Fund Class A shares (from 7/1/00 to
10/31/08)* as compared to the performance of two widely cited performance
indices, the Morgan Stanley Capital International (MSCI) Europe Index and the
Lipper European 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 June 26, 2000. MSCI Europe Index and Lipper peer group data
is from July 1, 2000.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Oct. 31, 2008
SINCE
1 YEAR 3 YEARS 5 YEARS INCEPTION(3)
THREADNEEDLE EUROPEAN EQUITY FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $5,398 $9,037 $11,848 $7,930
- ----------------------------------------------------------------------------------------------
Average annual total return -46.02% -3.32% +3.45% -2.74%
- ----------------------------------------------------------------------------------------------
MSCI EUROPE INDEX(1)
Cumulative value of $10,000 $5,229 $8,894 $12,720 $9,772
- ----------------------------------------------------------------------------------------------
Average annual total return -47.71% -3.83% +4.93% -0.27%
- ----------------------------------------------------------------------------------------------
LIPPER EUROPEAN FUNDS INDEX(2)
Cumulative value of $10,000 $5,094 $8,970 $13,101 $9,634
- ----------------------------------------------------------------------------------------------
Average annual total return -49.06% -3.56% +5.55% -0.45%
- ----------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 5.
- --------------------------------------------------------------------------------
12 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THREADNEEDLE EUROPEAN EQUITY FUND
LINE GRAPH)
<Table>
<Caption>
THREADNEEDLE EUROPEAN
EQUITY FUND
CLASS A
(INCLUDES SALES MSCI EUROPE LIPPER EUROPEAN
CHARGE) INDEX(1) FUNDS INDEX(2)
--------------------- ----------------- ---------------
7/1/00 $ 9,425 $10,000 $10,000
10/00 9,330 9,207 9,160
10/01 6,323 7,130 6,765
10/02 5,426 6,161 5,901
10/03 6,307 7,683 7,354
10/04 7,252 9,403 8,950
10/05 8,262 10,986 10,739
10/06 10,792 14,537 14,234
10/07 13,840 18,689 18,912
10/08 7,930 9,772 9,634
</Table>
(1) The Morgan Stanley Capital International (MSCI) Europe Index, compiled by
MSCI in Geneva, is an unmanaged market-capitalization-weighted index of
equity securities from various European countries. Income is included. The
index reflects reinvestment of all distributions and changes in market
prices.
(2) The Lipper European Funds Index includes the 30 largest European 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 June 26, 2000. MSCI Europe Index and Lipper peer group
data is from July 1, 2000.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 13
FUND EXPENSES EXAMPLE ----------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Oct. 31, 2008.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
14 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINN-
ING ENDING EXPENSES ANNUA-
ACCOUNT ACCOUNT PAID LIZED
VALUE VALUE DURING EXPEN-
MAY 1, OCT. 31, THE SE
2008 2008 PERIOD(A) RATIO
- -----------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------
Actual(b) $1,000 $ 628.90 $ 6.65(c) 1.62%
- -----------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.04 $ 8.24(c) 1.62%
- -----------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------
Actual(b) $1,000 $ 625.20 $ 9.75(c) 2.38%
- -----------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,013.21 $12.08(c) 2.38%
- -----------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------
Actual(b) $1,000 $ 625.60 $ 9.75(c) 2.38%
- -----------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,013.21 $12.08(c) 2.38%
- -----------------------------------------------------------------------
Class I
- -----------------------------------------------------------------------
Actual(b) $1,000 $ 630.50 $ 4.69(c) 1.14%
- -----------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,019.46 $ 5.80(c) 1.14%
- -----------------------------------------------------------------------
Class R4
- -----------------------------------------------------------------------
Actual(b) $1,000 $ 630.00 $ 5.96(c) 1.45%
- -----------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.90 $ 7.37(c) 1.45%
- -----------------------------------------------------------------------
</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 184/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Oct. 31, 2008: -37.11%
for Class A, -37.48% for Class B, -37.44% for Class C, -36.95% for Class I
and -37.00% for Class R4.
(c) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until Oct. 31, 2009, unless
sooner terminated at the discretion of the Fund's Board, such that net
expenses (excluding fees and expenses of acquired funds), before giving
effect to any performance incentive adjustment, will not exceed 1.46% for
Class A, 2.23% for Class B, 2.22% for Class C, 1.01% for Class I and 1.31%
for Class R4. Any amounts waived will not be reimbursed by the Fund. This
change was effective Nov. 1, 2008. If this change had been in place for the
entire six month period ended Oct. 31, 2008, the actual expenses paid would
have been $6.24 for Class A, $9.38 for Class B, $9.34 for Class C, $4.40 for
Class I and $5.63 for Class R4; the hypothetical expenses paid would have
been $7.73 for Class A, $11.62 for Class B, $11.57 for Class C, $5.45 for
Class I and $6.97 for Class R4.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
OCT. 31, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
COMMON STOCKS (98.0%)(c)
ISSUER SHARES VALUE(a)
BELGIUM (2.0%)
Colruyt 6,107 $1,372,099
- -------------------------------------------------
FINLAND (2.4%)
Sampo Series A 82,353 1,649,747
- -------------------------------------------------
FRANCE (19.3%)
Air Liquide 8,874 765,512
ALSTOM 9,721 481,638
AXA 19,900 380,036
BNP Paribas 18,501 1,335,324
Christian Dior 7,760 469,951
Essilor Intl 10,706 480,078
France Telecom 58,088 1,464,205
GDF Suez 33,888 1,507,945
Pernod Ricard 18,199 1,184,676
Sanofi-Aventis 16,306 1,032,736
Societe
Generale 15,177 826,930
Total 47,995 2,639,438
Vivendi 27,001 705,533
---------------
Total 13,274,002
- -------------------------------------------------
GERMANY (11.4%)
Allianz 9,139 687,461
Bayer 25,409 1,420,708
Daimler 11,118 381,826
E.ON 40,830 1,562,046
Fresenius
Medical Care &
Co 38,750 1,732,667
Linde 9,515 800,067
Munich Re Group 5,330 705,810
Rhon-Klinikum 26,642 572,782
---------------
Total 7,863,367
- -------------------------------------------------
IRELAND (0.7%)
CRH 22,978 504,693
- -------------------------------------------------
NETHERLANDS (6.3%)
Heineken
Holding 19,536 592,874
Koninklijke
(Royal) KPN 136,191 1,917,326
Koninklijke
Ahold 46,315 497,033
Royal Dutch
Shell Series A 49,086 1,360,033
---------------
Total 4,367,266
- -------------------------------------------------
PORTUGAL (0.9%)
Jeronimo
Martins 128,200 654,001
- -------------------------------------------------
SPAIN (1.2%)
Banco Bilbao
Vizcaya
Argentaria 72,508 841,253
- -------------------------------------------------
SWEDEN (0.5%)
Atlas Copco
Series B 47,000 352,055
- -------------------------------------------------
SWITZERLAND (18.8%)
Credit Suisse
Group 21,161 791,189
Lonza Group 8,993 746,258
Nestle 80,099 3,114,406
Novartis 30,575 1,551,726
Roche Holding 24,218 3,703,104
Sika 672 529,786
Syngenta 4,884 912,864
Synthes 7,401 954,920
UBS 37,586(b) 637,650
---------------
Total 12,941,903
- -------------------------------------------------
UNITED KINGDOM (34.5%)
Amlin 129,726 664,211
AstraZeneca 35,128 1,488,534
BAE Systems 163,221 917,374
BG Group 146,463 2,153,385
BP 276,518 2,253,823
British
American
Tobacco 77,255 2,118,855
Capita Group 62,657 647,374
Centrica 235,016 1,154,720
Diageo 74,558 1,137,688
Greene King 86,390 446,089
HMV Group 201,535 322,787
Home Retail
Group 155,175 494,539
HSBC Holdings 147,133 1,742,514
Natl Grid 29,474 331,997
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(a)
UNITED KINGDOM (CONT.)
Next 29,873 $507,704
Rio Tinto 21,136 987,216
RSA Insurance
Group 532,642 1,184,398
Shire 63,278 829,094
Standard
Chartered 36,104 596,637
Tesco 260,659 1,428,047
Vodafone Group 862,724 1,659,482
Wm Morrison
Supermarkets 157,996 672,675
---------------
Total 23,739,143
- -------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $88,427,883) $67,559,529
- -------------------------------------------------
<Caption>
MONEY MARKET FUND (1.4%)
SHARES VALUE(a)
RiverSource
Short-Term
Cash Fund,
1.60% 988,894(d) $988,894
- -------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $988,894) $988,894
- -------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $89,416,777)(e) $68,548,423
=================================================
</Table>
SUMMARY OF INVESTMENTS IN SECURITIES BY INDUSTRY
The following table represents the portfolio investments of the Fund by industry
classifications as a percentage of total net assets at Oct. 31, 2008:
<Table>
<Caption>
PERCENTAGE OF
INDUSTRY NET ASSETS VALUE
- -----------------------------------------------------------------------
Aerospace & Defense 1.3% $917,374
Automobiles 0.6 381,826
Beverages 4.2 2,915,238
Capital Markets 2.1 1,428,839
Chemicals 4.4 3,008,229
Commercial Banks 7.8 5,342,658
Construction Materials 0.7 504,693
Diversified Telecommunication Services 4.9 3,381,531
Electric Utilities 2.3 1,562,046
Electrical Equipment 0.7 481,638
Food & Staples Retailing 6.7 4,623,855
Food Products 4.5 3,114,406
Health Care Equipment & Supplies 2.1 1,434,998
Health Care Providers & Services 3.3 2,305,449
Hotels, Restaurants & Leisure 0.6 446,089
Insurance 7.6 5,271,663
Internet & Catalog Retail 0.7 494,539
Life Sciences Tools & Services 1.1 746,258
Machinery 0.5 352,055
Media 1.0 705,533
Metals & Mining 1.4 987,216
Multiline Retail 0.7 507,704
Multi-Utilities 4.3 2,994,662
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 17
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
INDUSTRY NET ASSETS VALUE
- -----------------------------------------------------------------------
Oil, Gas & Consumable Fuels 12.3% $8,406,679
Pharmaceuticals 14.6 10,025,902
Professional Services 0.9 647,374
Speciality Retail 0.5 322,787
Textiles, Apparel & Luxury Goods 0.7 469,951
Tobacco 3.1 2,118,855
Wireless Telecommunication Services 2.4 1,659,482
Other(1) 1.4 988,894
- -----------------------------------------------------------------------
Total $68,548,423
- -----------------------------------------------------------------------
</Table>
(1) Cash & Cash Equivalents.
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.
(d) Affiliated Money Market Fund -- See Note 5 to the financial statements. The
rate shown is the seven-day current annualized yield at Oct. 31, 2008.
(e) At Oct. 31, 2008, the cost of securities for federal income tax purposes
was $92,998,788 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $470,006
Unrealized depreciation (24,920,371)
- -----------------------------------------------------------
Net unrealized depreciation $(24,450,365)
- -----------------------------------------------------------
</Table>
The industries 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.
- --------------------------------------------------------------------------------
18 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------
OCT. 31, 2008
<Table>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $88,427,883) $ 67,559,529
Affiliated money market fund (identified cost $988,894) 988,894
- -------------------------------------------------------------------------------
Total investments in securities (identified cost $89,416,777) 68,548,423
Foreign currency holdings (identified cost $183,709) 179,915
Capital shares receivable 160,881
Dividends receivable 77,459
Reclaims receivable 135,860
- -------------------------------------------------------------------------------
Total assets 69,102,538
- -------------------------------------------------------------------------------
LIABILITIES
Capital shares payable 52,529
Accrued investment management services fees 1,500
Accrued distribution fees 694
Accrued transfer agency fees 478
Accrued administrative services fees 150
Other accrued expenses 78,817
- -------------------------------------------------------------------------------
Total liabilities 134,168
- -------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $ 68,968,370
- -------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 178,263
Additional paid-in capital 137,809,935
Undistributed net investment income 752,575
Accumulated net realized gain (loss) (48,880,078)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies (20,892,325)
- -------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $ 68,968,370
- -------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
SHARES NET ASSET VALUE
NET ASSETS OUTSTANDING PER SHARE
Class A $57,915,534 14,934,494 $3.88(1)
Class B $10,080,353 2,636,641 $3.82
Class C $ 954,195 250,456 $3.81
Class I $ 5,191 1,336 $3.89
Class R4 $ 13,097 3,360 $3.90
- --------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $4.12. 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.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 19
STATEMENT OF OPERATIONS --------------------------------------------------------
YEAR ENDED OCT. 31, 2008
<Table>
<Caption>
INVESTMENT INCOME
Income:
Dividends $ 3,349,147
Interest 8,645
Income distributions from affiliated money market fund 80,568
Fee income from securities lending 10,142
Less foreign taxes withheld (400,988)
- -------------------------------------------------------------------------------
Total income 3,047,514
- -------------------------------------------------------------------------------
Expenses:
Investment management services fees 980,629
Distribution fees
Class A 239,284
Class B 225,941
Class C 17,814
Transfer agency fees
Class A 227,662
Class B 55,893
Class C 4,343
Class R4 14
Administrative services fees 96,107
Plan administration services fees -- Class R4 72
Compensation of board members 2,578
Custodian fees 67,935
Printing and postage 58,150
Registration fees 56,479
Professional fees 36,140
Other 7,448
- -------------------------------------------------------------------------------
Total expenses 2,076,489
Expenses waived/reimbursed by the Investment Manager and its
affiliates (2,298)
Earnings and bank fee credits on cash balances (2,640)
- -------------------------------------------------------------------------------
Total net expenses 2,071,551
- -------------------------------------------------------------------------------
Investment income (loss) -- net 975,963
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (7,669,421)
Foreign currency transactions (57,205)
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments (7,726,626)
Net change in unrealized appreciation (depreciation) on
investments and on translation of assets and liabilities in
foreign currencies (50,756,976)
- -------------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies (58,483,602)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(57,507,639)
- -------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
20 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 975,963 $ 686,113
Net realized gain (loss) on investments (7,726,626) 30,608,798
Net change in unrealized appreciation (depreciation) on
investments and on translation of assets and liabilities in
foreign currencies (50,756,976) 1,017,960
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (57,507,639) 32,312,871
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (915,145) (1,084,841)
Class B -- (132,408)
Class C (4,087) (7,405)
Class I (237) (270)
Class R4 (509) (92)
- ---------------------------------------------------------------------------------------------
Total distributions (919,978) (1,225,016)
- ---------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 18,116,022 28,175,837
Class B shares 2,409,729 4,640,702
Class C shares 362,379 547,010
Class R4 shares 5,001 41,328
Reinvestment of distributions at net asset value
Class A shares 898,593 1,063,645
Class B shares -- 130,420
Class C shares 4,000 7,184
Class R4 shares 463 45
Payments for redemptions
Class A shares (28,162,762) (23,113,372)
Class B shares (12,450,296) (11,391,434)
Class C shares (700,739) (330,519)
Class I shares (8,000) --
Class R4 shares (23,890) (4,605)
- ---------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (19,549,500) (233,759)
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (77,977,117) 30,854,096
Net assets at beginning of year 146,945,487 116,091,391
- ---------------------------------------------------------------------------------------------
Net assets at end of year $ 68,968,370 $146,945,487
- ---------------------------------------------------------------------------------------------
Undistributed net investment income $ 752,575 $ 753,795
- ---------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 21
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004
Net asset value, beginning of period $6.83 $5.39 $4.19 $3.71 $3.25
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06(b) .04(b) .05 .05 .02
Net gains (losses) (both realized and
unrealized) (2.96) 1.47 1.22 .46 .48
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (2.90) 1.51 1.27 .51 .50
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.07) (.07) (.03) (.04)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.88 $6.83 $5.39 $4.19 $3.71
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $58 $115 $85 $78 $87
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.58% 1.43% 1.52% 1.48% 1.49%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.58% 1.43% 1.52% 1.48% 1.49%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) .95% .70% 1.00% 1.13% .50%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 180% 114% 64% 56% 73%
- --------------------------------------------------------------------------------------------------------------
Total return(g) (42.70%) 28.24% 30.63% 13.92% 15.29%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have 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 Oct. 31, 2008
were less than 0.01% of average net assets.
(g) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
22 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004
Net asset value, beginning of period $6.73 $5.31 $4.12 $3.65 $3.20
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .02(b) .00(b),(c) .02 .02 (.01)
Net gains (losses) (both realized and
unrealized) (2.93) 1.44 1.20 .45 .47
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (2.91) 1.44 1.22 .47 .46
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.02) (.03) -- (.01)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.82 $6.73 $5.31 $4.12 $3.65
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $10 $30 $29 $31 $36
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 2.32% 2.19% 2.29% 2.25% 2.26%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(f),(g) 2.32% 2.19% 2.29% 2.25% 2.26%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) .28% (.03%) .28% .39% (.25%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 180% 114% 64% 56% 73%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (43.24%) 27.28% 29.74% 12.97% 14.39%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Rounds to zero.
(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) 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.
(g) 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 Oct. 31, 2008
were less than 0.01% of average net assets.
(h) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 23
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004
Net asset value, beginning of period $6.71 $5.30 $4.12 $3.65 $3.20
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .01(b) .00(b),(c) .02 .02 (.01)
Net gains (losses) (both realized and
unrealized) (2.90) 1.44 1.19 .45 .47
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (2.89) 1.44 1.21 .47 .46
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.01) (.03) (.03) -- (.01)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.81 $6.71 $5.30 $4.12 $3.65
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1 $2 $1 $1 $1
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 2.33% 2.19% 2.29% 2.25% 2.26%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(f),(g) 2.33% 2.19% 2.29% 2.25% 2.26%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) .25% (.05%) .24% .36% (.26%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 180% 114% 64% 56% 73%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (43.10%) 27.21% 29.65% 12.97% 14.30%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Rounds to zero.
(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) 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.
(g) 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 Oct. 31, 2008
were less than 0.01% of average net assets.
(h) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
24 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004(b)
Net asset value, beginning of period $6.84 $5.40 $4.20 $3.72 $3.49
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09(c) .07(c) .06 .07 --
Net gains (losses) (both realized and
unrealized) (2.96) 1.46 1.23 .46 .23
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (2.87) 1.53 1.29 .53 .23
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.09) (.09) (.05) --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.89 $6.84 $5.40 $4.20 $3.72
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $-- $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.08% .95% .99% .93% .96%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense/
waiver reimbursement(e),(g),(h) 1.08% .95% .99% .93% .96%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.50% 1.17% 1.55% 1.67% .07%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 180% 114% 64% 56% 73%
- --------------------------------------------------------------------------------------------------------------
Total return (42.38%) 28.78% 31.34% 14.46% 6.59%(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 15, 2004 (inception date) to Oct. 31, 2004.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 25
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004
Net asset value, beginning of period $6.84 $5.41 $4.20 $3.71 $3.26
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08(b) .00(b),(c) .05 .06 .03
Net gains (losses) (both realized and
unrealized) (2.94) 1.51 1.24 .47 .46
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (2.86) 1.51 1.29 .53 .49
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.08) (.08) (.04) (.04)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.90 $6.84 $5.41 $4.20 $3.71
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $-- $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.36% 1.26% 1.31% 1.29% 1.29%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense/
waiver reimbursement(e),(f),(g) 1.11% 1.26% 1.31% 1.29% 1.29%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.35% .04% 1.05% 1.36% .33%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 180% 114% 64% 56% 73%
- --------------------------------------------------------------------------------------------------------------
Total return (42.29%) 28.16% 31.10% 14.37% 15.20%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Rounds to zero.
(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) 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.
(g) 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 Oct. 31, 2008
were less than 0.01% of average net assets.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
26 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Threadneedle European Equity Fund (the Fund) (formerly RiverSource European
Equity Fund) is a series of RiverSource International Series, Inc. and is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. RiverSource International
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 European companies
that are believed to offer growth potential.
The Fund offers Class A, Class B, Class C, Class I and Class R4 shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and R4 shares are sold without a front-end sales charge or CDSC and
are offered to qualifying institutional investors.
At Oct. 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) owned 100% of Class I 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.
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
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 27
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
dealers in these securities or by an independent pricing service. When market
quotes are not readily available, the pricing service, in determining fair
values of debt securities, takes into consideration such factors as current
quotations by broker/dealers, coupon, maturity, quality, type of issue, trading
characteristics, and other yield and risk factors it deems relevant in
determining valuations. 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, which
approximates fair value.
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 (OTC 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.
- --------------------------------------------------------------------------------
28 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
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. Option
contracts, including OTC option contracts, with no readily available market
value are valued using quotations obtained from independent brokers as of the
close of the New York Stock Exchange. 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 Oct. 31, 2008, and for the year
then ended, the Fund had no outstanding option contracts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Futures and options on 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
Oct. 31, 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
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 29
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the Statement of Operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes. At Oct. 31, 2008, foreign currency holdings consisted of
multiple denominations.
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 counterparty will not
complete its contract obligations.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
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 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the
financial statements. 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.
- --------------------------------------------------------------------------------
30 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of foreign currency
transactions 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 $57,205
and accumulated net realized loss has been decreased by $57,205.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008 2007
- ---------------------------------------------------------------
CLASS A
Distributions paid from:
Ordinary income...................... $915,145 $1,084,841
Long-term capital gain............... -- --
CLASS B
Distributions paid from:
Ordinary income...................... -- 132,408
Long-term capital gain............... -- --
CLASS C
Distributions paid from:
Ordinary income...................... 4,087 7,405
Long-term capital gain............... -- --
CLASS I
Distributions paid from:
Ordinary income...................... 237 270
Long-term capital gain............... -- --
CLASS R4
Distributions paid from:
Ordinary income...................... 509 92
Long-term capital gain............... -- --
</Table>
At Oct. 31, 2008, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income.................. $ 753,692
Undistributed accumulated long-term gain....... $ --
Accumulated realized loss...................... $(45,298,067)
Unrealized appreciation (depreciation)......... $(24,475,453)
</Table>
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 31
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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 periods beginning after Nov. 15, 2008. As of
Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact
the financial statement amounts; however, additional footnote disclosures may be
required about the use of derivative instruments and hedging items.
On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards
No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an
authoritative definition of fair value, sets out a hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. The application of SFAS 157
will be effective for the Fund's fiscal year beginning Nov. 1, 2008. The
adoption of SFAS 157 is not anticipated to have a material impact on the Fund's
financial statements; however, additional disclosures will be required about the
inputs used to develop the measurements of fair value and the effect of certain
measurements reported in the Statement of Operations for a fiscal period.
DIVIDENDS TO SHAREHOLDERS
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date or upon receipt of
ex-dividend notification in the case of certain foreign securities. Interest
income, including amortization of premium, market discount and original issue
discount using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
32 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
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 0.80%
to 0.57% 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 European 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 $19,559 for the year ended
Oct. 31, 2008. The management fee for the year ended Oct. 31, 2008 was 0.82% of
the Fund's average daily net assets, including the adjustment under the terms of
the performance incentive arrangement.
SUBADVISORY AGREEMENT
The Investment Manager has a Subadvisory Agreement with Threadneedle
International Limited (Threadneedle), an affiliate of the Investment Manager and
an indirect wholly-owned subsidiary of Ameriprise Financial, to subadvise the
assets of the Fund. The Investment Manager contracts with and compensates
Threadneedle to manage the investment of the Fund's assets.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.08% to 0.05% annually as the
Fund's assets increase. The fee for the year ended Oct. 31, 2008 was 0.08% of
the Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended Oct. 31,
2008, other expenses paid to this company were $574.
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
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 33
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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.
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. 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 shares
and a fee at an annual rate of up to 1.00% of the Fund's average daily net
assets attributable to Class B and Class C shares. For Class B and Class C
shares, up to 0.75% of the fee is reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed expense") was approximately $226,000 and $11,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of Oct. 31, 2008, and may be recovered from
future payments under the distribution plan or CDSC. To the extent the
unreimbursed expense has been fully recovered, the distribution fee is reduced.
- --------------------------------------------------------------------------------
34 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$111,829 for Class A, $12,495 for Class B and $504 for Class C for the year
ended Oct. 31, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended Oct. 31, 2008, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*), including the adjustment under the terms
of a performance incentive arrangement, were as follows:
<Table>
Class A............................................. 1.58%
Class B............................................. 2.32
Class C............................................. 2.33
Class I............................................. 1.08
Class R4............................................ 1.11
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A........................................... $ 492
Class B........................................... 1,649
Class C........................................... 85
</Table>
The waived/reimbursed fees and expenses for plan administration services fee at
the class level were as follows:
<Table>
Class R4............................................ $72
</Table>
Under an agreement which was effective until Oct. 31, 2008, the Investment
Manager and its affiliates contractually agreed to waive certain fees and
expenses such that net expenses (excluding fees and expenses of acquired
funds*), before giving effect to any performance incentive adjustment, would not
exceed the following percentage of the Fund's average daily net assets:
<Table>
Class A............................................. 1.56%
Class B............................................. 2.32
Class C............................................. 2.32
Class I............................................. 1.15
Class R4............................................ 1.39
</Table>
Effective Nov. 1, 2008, the Investment Manager and its affiliates have
contractually agreed to waive certain fees and expenses until Oct. 31, 2009,
unless sooner terminated at the discretion of the Board, such that net expenses
(excluding fees and expenses of acquired funds*), before giving effect to any
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 35
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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
</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 Oct. 31, 2008, the Fund's custodian and transfer agency
fees were reduced by $2,640 as a result of earnings 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 $212,659,427 and $232,428,742, respectively, for the
year ended Oct. 31, 2008. Realized gains and losses are determined on an
identified cost basis.
Income from securities lending amounted to $10,142 for the year ended Oct. 31,
2008. Expenses paid to the Investment Manager as securities lending agent were
$1,086 for the year ended Oct. 31, 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. At Oct. 31, 2008, the Fund had no securities out on
loan.
- --------------------------------------------------------------------------------
36 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 3,114,503 141,958 (5,105,782) (1,849,321)
Class B 405,232 -- (2,250,573) (1,845,341)
Class C 60,882 639 (129,399) (67,878)
Class I -- -- (1,529) (1,529)
Class R4 813 73 (4,137) (3,251)
- ----------------------------------------------------------------------------------
<Caption>
YEAR ENDED OCT. 31, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 4,621,963 187,923 (3,824,394) 985,492
Class B 779,445 23,248 (1,866,751) (1,064,058)
Class C 92,282 1,283 (56,096) 37,469
Class R4 6,590 8 (789) 5,809
- ----------------------------------------------------------------------------------
</Table>
5. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the RiverSource funds
and other institutional clients of RiverSource Investments. The cost of the
Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term
Cash Fund aggregated $85,312,789 and $87,734,600, respectively, for the year
ended Oct. 31, 2008. The income distributions received with respect to the
Fund's investment in RiverSource Short-Term Cash Fund can be found on the
Statement of Operations and the Fund's invested balance in RiverSource Short-
Term Cash Fund at Oct. 31, 2008, can be found in the Portfolio of Investments.
6. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
led 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. 16, 2008, replacing a
prior credit facility. The credit facility agreement, which is a collective
agreement between the Fund and certain other RiverSource funds,
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 37
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
severally and not jointly, permits collective borrowings up to $475 million. The
borrowers shall have the right, upon written notice to the Administrative Agent
to request an increase of up to $175 million in the aggregate amount of the
credit facility from new or existing lenders, provided that the aggregate amount
of the credit facility shall at no time exceed $650 million. Participation in
such increase by any existing lender shall be at such lender's sole discretion.
Interest is charged to each Fund based on its borrowings at a rate equal to the
federal funds rate plus 0.75%. 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, in addition to an upfront fee equal to its pro
rata share of 0.02% of the amount of the credit facility. The Fund had no
borrowings during the year ended Oct. 31, 2008.
Under the prior credit facility which was effective until Oct. 15, 2008, the
Fund had entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to
borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. The credit facility agreement, which was a
collective agreement between the Fund and certain other RiverSource funds,
severally and not jointly, permitted collective borrowings up to $500 million.
Interest was 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 matured
no later than 60 days after the date of borrowing. The Fund also paid a
commitment fee equal to its pro rata share of the amount of the credit facility
at a rate of 0.06% per annum.
7. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$45,298,067 at Oct. 31, 2008, that if not offset by capital gains will expire as
follows:
<Table>
<Caption>
2009 2010 2011 2016
$19,489,378 $16,514,518 $5,021,215 $4,272,956
</Table>
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.
- --------------------------------------------------------------------------------
38 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
8. RISKS RELATING TO CERTAIN INVESTMENTS
FOREIGN/EMERGING MARKETS RISK
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities. Investing in
emerging markets may accentuate these risks.
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
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 39
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003,
Seligman conducted an extensive internal review concerning mutual fund trading
practices. Seligman's review, which covered the period 2001-2003, noted one
arrangement that permitted frequent trading in certain open-end registered
investment companies managed by Seligman (the Seligman Funds); this arrangement
was in the process of being closed down by Seligman before September 2003.
Seligman identified three other arrangements that permitted frequent trading,
all of which had been terminated by September 2002. In January 2004, Seligman,
on a voluntary basis, publicly disclosed these four arrangements to its clients
and to shareholders of the Seligman Funds. Seligman also provided information
concerning mutual fund trading practices to the SEC and the Office of the
Attorney General of the State of New York (NYAG). In September 2005, the New
York staff of the SEC indicated that it was considering recommending to the
Commissioners of the SEC the instituting of a formal action against Seligman and
the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to
frequent trading in the Seligman Funds. Seligman responded to the staff in
October 2005 that it believed that any action would be both inappropriate and
unnecessary, especially in light of the fact that Seligman had previously
resolved the underlying issue with the Independent Directors of the Seligman
Funds and made recompense to the affected Seligman Funds.
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer
agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman
Parties), alleging, in substance, that, in addition to the four arrangements
noted above, the Seligman Parties permitted other persons to engage in frequent
trading and, as a result, the prospectus disclosure used by the registered
investment companies managed by Seligman is and has been misleading. The NYAG
included other related claims and also claimed that the fees charged by Seligman
to the Seligman Funds were excessive. The NYAG is seeking damages of at least
$80 million and restitution, disgorgement, penalties and costs and injunctive
relief. The Seligman Parties answered the complaint in December 2006 and believe
that the claims are without merit. Any resolution of these matters may include
the relief noted above or other sanctions or changes in procedures. Any damages
would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains
injunctive relief, Seligman and its affiliates could, in
- --------------------------------------------------------------------------------
40 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
the absence of the SEC in its discretion granting exemptive relief, be enjoined
from providing advisory and underwriting services to the Seligman Funds and
other registered investment companies. Seligman does not believe that the
foregoing legal action or other possible actions will have a material adverse
impact on Seligman or its clients, including the Seligman Funds and other
investment companies managed by it; however, there can be no assurance of this
or that these matters and any related publicity will not affect demand for
shares of the Seligman Funds and such other investment companies or have other
adverse consequences.
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.
10. SUBSEQUENT EVENT
Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase
Bank, N.A. and, in addition, JPMorgan Chase Bank, N.A. will serve as the
securities lending agent for the Fund.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THREADNEEDLE EUROPEAN EQUITY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Threadneedle European Equity Fund (the Fund),
formerly the RiverSource European Equity Fund, (one of the portfolios
constituting the RiverSource International Series, Inc.) as of October 31, 2008,
and the related statement of operations for the year then ended, and the
statements of changes in net assets and the financial highlights for each of the
two years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights of the Fund for the periods
presented through October 31, 2006, were audited by other auditors whose report
dated December 20, 2006, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2008, by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
- --------------------------------------------------------------------------------
42 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
In our opinion, the financial statements and financial highlights audited by us
as referred to above present fairly, in all material respects, the financial
position of Threadneedle European Equity Fund of the RiverSource International
Series, Inc. at October 31, 2008, the results of its operations for the year
then ended, and changes in its net assets and the financial highlights for each
of the two years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
December 19, 2008
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 43
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 Oct. 31, 2008
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals.................... 100.00%
Dividends Received Deduction for corporations................ 0.00%
U.S. Government Obligations.................................. 0.00%
</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.
- --------------------------------------------------------------------------------
44 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board. The following is a list of the Fund's Board members.
The RiverSource complex of funds that each Board member oversees consists of 162
funds, which includes 104 RiverSource funds and 58 Seligman 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 since Chief Justice, Minnesota Supreme Court, 1998-2006; None
901 S. Marquette Ave. 2006 Attorney
Minneapolis, MN 55402
Age 54
- ------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member since Chair, RiverSource Funds, 1999-2006; former Governor of None
901 S. Marquette Ave. 1999 Minnesota
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None
901 S. Marquette Ave. 2007 Leadership (consulting company)
Minneapolis, MN 55402
Age 54
- ------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None
901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of
Minneapolis, MN 55402 Business, Bentley College
Age 58
- ------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member since Attorney and Consultant None
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive
901 S. Marquette Ave. 2005 Insurance
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Chair of the Board President Emeritus and Professor of Economics, Carleton Valmont Industries,
901 S. Marquette Ave. since 2007, College Inc. (manufactures
Minneapolis, MN 55402 Board member since irrigation systems)
Age 69 2002
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 45
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
John F. Maher Board member since Retired President and Chief Executive Officer and None
901 S. Marquette Ave. 2008 former Director, Great Western Financial Corporation
Minneapolis, MN 55402 (bank holding company) and its principal subsidiary,
Age 64 Great Western Bank (federal savings bank)
- ------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None
901 S. Marquette Ave. 2004 real estate and asset management company)
Minneapolis, MN 55402
Age 56
- ------------------------------------------------------------------------------------------------------------------------------
Leroy C. Richie Board member since Counsel, Lewis & Munday, P.C.; Director, Vibration Lead Outside
901 S. Marquette Ave. 2008 Control Technologies, LLC (auto vibration technology); Director, Digital
Minneapolis, MN 55402 Director and Chairman, Highland Park Michigan Economic Ally, Inc. (digital
Age 66 Development Corp; and Chairman, Detroit Public Schools imaging); and
Foundation. Formerly, Chairman and Chief Executive Infinity, Inc. (oil
Officer, Q Standards Worldwide, Inc. (library of and gas exploration
technical standards); Director, Kerr-McGee Corporation and production);
(diversified energy and chemical company); Trustee, New Director, OGE Energy
York University Law Center Foundation; Vice Chairman, Corp. (energy and
Detroit Medical Center and Detroit Economic Growth energy services
Corp. provider offering
physical delivery
and related services
for both electricity
and natural gas)
- ------------------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera
901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceutical, Inc.
Minneapolis, MN 55402 Biotech (biotechnology);
Age 64 Healthways, Inc.
(health management
programs)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
46 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
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 since President -- U.S. Asset Management and Chief Investment None
53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. and President,
Financial Center Vice President since Chairman of the Board and Chief Investment Officer,
Minneapolis, MN 55474 2002 RiverSource Investments, LLC since 2005; Director,
Age 48 President and Chief Executive Officer, Ameriprise
Certificate Company and 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.
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 47
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
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 2006 Director and Senior Vice President -- Asset Management,
172 Ameriprise Financial Products and Marketing, RiverSource Investments, LLC
Center since 2006; Director and Vice President -- Asset
Minneapolis, MN 55474 Management, Products and Marketing, RiverSource
Age 43 Distributors, Inc. since 2006; Managing Director and
Global Head of Product, Morgan Stanley Investment
Management, 2004-2006; President, Touchstone
Investments, 2002-2004
- --------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income,
172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments,
Center LLC since 2006; Vice President -- Investments,
Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice
Age 44 President -- Fixed Income, Ameriprise Financial, Inc.,
2002-2006 and RiverSource Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President since Vice President -- Asset Management and Trust Company
5228 Ameriprise Financial 2006 Services, RiverSource Investments, LLC since 2006; Vice
Center Minneapolis, MN President -- Operations and Compliance, RiverSource
55474 Investments, LLC, 2004-2006; Director of Product
Age 43 Development -- Mutual Funds, Ameriprise Financial,
Inc., 2001-2004
- --------------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise
105 Ameriprise Financial Financial, Inc. since 2002; Chief Financial Officer,
Center RiverSource Distributors, Inc. since 2006
Minneapolis, MN 55474
Age 53
- --------------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management,
5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel,
Center Secretary since 2006 RiverSource Distributors, Inc. and Chief Legal Officer
Minneapolis, MN 55474 and Assistant Secretary, RiverSource Investments, LLC
Age 49 since 2006; Vice President, General 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 Officer,
172 Ameriprise Financial Officer since 2006 RiverSource Investments, LLC since 2006;
Center Director -- Mutual Funds, Voyageur Asset Management,
Minneapolis, MN 55474 2003-2006; Director of Finance, Voyageur Asset
Age 48 Management, 2000-2003
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
48 THREADNEEDLE EUROPEAN EQUITY 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 Officer,
2934 Ameriprise Financial Prevention Officer Ameriprise Financial, Inc. since 2004; Manager Anti-
Center since 2004 Money Laundering, Ameriprise Financial, Inc., 2003-
Minneapolis, MN 55474 2004; Compliance Director and Bank Secrecy Act Officer,
Age 44 American Express Centurion Bank, 2000-2003
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT 49
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 THREADNEEDLE EUROPEAN EQUITY FUND -- 2008 ANNUAL REPORT
THREADNEEDLE EUROPEAN EQUITY 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. Threadneedle(R) mutual funds are
distributed by RiverSource Distributors, Inc., Member FINRA,
managed by RiverSource Investments, LLC, and subadvised by
Threadneedle International Limited. These companies are part
of Ameriprise Financial, Inc.
(THREADNEEDLE LOGO) (C) 2008 RiverSource Distributors, Inc. S-6006 N (12/08)
</Table>
Annual Report
and Prospectus (THREADNEEDLE LOGO)
THREADNEEDLE
INTERNATIONAL OPPORTUNITY FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
OCTOBER 31, 2008
(Prospectus also enclosed)
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND SEEKS TO
PROVIDE SHAREHOLDERS WITH
LONG-TERM CAPITAL GROWTH.
<Table>
This annual report includes a prospectus that
describes in detail the Fund's objective,
investments 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.............. 3
Manager Commentary................. 7
The Fund's Long-term Performance... 12
Fund Expenses Example.............. 14
Portfolio of Investments........... 16
Statement of Assets and
Liabilities...................... 22
Statement of Operations............ 23
Statements of Changes in Net
Assets........................... 25
Financial Highlights............... 26
Notes to Financial Statements...... 34
Report of Independent Registered
Public Accounting Firm........... 49
Federal Income Tax Information..... 51
Board Members and Officers......... 52
Proxy Voting....................... 57
</Table>
RIVERSOURCE FAMILY OF FUNDS
Threadneedle Funds are a part of the RiverSource
family of funds that includes funds branded
"RiverSource," "RiverSource Partners," and
"Threadneedle." These funds share the same Board of
Directors/Trustees and officers.
Please see the pages that follow this report for a
list of mutual funds that are included in the
RiverSource family of funds.
(DALBAR LOGO)
The RiverSource mutual fund shareholder reports have
been awarded the Communications Seal from Dalbar Inc.,
an independent financial services research firm. The
Seal recognizes communications demonstrating a level
of excellence in the industry.
- --------------------------------------------------------------------------------
2 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
> Threadneedle International Opportunity Fund (the Fund) Class A shares declined
44.46% (excluding sales charge) for the fiscal year ended Oct. 31, 2008.
> The Fund outperformed its benchmark index, the Morgan Stanley Capital
International (MSCI) EAFE Index (MSCI EAFE Index), which fell 46.34% for the
period.
> The Fund also outperformed the Lipper International Large-Cap Core Funds
Index, representing the Fund's peer group, which declined 46.67% for the same
time frame.
ANNUALIZED TOTAL RETURNS (for period ended Oct. 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------
Threadneedle International
Opportunity Fund Class A
(excluding sales charge) -44.46% -4.24% +2.90% -0.77%
- ----------------------------------------------------------------------
MSCI EAFE Index (unmanaged) -46.34% -4.83% +4.04% +2.05%
- ----------------------------------------------------------------------
Lipper International Large-Cap
Core Funds Index -46.67% -5.07% +2.98% +2.49%
- ----------------------------------------------------------------------
</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.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
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>
Total
- ---------------------------------
Class A 1.45%
- ---------------------------------
Class B 2.21%
- ---------------------------------
Class C 2.21%
- ---------------------------------
Class I 0.97%
- ---------------------------------
Class R2 1.77%
- ---------------------------------
Class R3 1.52%
- ---------------------------------
Class R4 1.26%
- ---------------------------------
Class R5 1.02%
- ---------------------------------
</Table>
International investing involves increased risk and volatility due to potential
political and economic instability, currency fluctuations, and differences in
financial reporting and accounting standards and oversight. Risks are
particularly significant in emerging markets.
- --------------------------------------------------------------------------------
4 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT OCT. 31, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
11/15/84) -44.46% -4.24% +2.90% -0.77% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -44.87% -4.95% +2.13% -1.53% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -44.92% -4.98% +2.13% N/A -5.51%
- ---------------------------------------------------------------------------
Class I (inception
3/4/04) -44.18% -3.76% N/A N/A +1.18%
- ---------------------------------------------------------------------------
Class R2 (inception
12/11/06) -44.40% N/A N/A N/A -19.01%
- ---------------------------------------------------------------------------
Class R3 (inception
12/11/06) -44.24% N/A N/A N/A -18.77%
- ---------------------------------------------------------------------------
Class R4 (inception
3/20/95) -44.08% -3.87% +3.22% -0.53% N/A
- ---------------------------------------------------------------------------
Class R5 (inception
12/11/06) -44.21% N/A N/A N/A -18.57%
- ---------------------------------------------------------------------------
Without sales charge
Class A (inception
11/15/84) -47.65% -6.12% +1.69% -1.27% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -47.63% -6.22% +1.76% -1.53% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -45.47% -4.98% +2.13% N/A -5.51%
- ---------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 5
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
<Table>
<Caption>
AT SEPT. 30, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
11/15/84) -27.14% +2.06% +8.80% +2.29% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -27.72% +1.30% +7.96% +1.50% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -27.68% +1.33% +7.98% N/A -3.01%
- ---------------------------------------------------------------------------
Class I (inception
3/4/04) -26.83% +2.59% N/A N/A +6.15%
- ---------------------------------------------------------------------------
Class R2 (inception
12/11/06) -27.05% N/A N/A N/A -9.39%
- ---------------------------------------------------------------------------
Class R3 (inception
12/11/06) -26.92% N/A N/A N/A -9.21%
- ---------------------------------------------------------------------------
Class R4 (inception
3/20/95) -26.73% +2.42% +9.07% +2.52% N/A
- ---------------------------------------------------------------------------
Class R5 (inception
12/11/06) -26.77% N/A N/A N/A -8.93%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
11/15/84) -31.35% +0.07% +7.52% +1.76% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -31.34% -0.02% +7.66% +1.50% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -28.40% +1.33% +7.98% N/A -3.01%
- ---------------------------------------------------------------------------
</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 R2, Class R3, Class R4 and Class R5 shares. Class I,
Class R2, Class R3, Class R4 and Class R5 are available to institutional
investors only.
* For classes with less than 10 years performance.
- --------------------------------------------------------------------------------
6 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
Threadneedle International Opportunity Fund portfolio managers Alex Lyle and
Esther Perkins of Threadneedle International Limited (Threadneedle) discuss the
Fund's results and positioning for the fiscal period ended Oct. 31, 2008.
Threadneedle, an indirect wholly-owned subsidiary of Ameriprise Financial, Inc.,
acts as the subadvisor to the Fund.
Dear Shareholders,
Threadneedle International Opportunity Fund (the Fund) Class A shares declined
44.46% (excluding sales charge) for the fiscal year ended Oct. 31, 2008. The
Fund outperformed its benchmark index, the Morgan Stanley Capital International
(MSCI) EAFE Index (MSCI EAFE Index), which fell 46.34% for the period. The Fund
also outperformed the Lipper International Large-Cap Core Funds Index,
representing the Fund's peer group, which declined 46.67% for the same time
frame.
SIGNIFICANT PERFORMANCE FACTORS
Global investment markets have performed quite poorly due to the liquidity
shortage in the credit markets and deteriorating expectations for global
economic growth. Many global economies are already in recession and we
anticipate others will follow. The outlook for corporate earnings has also
worsened, and we expect earnings in most regions to decline. Hence, the equity
markets have faced a difficult backdrop.
TOP TEN HOLDINGS (at Oct. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
Roche Holding (Switzerland) 4.0%
- ------------------------------------------------
Nestle (Switzerland) 3.6%
- ------------------------------------------------
Total (France) 2.8%
- ------------------------------------------------
Vodafone Group (United Kingdom) 2.7%
- ------------------------------------------------
BG Group (United Kingdom) 2.5%
- ------------------------------------------------
Tesco (United Kingdom) 2.0%
- ------------------------------------------------
E.ON (Germany) 2.0%
- ------------------------------------------------
RSA Insurance Group (United Kingdom) 1.9%
- ------------------------------------------------
British American Tobacco (United Kingdom) 1.9%
- ------------------------------------------------
Novartis (Switzerland) 1.8%
- ------------------------------------------------
</Table>
For further detail about these holdings, please refer to the section entitled
"Portfolio of Investments."
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
Though the Fund's absolute returns reflect the challenging environment, the Fund
has withstood the equity decline better than the MSCI EAFE Index and its peers.
The primary reason for the better relative performance was an emphasis on more
defensive, less economically dependant companies. These include consumer staples
stocks such as NESTLE and BRITISH AMERICAN TOBACCO and food retailers like
TESCO, JERONIMO MARTINS and COLRUYT.
Health care positioning added to the Fund's results as pharmaceutical firms
ROCHE and TEVA PHARMACEUTICAL and renal care company FRESENIUS MEDICAL CARE were
positive contributors to return. The
COUNTRY DIVERSIFICATION (at Oct. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
Australia 3.9%
- ------------------------------------------------
Belgium 1.2%
- ------------------------------------------------
Canada 1.7%
- ------------------------------------------------
China 0.6%
- ------------------------------------------------
Finland 1.4%
- ------------------------------------------------
France 13.5%
- ------------------------------------------------
Germany 7.4%
- ------------------------------------------------
Hong Kong 3.7%
- ------------------------------------------------
Ireland 0.5%
- ------------------------------------------------
Israel 1.2%
- ------------------------------------------------
Italy 0.6%
- ------------------------------------------------
Japan 21.1%
- ------------------------------------------------
Malaysia 0.1%
- ------------------------------------------------
Mexico 0.4%
- ------------------------------------------------
Netherlands 2.8%
- ------------------------------------------------
Portugal 0.8%
- ------------------------------------------------
Russia 0.4%
- ------------------------------------------------
Singapore 0.7%
- ------------------------------------------------
South Africa 0.5%
- ------------------------------------------------
South Korea 0.4%
- ------------------------------------------------
Switzerland 12.8%
- ------------------------------------------------
Taiwan 0.3%
- ------------------------------------------------
United Kingdom 22.9%
- ------------------------------------------------
Other(1) 1.1%
- ------------------------------------------------
</Table>
(1) Cash & Cash Equivalents.
- --------------------------------------------------------------------------------
8 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
telecommunications sector held up well in the difficult market and VODAFONE and
KONINKLIJKE KPN were strong performers for the Fund.
Having smaller positions in underperforming sectors like industrials and
financials than the MSCI EAFE Index was another positive for the Fund. In the
banking segment, having limited exposure to HBOS and RBS in the U.K. and UBS in
Switzerland was advantageous.
In the early part of the fiscal year, the Fund's emphasis on energy and mining
stocks was effective. These groups performed well when the economic outlook was
still somewhat optimistic, commodity supplies were constrained and commodity
prices remained high. Examples of contributors in this area included Brazilian
oil producer PETROLEO BRASILEIRO and U.K. oil companies BG GROUP and TULLOW OIL.
Each had promising oil discoveries during the period. Toward the end of the year
as the economic outlook soured and commodity prices fell, the Fund gave back
some of its earlier gains in these sectors. Swiss mining company XSTRATA was a
notably poor performer late in the period. We subsequently reduced the Fund's
energy and mining positions.
The portfolio's holdings of Russian and Asian companies also detracted from
performance. Russian companies underperformed due to high debt levels and
concerns about lack of investor protection under Russian law. We sold MECHEL, a
Russian coal and steel producer and ROSNEFT, a Russian oil company. Portfolio
holdings in China and Hong Kong performed quite well last year, but CHINA
MERCHANT BANK and CHINA OVERSEAS
We continue to emphasize defensive sectors that have limited dependence on the
economic cycle.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
LAND suffered from some profit-taking early in this fiscal period and economic
concerns in the second half of the year.
CHANGES TO THE FUND'S PORTFOLIO
We increased the Fund's holdings of consumer staples stocks, adding to NESTLE
and to PERNOD RICARD, a beverage company that made an acquisition we believe has
great potential. In Japan we added two new holdings in the beverage sector,
KIRIN HOLDINGS and ASAHI BREWERIES.
In the health care sector, new positions included the Swiss pharmaceutical firm
NOVARTIS, the French pharmaceutical company SANOFI-AVENTIS and FRESENIUS MEDICAL
CARE. We believe the health care sector has good long-term potential.
We also built up the portfolio's telecommunications position with new holdings
in FRANCE TELECOM and in Japan, NTT DATA and NTT DOCOMO.
We reduced exposure to industrials, selling U.K. civil aviation engine company
ROLLS-ROYCE and three German stocks, truck company MAN, sports car maker PORSCHE
and auto parts company CONTINENTAL. We reduced the Fund's oil company holdings
near the end of the period, selling PETROLEO BRASILEIRO and ROSNEFT and reducing
the Fund's holdings of TULLOW OIL. We also cut back on mining stocks, selling
XSTRATA, ANGLO AMERICAN and LONMIN.
We reduced the Fund's exposure to emerging market stocks, given investors'
continued risk aversion. We sold Brazilian builder CYRELA, South African media
stock NASPERS and IMPALA PLATINUM, also in South Africa.
OUR FUTURE STRATEGY
Looking forward, we anticipate that economic and market environments will remain
difficult, so we have focused on companies with healthy balance sheets that we
believe are strong players within their specific sectors. We continue to
emphasize defensive sectors that have limited dependence on the economic cycle.
Thus, the portfolio has larger positions in health care, consumer staples and
telecommunications than the MSCI EAFE Index. The portfolio's holdings of
industrials and
- --------------------------------------------------------------------------------
10 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
consumer discretionary stocks are smaller than the MSCI EAFE Index, as is its
position in the banking industry group.
In our view, share prices already reflect a lot of bad news, so we do see some
upside potential. We expect inflation to come down materially, giving central
banks room to reduce interest rates, which may spur a rally within this
environment. However, we don't think equities are ready to break into a new bull
market. Before that could occur, we believe we would need to be further along in
the recessionary phase of the economic cycle. Still, we recognize that poorly
performing areas are expected to recover at some point and, therefore, we are
looking to add very selectively in poor performing sectors, including retailers,
auto stocks and banks.
Geographically, we're most enthusiastic about opportunities in the U.K.,
primarily due to attractive valuations. We also see potential in Asia where we
still expect superior growth rates compared to other regions.
<Table>
(PHOTO - ALEX LYLE) (PHOTO - ESTHER PERKINS)
Alex Lyle Esther Perkins, CFA(R)
Portfolio Manager Deputy 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.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 11
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in Threadneedle International Opportunity Fund Class A shares (from
11/1/98 to 10/31/08) as compared to the performance of two widely cited
performance indices, the Morgan Stanley Capital International (MSCI) EAFE Index
and the Lipper International Large-Cap Core Funds Index. In comparing the Fund's
Class A shares to these indices, you should take into account the fact that the
Fund's performance reflects the maximum sales charge of 5.75%, while such
charges are not reflected in the performance of the indices. Returns for the
Fund include the reinvestment of any distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The 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 Oct. 31, 2008
1 YEAR 3 YEARS 5 YEARS 10 YEARS
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $5,235 $8,274 $10,874 $8,728
- ------------------------------------------------------------------------------------------
Average annual total return -47.65% -6.12% +1.69% -1.27%
- ------------------------------------------------------------------------------------------
MSCI EAFE INDEX(1)
Cumulative value of $10,000 $5,366 $8,620 $12,190 $12,246
- ------------------------------------------------------------------------------------------
Average annual total return -46.34% -4.83% +4.04% +2.05%
- ------------------------------------------------------------------------------------------
LIPPER INTERNATIONAL LARGE-CAP CORE FUNDS INDEX(2)
Cumulative value of $10,000 $5,333 $8,555 $11,581 $12,803
- ------------------------------------------------------------------------------------------
Average annual total return -46.67% -5.07% +2.98% +2.49%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 5.
- --------------------------------------------------------------------------------
12 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THREADNEEDLE INTERNATIONAL
OPPORTUNITY FUND LINE GRAPH)
<Table>
<Caption>
THREADNEEDLE INTERNATIONAL
OPPORTUNITY FUND LIPPER INTERNATIONAL
CLASS A (INCLUDES MSCI EAFE LARGE-CAP CORE
SALES CHARGE) INDEX(1) FUNDS INDEX(2)
-------------------------- ------------------ --------------------
'98 $ 9,425 $ 10,000 $10,000
'99 12,046 12,337 12,428
'00 11,710 12,009 13,213
'01 7,528 9,045 10,086
'02 6,358 7,876 9,004
'03 7,565 10,047 11,055
'04 8,501 11,983 12,719
'05 9,937 14,210 14,963
'06 12,519 18,195 18,919
'07 15,714 22,822 24,007
'08 8,728 12,246 12,803
</Table>
(1) The Morgan Stanley Capital International (MSCI) EAFE Index, an unmanaged
index, is compiled from a composite of securities markets of Europe,
Australia and the Far East. The index is widely recognized by investors in
foreign markets as the measurement index for portfolios of non-North
American securities. The index reflects reinvestment of all distributions
and changes in market prices.
(2) The Lipper International Large-Cap Core Funds Index includes the 30 largest
international large-cap core funds tracked by Lipper Inc. The index's
returns include net reinvested dividends. The Fund's performance is
currently measured against this index for purposes of determining the
performance incentive adjustment.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY 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 Oct. 31, 2008.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
14 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MAY 1, 2008 OCT. 31, 2008 THE PERIOD(A) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 608.20 $ 6.12 1.51%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.59 $ 7.68 1.51%
- ------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 606.10 $ 9.19 2.27%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,013.76 $11.52 2.27%
- ------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 605.80 $ 9.19 2.27%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,013.76 $11.52 2.27%
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 610.00 $ 4.10 1.01%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.11 $ 5.14 1.01%
- ------------------------------------------------------------------------------------------
Class R2
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 607.90 $ 7.30 1.80%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.13 $ 9.15 1.80%
- ------------------------------------------------------------------------------------------
Class R3
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 609.20 $ 6.29 1.55%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.39 $ 7.88 1.55%
- ------------------------------------------------------------------------------------------
Class R4
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 610.60 $ 5.32 1.31%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,018.60 $ 6.67 1.31%
- ------------------------------------------------------------------------------------------
Class R5
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 609.50 $ 4.26 1.05%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,019.91 $ 5.35 1.05%
- ------------------------------------------------------------------------------------------
</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 184/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Oct. 31, 2008: -39.18%
for Class A, -39.39% for Class B, -39.42% for Class C, -39.00% for Class I,
-39.21% for Class R2, -39.08% for Class R3, -38.94% for Class R4 and -39.05%
for Class R5.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
OCT. 31, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
COMMON STOCKS (98.4%)(c)
ISSUER SHARES VALUE(a)
AUSTRALIA (3.9%)
BHP Billiton 168,816 $3,241,456
Boart Longyear Group 1,359,928 394,369
CSL 103,192 2,508,287
Macquarie Group 53,304 1,056,946
Newcrest Mining 125,212 1,720,317
QBE Insurance Group 163,377 2,785,908
Rio Tinto 39,165 2,025,050
---------------
Total 13,732,333
- -------------------------------------------------------------------------------------
BELGIUM (1.2%)
Colruyt 18,294 4,110,230
- -------------------------------------------------------------------------------------
CANADA (1.7%)
Canadian Pacific Railway 52,000 2,354,123
ShawCor Cl A 80,000 1,211,669
Suncor Energy 100,000 2,402,589
---------------
Total 5,968,381
- -------------------------------------------------------------------------------------
CHINA (0.6%)
China Merchants Bank Series H 1,420,000 2,175,634
- -------------------------------------------------------------------------------------
FINLAND (1.4%)
Sampo Series A 243,155 4,871,032
- -------------------------------------------------------------------------------------
FRANCE (13.4%)
ALSTOM 45,568 2,257,719
AXA 103,824 1,982,757
BNP Paribas 78,660 5,677,347
Essilor Intl 71,998 3,228,534
France Telecom 158,388 3,992,433
GDF Suez 111,741 4,972,243
LVMH Moet Hennessy Louis Vuitton 29,204 1,942,663
Pernod Ricard 87,952 5,725,295
Sanofi-Aventis 35,971 2,278,213
Societe Generale 61,938 3,374,738
Total 176,568 9,710,180
Veolia Environnement 77,152 1,911,275
---------------
Total 47,053,397
- -------------------------------------------------------------------------------------
GERMANY (7.4%)
Allianz 38,487 2,895,100
Bayer 72,056 4,028,909
Daimler 65,066 2,234,566
E.ON 178,479 6,828,125
Fresenius Medical Care & Co 129,537 5,792,115
Linde 30,484 2,563,241
Wincor Nixdorf 31,848 1,382,866
---------------
Total 25,724,922
- -------------------------------------------------------------------------------------
HONG KONG (3.7%)
China Mobile 383,500 3,376,268
China Overseas Land & Investment 2,728,000 3,080,821
Esprit Holdings 390,000 2,216,147
Hong Kong Exchanges and Clearing 190,700 1,933,966
Li & Fung 1,093,600 2,195,000
---------------
Total 12,802,202
- -------------------------------------------------------------------------------------
IRELAND (0.5%)
CRH 82,751 1,817,558
- -------------------------------------------------------------------------------------
ISRAEL (1.2%)
Israel Chemicals 139,657 1,414,657
Teva Pharmaceutical Inds ADR 62,970 2,700,154
---------------
Total 4,114,811
- -------------------------------------------------------------------------------------
ITALY (0.6%)
Saipem 107,872 2,026,847
- -------------------------------------------------------------------------------------
JAPAN (21.0%)
Aisin Seiki 29,700 525,703
AMADA 32,000 146,994
Asahi Breweries 89,100 1,471,114
Bridgestone 54,500 953,089
Canon 53,400 1,869,076
Central Japan Railway 87 714,867
Chubu Electric Power 62,500 1,637,024
Daiichi Sankyo 26,800 549,685
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(a)
JAPAN (CONT.)
Daiwa House Industry 27,000 $240,095
Daiwa Securities Group 135,000 763,439
DENSO 20,300 395,769
eAccess 548 254,951
East Japan Railway 350 2,491,296
FamilyMart 30,900 1,224,573
FANUC 12,500 833,091
Fukuoka Financial Group 111,000 367,225
Hitachi 261,000 1,225,752
Honda Motor 61,800 1,537,111
Hoya 59,100 1,079,456
Japan Tobacco 217 770,060
JFE Holdings 37,200 949,437
Kansai Electric Power 51,500 1,291,736
Kansai Paint 147,000 820,656
KDDI 338 2,025,705
Keyence 3,200 613,391
Kirin Holdings 47,000 519,975
Kobe Steel 249,000 404,001
Komatsu 68,500 753,276
Mitsubishi 12,000 201,198
Mitsubishi Electric 89,000 551,894
Mitsubishi Estate 58,000 1,036,364
Mitsubishi Logistics 108,000 982,868
Mitsubishi UFJ Financial Group 432,400 2,718,035
Mitsui & Co 140,000 1,356,910
Mitsui Fudosan 69,000 1,203,921
Mizuho Financial Group 413 1,008,746
Murata Mfg 10,600 365,424
NGK Spark Plug 82,000 773,205
Nintendo 4,900 1,574,850
Nippon Electric Glass 46,000 276,767
Nippon Oil 80,000 328,473
Nippon Sheet Glass 89,000 291,147
Nippon Telegraph & Telephone 248 1,012,302
Nippon Yusen Kabushiki Kaisha 60,000 290,222
Nissan Motor 88,200 438,159
Nomura Holdings 86,100 815,968
NTT Data 75 247,872
NTT DoCoMo 1,310 2,078,173
Ono Pharmaceutical 17,200 766,934
Oracle Japan 4,700 204,385
ORIX 3,540 363,812
Pacific Golf Group Intl Holdings 820 307,198
Panasonic 48,000 773,195
Ricoh 50,000 538,251
SECOM 19,300 736,354
Sekisui Chemical 222,000 1,297,435
Sekisui House 86,000 862,610
Seven & I Holdings 61,200 1,718,851
Shin-Etsu Chemical 41,200 2,190,617
Shionogi & Co 32,000 544,781
Sompo Japan Insurance 61,000 427,678
Sony 40,500 960,132
Sony Financial Holdings 257 836,069
Sumitomo 94,200 829,007
Sumitomo Chemical 84,000 257,065
Sumitomo Heavy Inds 98,000 291,017
Sumitomo Metal Inds 286,000 735,780
Sumitomo Mitsui Financial Group 280 1,122,796
Sumitomo Realty & Development 14,000 228,164
Sundrug 10,800 196,694
T&D Holdings 16,500 630,498
Takeda Pharmaceutical 51,900 2,579,382
Tokio Marine Holdings 34,000 1,049,053
Tokyo Electron 10,000 333,532
Tokyo Gas 615,000 2,645,210
Toshiba 68,000 245,849
Toyota Motor 117,900 4,605,388
Trend Micro 22,000 538,337
UBE Inds 88,000 185,208
Yahoo! Japan 1,015 335,946
---------------
Total 73,318,273
- -------------------------------------------------------------------------------------
MALAYSIA (0.1%)
IOI 513,500 407,620
- -------------------------------------------------------------------------------------
MEXICO (0.4%)
America Movil ADR Series L 43,531 1,346,849
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 17
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(a)
NETHERLANDS (2.8%)
Koninklijke (Royal) KPN 424,549 $5,976,892
Royal Dutch Shell Series A 136,713 3,787,928
---------------
Total 9,764,820
- -------------------------------------------------------------------------------------
PORTUGAL (0.8%)
Jeronimo Martins 536,224 2,735,501
- -------------------------------------------------------------------------------------
RUSSIA (0.4%)
Gazprom ADR 73,793 1,503,532
- -------------------------------------------------------------------------------------
SINGAPORE (0.7%)
DBS Group Holdings 195,000 1,489,235
Keppel 356,000 1,110,422
---------------
Total 2,599,657
- -------------------------------------------------------------------------------------
SOUTH AFRICA (0.5%)
First Uranium 200,000(b) 232,375
MTN Group 147,779 1,663,042
---------------
Total 1,895,417
- -------------------------------------------------------------------------------------
SOUTH KOREA (0.4%)
Shinhan Financial Group 56,400 1,373,262
- -------------------------------------------------------------------------------------
SWITZERLAND (12.7%)
Credit Suisse Group 94,712 3,541,191
Lonza Group 41,497 3,443,508
Nestle 319,507 12,423,059
Novartis 126,013 6,395,343
Roche Holding 92,047 14,074,636
Syngenta 24,476 4,574,787
---------------
Total 44,452,524
- -------------------------------------------------------------------------------------
TAIWAN (0.3%)
Hon Hai Precision Industry 386,400 933,147
- -------------------------------------------------------------------------------------
UNITED KINGDOM (22.7%)
BAE Systems 561,242 3,154,429
BG Group 594,622 8,742,481
BP 621,374 5,064,650
British American Tobacco 238,778 6,548,908
Capita Group 261,628 2,703,147
Centrica 585,206 2,875,331
Home Retail Group 825,043 2,629,394
HSBC Holdings 498,271 5,901,082
Lloyds TSB Group 511,573 1,653,305
Prudential 331,369 1,664,424
Rio Tinto 69,282 3,236,011
RSA Insurance Group 3,024,641 6,725,679
Shire 211,269 2,768,132
Standard Chartered 204,981 3,387,413
Tesco 1,271,167 6,964,219
Tullow Oil 261,419 2,219,915
Vodafone Group 4,973,062 9,565,871
Wm Morrison Supermarkets 913,209 3,888,028
---------------
Total 79,692,419
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $469,305,599) $344,420,368
- -------------------------------------------------------------------------------------
<Caption>
MONEY MARKET FUND (1.1%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 1.60% 3,765,428(d) $3,765,428
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $3,765,428) $3,765,428
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $473,071,027)(e) $348,185,796
=====================================================================================
</Table>
SUMMARY OF INVESTMENTS IN SECURITIES BY INDUSTRY
The following table represents the portfolio investments of the Fund by industry
classifications as a percentage of total net assets at Oct. 31, 2008:
<Table>
<Caption>
PERCENTAGE OF
INDUSTRY NET ASSETS VALUE
- -----------------------------------------------------------------------
Aerospace & Defense 0.9% $3,154,429
Auto Components 0.8 2,647,766
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
18 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
INDUSTRY NET ASSETS VALUE
- -----------------------------------------------------------------------
Automobiles 2.5% $8,815,224
Beverages 2.2 7,716,384
Biotechnology 0.7 2,508,287
Building Products 0.1 291,147
Capital Markets 1.8 6,177,544
Chemicals 3.4 12,006,231
Commercial Banks 8.5 30,248,818
Commercial Services & Supplies 0.2 736,354
Computers & Peripherals 0.5 1,628,715
Construction & Engineering 0.1 394,369
Construction Materials 0.5 1,817,558
Consumer Finance 0.1 363,812
Distributors 0.6 2,195,000
Diversified Financial Services 0.6 1,933,966
Diversified Telecommunication Services 3.1 10,981,627
Electric Utilities 2.8 9,756,885
Electrical Equipment 0.8 2,809,613
Electronic Equipment, Instruments &
Components 1.3 4,493,937
Energy Equipment & Services 0.9 3,238,516
Food & Staples Retailing 6.0 20,838,096
Food Products 3.7 12,830,679
Gas Utilities 0.8 2,645,210
Health Care Equipment & Supplies 0.9 3,228,534
Health Care Providers & Services 1.7 5,792,115
Hotels, Restaurants & Leisure 0.1 307,198
Household Durables 1.1 3,893,372
Industrial Conglomerates 0.3 1,110,422
Insurance 6.7 23,868,198
Internet & Catalog Retail 0.8 2,629,394
Internet Software & Services 0.2 590,897
IT Services 0.1 247,872
Life Sciences Tools & Services 1.0 3,443,508
Machinery 0.6 2,024,378
Marine 0.1 290,222
Metals & Mining 3.6 12,544,427
Multi-Utilities 2.8 9,758,849
Office Electronics 0.7 2,407,327
Oil, Gas & Consumable Fuels 9.5 33,759,748
Pharmaceuticals 10.4 36,686,169
Professional Services 0.8 2,703,147
Real Estate Management & Development 1.7 5,789,365
Road & Rail 1.6 5,560,286
Semiconductors & Semiconductor
Equipment 0.1 333,532
Software 0.7 2,317,572
Specialty Retail 0.6 2,216,147
Textiles, Apparel & Luxury Goods 0.6 1,942,663
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 19
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
INDUSTRY NET ASSETS VALUE
- -----------------------------------------------------------------------
Tobacco 2.1% $7,318,968
Trading Companies & Distributors 0.7 2,387,115
Transportation Infrastructure 0.3 982,868
Wireless Telecommunication Services 5.7 20,055,908
Other(1) 1.1 3,765,428
- -----------------------------------------------------------------------
Total $348,185,796
- -----------------------------------------------------------------------
</Table>
(1) Cash & Cash Equivalents.
INVESTMENTS IN DERIVATIVES
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCT. 31, 2008
<Table>
<Caption>
CURRENCY TO BE CURRENCY TO BE UNREALIZED UNREALIZED
EXCHANGE DATE DELIVERED RECEIVED APPRECIATION DEPRECIATION
- --------------------------------------------------------------------------------------
Nov. 4, 2008 41,815 4,100,000 $-- $(184)
U.S. Dollar Japanese Yen
</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.
(d) Affiliated Money Market Fund -- See Note 5 to the financial statements. The
rate shown is the seven-day current annualized yield at Oct. 31, 2008.
(e) At Oct. 31, 2008, the cost of securities for federal income tax purposes
was $474,860,587 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $6,413,941
Unrealized depreciation (133,088,732)
------------------------------------------------------------
Net unrealized depreciation $(126,674,791)
------------------------------------------------------------
</Table>
The industries 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.
- --------------------------------------------------------------------------------
20 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 21
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
OCT. 31, 2008
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $469,305,599) $ 344,420,368
Affiliated money market fund (identified cost $3,765,428) 3,765,428
- ---------------------------------------------------------------------------------------
Total investments in securities (identified cost $473,071,027) 348,185,796
Foreign currency holdings (identified cost $322,462) 315,894
Capital shares receivable 249,769
Dividends receivable 1,045,308
Receivable for investment securities sold 283,731
Reclaims receivable 739,639
- ---------------------------------------------------------------------------------------
Total assets 350,820,137
- ---------------------------------------------------------------------------------------
LIABILITIES
Capital shares payable 456,460
Payable for investment securities purchased 333,189
Unrealized depreciation on forward foreign currency contracts 184
Accrued investment management services fees 7,561
Accrued distribution fees 2,470
Accrued transfer agency fees 2,311
Accrued administrative services fees 763
Accrued plan administration services fees 1
Other accrued expenses 153,689
- ---------------------------------------------------------------------------------------
Total liabilities 956,628
- ---------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $ 349,863,509
- ---------------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 536,263
Additional paid-in capital 713,172,018
Undistributed net investment income 9,626,592
Accumulated net realized gain (loss) (248,655,853)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (124,815,511)
- ---------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $ 349,863,509
- ---------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $248,481,494 38,086,295 $6.52(1)
Class B $ 26,534,037 4,183,815 $6.34
Class C $ 1,937,373 308,820 $6.27
Class I $ 72,732,880 11,020,753 $6.60
Class R2 $ 3,285 496 $6.62
Class R3 $ 3,293 496 $6.64
Class R4 $ 167,848 25,145 $6.68
Class R5 $ 3,299 496 $6.65
- -----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $6.92. 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.
- --------------------------------------------------------------------------------
22 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
STATEMENT OF OPERATIONS --------------------------------------------------------
YEAR ENDED OCT. 31, 2008
<Table>
<Caption>
INVESTMENT INCOME
Income:
Dividends $ 19,015,853
Interest 17,365
Income distributions from affiliated money market fund 264,257
Fee income from securities lending 359,229
Less foreign taxes withheld (1,500,826)
- --------------------------------------------------------------------------------
Total income 18,155,878
- --------------------------------------------------------------------------------
Expenses:
Investment management services fees 4,661,800
Distribution fees
Class A 1,036,236
Class B 541,184
Class C 30,802
Class R2 25
Class R3 12
Transfer agency fees
Class A 958,774
Class B 131,283
Class C 7,370
Class R2 3
Class R3 3
Class R4 146
Class R5 3
Administrative services fees 460,205
Plan administration services fees
Class R2 12
Class R3 12
Class R4 730
Compensation of board members 12,548
Custodian fees 229,165
Printing and postage 131,020
Registration fees 63,831
Professional fees 41,060
Other 23,670
- --------------------------------------------------------------------------------
Total expenses 8,329,894
Expenses waived/reimbursed by the Investment Manager and its
affiliates (754)
Earnings and bank fee credits on cash balances (14,466)
- --------------------------------------------------------------------------------
Total net expenses 8,314,674
- --------------------------------------------------------------------------------
Investment income (loss) -- net 9,841,204
- --------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 23
STATEMENT OF OPERATIONS (continued) --------------------------------------------
YEAR ENDED OCT. 31, 2008
<Table>
<Caption>
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions $ (12,527,569)
Foreign currency transactions (288,495)
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (12,816,064)
Net change in unrealized appreciation (depreciation) on
investments
and on translation of assets and liabilities in foreign
currencies (297,266,660)
- --------------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies (310,082,724)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(300,241,520)
- --------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
24 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 9,841,204 $ 4,356,347
Net realized gain (loss) on investments (12,816,064) 105,748,836
Net change in unrealized appreciation (depreciation) on
investments and on translation of assets and liabilities in
foreign currencies (297,266,660) 47,155,142
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (300,241,520) 157,260,325
- -----------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (3,580,745) (5,792,143)
Class B -- (328,653)
Class C (2,207) (20,000)
Class I (1,475,608) (1,860,370)
Class R2 (33) (82)
Class R3 (46) (82)
Class R4 (4,181) (12,305)
Class R5 (63) (83)
- -----------------------------------------------------------------------------------------------
Total distributions (5,062,883) (8,013,718)
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 47,238,648 57,964,868
Class B shares 6,160,677 10,142,678
Class C shares 759,316 554,208
Class I shares 15,518,168 15,649,639
Class R2 shares -- 5,000
Class R3 shares -- 5,000
Class R4 shares 56,966 206,103
Class R5 shares -- 5,000
Reinvestment of distributions at net asset value
Class A shares 3,505,552 5,680,839
Class B shares -- 322,993
Class C shares 2,171 19,664
Class I shares 1,475,409 1,860,121
Class R4 shares 4,181 12,305
Payments for redemptions
Class A shares (103,889,267) (113,242,804)
Class B shares (25,515,027) (32,319,841)
Class C shares (1,032,936) (850,822)
Class I shares (15,677,847) (18,273,882)
Class R4 shares (201,571) (704,572)
- -----------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (71,595,560) (72,963,503)
- -----------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (376,899,963) 76,283,104
Net assets at beginning of year 726,763,472 650,480,368
- -----------------------------------------------------------------------------------------------
Net assets at end of year $ 349,863,509 $ 726,763,472
- -----------------------------------------------------------------------------------------------
Undistributed net investment income $ 9,626,592 $ 4,887,998
- -----------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 25
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004
Net asset value, beginning of period $11.83 $9.54 $7.66 $6.58 $5.88
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17(b) .07(b) .06 .05 .03
Net gains (losses) (both realized and
unrealized) (5.40) 2.34 1.91 1.06 .71
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (5.23) 2.41 1.97 1.11 .74
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.12) (.09) (.03) (.04)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.52 $11.83 $9.54 $7.66 $6.58
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $248 $520 $464 $408 $347
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.45% 1.34% 1.48% 1.53% 1.54%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.45% 1.34% 1.48% 1.52% 1.54%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.68% .63% .76% .75% .45%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78% 84% 79% 93% 98%
- --------------------------------------------------------------------------------------------------------------
Total return(g) (44.46%) 25.52% 25.98% 16.90% 12.54%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have 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 Oct. 31, 2008
were less than 0.01% of average net assets.
(g) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
26 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004
Net asset value, beginning of period $11.50 $9.27 $7.44 $6.42 $5.75
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10(b) (.01)(b) -- -- (.02)
Net gains (losses) (both realized and
unrealized) (5.26) 2.28 1.86 1.02 .69
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (5.16) 2.27 1.86 1.02 .67
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.04) (.03) -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.34 $11.50 $9.27 $7.44 $6.42
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $27 $72 $77 $81 $74
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 2.21% 2.11% 2.25% 2.30% 2.32%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 2.21% 2.11% 2.25% 2.29% 2.31%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) .98% (.10%) .01% .01% (.29%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78% 84% 79% 93% 98%
- --------------------------------------------------------------------------------------------------------------
Total return(g) (44.87%) 24.56% 25.07% 15.89% 11.65%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have 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 Oct. 31, 2008
were less than 0.01% of average net assets.
(g) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 27
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004
Net asset value, beginning of period $11.39 $9.19 $7.40 $6.38 $5.72
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09(b) (.01)(b) -- -- (.02)
Net gains (losses) (both realized and
unrealized) (5.20) 2.27 1.84 1.02 .68
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (5.11) 2.26 1.84 1.02 .66
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.01) (.06) (.05) -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.27 $11.39 $9.19 $7.40 $6.38
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $2 $4 $3 $3 $2
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 2.21% 2.10% 2.25% 2.30% 2.30%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 2.21% 2.10% 2.25% 2.28% 2.30%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) .91% (.12%) (.01%) .02% (.26%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78% 84% 79% 93% 98%
- --------------------------------------------------------------------------------------------------------------
Total return(g) (44.92%) 24.66% 24.93% 16.03% 11.62%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have 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 Oct. 31, 2008
were less than 0.01% of average net assets.
(g) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
28 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004(b)
Net asset value, beginning of period $11.97 $9.64 $7.75 $6.65 $6.60
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .21(c) .12(c) .11 .09 .04
Net gains (losses) (both realized and
unrealized) (5.45) 2.38 1.92 1.07 .01
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (5.24) 2.50 2.03 1.16 .05
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.13) (.17) (.14) (.06) --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.60 $11.97 $9.64 $7.75 $6.65
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $73 $131 $105 $50 $22
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .97% .88% .99% .91% .87%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .97% .88% .99% .91% .87%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.14% 1.13% 1.22% 1.36% 1.12%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78% 84% 79% 93% 98%
- --------------------------------------------------------------------------------------------------------------
Total return (44.18%) 26.22% 26.50% 17.58% .76%(i)
- --------------------------------------------------------------------------------------------------------------
</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 Oct. 31, 2004.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 29
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS R2
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007(b)
Net asset value, beginning of period $11.98 $10.08
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .16 .03
Net gains (losses) (both realized and
unrealized) (5.45) 2.04
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (5.29) 2.07
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.17)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.62 $11.98
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.77% 1.68%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.52% 1.68%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.61% .36%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78% 84%
- --------------------------------------------------------------------------------------------------------------
Total return (44.40%) 20.81%(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
30 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS R3
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007(b)
Net asset value, beginning of period $12.01 $10.08
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .19 .06
Net gains (losses) (both realized and
unrealized) (5.47) 2.04
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (5.28) 2.10
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.17)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.64 $12.01
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.52% 1.44%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.27% 1.44%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.86% .61%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78% 84%
- --------------------------------------------------------------------------------------------------------------
Total return (44.24%) 21.11%(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 31
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004
Net asset value, beginning of period $12.06 $9.72 $7.70 $6.62 $5.91
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18(b) .09(b) .09 .05 .04
Net gains (losses) (both realized and
unrealized) (5.46) 2.39 1.93 1.07 .71
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (5.28) 2.48 2.02 1.12 .75
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.14) -- (.04) (.04)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.68 $12.06 $9.72 $7.70 $6.62
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $1 $-- $31
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.26% 1.18% 1.29% 1.33% 1.36%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.01% 1.18% 1.29% 1.33% 1.36%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.77% .85% 1.02% 1.04% .61%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78% 84% 79% 93% 98%
- --------------------------------------------------------------------------------------------------------------
Total return (44.08%) 25.85% 26.23% 16.92% 12.79%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have 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 Oct. 31, 2008
were less than 0.01% of average net assets.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
32 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS R5
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2008 2007(b)
Net asset value, beginning of period $12.06 $10.08
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .21 .11
Net gains (losses) (both realized and
unrealized) (5.49) 2.04
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (5.28) 2.15
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.13) (.17)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.65 $12.06
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.02% .93%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.02% .93%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.11% 1.12%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78% 84%
- --------------------------------------------------------------------------------------------------------------
Total return (44.21%) 21.63%(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment.
(h) Includes the impact of a performance incentive adjustment, if any. Expense
ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Oct. 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 33
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Threadneedle International Opportunity Fund (the Fund) (formerly RiverSource
International Opportunity Fund) is a series of RiverSource International Series,
Inc. and is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. RiverSource International
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 foreign issuers that
are believed to offer strong growth potential.
The Fund offers Class A, Class B, Class C, Class I, Class R2, Class R3, Class R4
and Class R5 shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC) and
automatically convert to Class A shares during the ninth year of ownership.
- - Class C shares may be subject to a CDSC.
- - Class I, Class R2, Class R3, Class R4 and Class R5 shares are sold without a
front-end sales charge or CDSC and are offered to qualifying institutional
investors.
At Oct. 31, 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 R2, Class R3 and
Class R5 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.
- --------------------------------------------------------------------------------
34 THREADNEEDLE INTERNATIONAL 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.
When market quotes are not readily available, the pricing service, in
determining fair values of debt securities, takes into consideration such
factors as current quotations by broker/dealers, coupon, maturity, quality, type
of issue, trading characteristics, and other yield and risk factors it deems
relevant in determining valuations. 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, which
approximates fair value.
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
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 35
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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 (OTC
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. Option
contracts, including OTC option contracts, with no readily available market
value are valued using quotations obtained form independent brokers as of the
close of the New York Stock Exchange. 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 Oct. 31, 2008, and for the year
then ended, the Fund had no outstanding option contracts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Futures and options on 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
- --------------------------------------------------------------------------------
36 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
recognizes a realized gain or loss when the contract is closed or expires. At
Oct. 31, 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. At Oct. 31, 2008, foreign currency holdings consisted of
multiple denominations.
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 counterparty will not
complete its contract obligations.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
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,
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 37
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
"Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the
financial statements. 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, passive foreign investment company (PFIC) holdings 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 $39,727
and accumulated net realized loss has been decreased by $39,727.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008 2007(*)
- -----------------------------------------------------------------
CLASS A
Distributions paid from:
Ordinary income.................... $3,580,745 $5,792,143
Long-term capital gain............. -- --
CLASS B
Distributions paid from:
Ordinary income.................... -- 328,653
Long-term capital gain............. -- --
CLASS C
Distributions paid from:
Ordinary income.................... 2,207 20,000
Long-term capital gain............. -- --
CLASS I
Distributions paid from:
Ordinary income.................... 1,475,608 1,860,370
Long-term capital gain............. -- --
</Table>
- --------------------------------------------------------------------------------
38 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008 2007(*)
- -----------------------------------------------------------------
CLASS R2
Distributions paid from:
Ordinary income.................... $33 $82
Long-term capital gain............. -- --
CLASS R3
Distributions paid from:
Ordinary income.................... 46 82
Long-term capital gain............. -- --
CLASS R4
Distributions paid from:
Ordinary income.................... 4,181 12,305
Long-term capital gain............. -- --
CLASS R5
Distributions paid from:
Ordinary income.................... 63 83
Long-term capital gain............. -- --
</Table>
* Class R2, Class R3 and Class R5 are for the period from Dec. 11, 2006
(inception date) to Oct. 31, 2007.
At Oct. 31, 2008, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income................. $ 9,632,239
Undistributed accumulated long-term gain...... $ --
Accumulated realized loss..................... $(246,866,293)
Unrealized appreciation (depreciation)........ $(126,610,718)
</Table>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued Statement on 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 periods beginning after Nov. 15, 2008. As of
Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact
the financial statement amounts; however, additional footnote disclosures may be
required about the use of derivative instruments and hedging items.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 39
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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 Nov. 1, 2008. The
adoption of SFAS 157 is not anticipated to have a material impact on the Fund's
financial statements; however, additional disclosures will be required about the
inputs used to develop the measurements of fair value and the effect of certain
measurements reported in the Statement of Operations for a fiscal period.
DIVIDENDS TO SHAREHOLDERS
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date or upon receipt of
ex-dividend notification in the case of certain foreign securities. Interest
income, including amortization of premium, market discount and original issue
discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.80%
to 0.57% 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
performance of one Class A share of the Fund and the annualized performance of
the Lipper International Large-Cap Core Funds Index. In certain circumstances,
the Board may approve a change in the index. The maximum adjustment is 0.12% per
year. If the performance difference is less than 0.50%, the adjustment will be
zero. The adjustment increased the management fee by $119,014 for the year ended
Oct. 31, 2008. The management fee for the year ended Oct. 31, 2008 was 0.80% of
the Fund's average daily net assets, including the adjustment under the terms of
the performance incentive arrangement.
- --------------------------------------------------------------------------------
40 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
SUBADVISORY AGREEMENT
The Investment Manager has a Subadvisory Agreement with Threadneedle
International Limited (Threadneedle), an affiliate of the Investment Manager and
an indirect wholly-owned subsidiary of Ameriprise Financial, to subadvise the
asset of the Fund. The Investment Manager contracts with and compensates
Threadneedle to manage the investment of the Fund's assets.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.08% to 0.05% annually as the
Fund's assets increase. The fee for the year ended Oct. 31, 2008 was 0.08% of
the Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended Oct. 31,
2008, other expenses paid to this company were $3,057.
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 R2, Class R3, Class R4 and Class
R5 shares.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 41
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statement of Operations.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R2, Class R3 and Class R4 shares for the provision of
various administrative, recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor)
for distribution and shareholder services. Under a Plan and Agreement of
Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up
to 0.25% of the Fund's average daily net assets attributable to Class A and
Class R3 shares, a fee at an annual rate of up to 0.50% of the Fund's average
daily net assets attributable to Class R2 shares and a fee at an annual rate of
up to 1.00% of the Fund's average daily net assets attributable to Class B and
Class C shares. For Class B and Class C shares, up to 0.75% of the fee is
reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed expense") was approximately $968,000 and $26,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of Oct. 31, 2008, and may be recovered from
future payments under the distribution plan or CDSC. To the extent the
unreimbursed expense has been fully recovered, the distribution fee is reduced.
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$289,246 for Class A, $30,296 for Class B and $308 for Class C for the year
ended Oct. 31, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended Oct. 31, 2008, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*), including the adjustment under the terms
of a performance incentive arrangement, were as follows:
<Table>
Class R2............................................ 1.52%
Class R3............................................ 1.27
Class R4............................................ 1.01
</Table>
- --------------------------------------------------------------------------------
42 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
The waived/reimbursed fees and expenses for plan administration services fee at
the class level were as follows:
<Table>
Class R2........................................... $ 12
Class R3........................................... 12
Class R4........................................... 730
</Table>
The Investment Manager and its affiliates have contractually agreed to waive
certain fees and expenses until Oct. 31, 2009, unless sooner terminated at the
discretion of the Board, such that net expenses (excluding fees and expenses of
acquired funds*), before giving effect to any performance incentive adjustment,
will not exceed the following percentage of the Fund's average daily net assets:
<Table>
Class R4............................................ 1.30%
</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 Oct. 31, 2008, the Fund's custodian and transfer agency
fees were reduced by $14,466 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 $450,532,975 and $515,292,634 respectively, for the year
ended Oct. 31, 2008. Realized gains and losses are determined on an identified
cost basis.
Income from securities lending amounted to $359,229 for the year ended Oct. 31,
2008. Expenses paid to the Investment Manager as securities lending agent were
$3,007 for the year ended Oct. 31, 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. At Oct. 31, 2008, the Fund had no securities out on
loan.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 43
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
YEAR ENDED OCT. 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- --------------------------------------------------------------------------------
Class A 4,839,962 327,622 (10,996,114) (5,828,530)
Class B 630,719 -- (2,718,869) (2,088,150)
Class C 82,839 210 (112,214) (29,165)
Class I 1,520,622 136,865 (1,545,670) 111,817
Class R4 5,794 383 (20,555) (14,378)
- --------------------------------------------------------------------------------
<Caption>
YEAR ENDED OCT. 31, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- --------------------------------------------------------------------------------
Class A 5,530,222 574,984 (10,852,840) (4,747,634)
Class B 1,012,580 33,436 (3,087,188) (2,041,172)
Class C 55,669 2,057 (84,352) (26,626)
Class I 1,504,670 186,947 (1,675,015) 16,602
Class R2* 496 -- -- 496
Class R3* 496 -- -- 496
Class R4 19,941 1,224 (65,438) (44,273)
Class R5* 496 -- -- 496
- --------------------------------------------------------------------------------
</Table>
* For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007.
5. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the RiverSource funds
and other institutional clients of RiverSource Investments. The cost of the
Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term
Cash Fund aggregated $270,934,515 and $276,499,409, respectively, for the year
ended Oct. 31, 2008. The income distributions received with respect to the
Fund's investment in RiverSource Short-Term Cash Fund can be found on the
Statement of Operations and the Fund's invested balance in RiverSource Short-
Term Cash Fund at Oct. 31, 2008, can be found in the Portfolio of Investments.
6. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
led by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for
- --------------------------------------------------------------------------------
44 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
the temporary funding of shareholder redemptions or for other temporary or
emergency purposes. The credit facility became effective on Oct. 16, 2008,
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 $475 million. The
borrowers shall have the right, upon written notice to the Administrative Agent
to request an increase of up to $175 million in the aggregate amount of the
credit facility from new or existing lenders, provided that the aggregate amount
of the credit facility shall at no time exceed $650 million. Participation in
such increase by any existing lender shall be at such lender's sole discretion.
Interest is charged to each Fund based on its borrowings at a rate equal to the
federal funds rate plus 0.75%. 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, in addition to an upfront fee equal to its pro
rata share of 0.02% of the amount of the credit facility. The Fund had no
borrowings during the year ended Oct. 31, 2008.
Under the prior credit facility which was effective until Oct. 15, 2008, the
Fund had entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to
borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. The credit facility agreement, which was a
collective agreement between the Fund and certain other RiverSource funds,
severally and not jointly, permitted collective borrowings up to $500 million.
Interest was 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 matured
no later than 60 days after the date of borrowing. The Fund also paid a
commitment fee equal to its pro rata share of the amount of the credit facility
at a rate of 0.06% per annum.
7. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$246,866,293 at Oct. 31, 2008. that if not offset by capital gains will expire
as follows:
<Table>
<Caption>
2009 2010 2011 2016
$137,301,860 $59,231,998 $38,262,972 $12,069,463
</Table>
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.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 45
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
8. RISKS RELATING TO CERTAIN INVESTMENTS
FOREIGN/EMERGING MARKETS RISK
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities. Investing in
emerging markets may accentuate these risks.
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
- --------------------------------------------------------------------------------
46 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
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.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003,
Seligman conducted an extensive internal review concerning mutual fund trading
practices. Seligman's review, which covered the period 2001-2003, noted one
arrangement that permitted frequent trading in certain open-end registered
investment companies managed by Seligman (the Seligman Funds); this arrangement
was in the process of being closed down by Seligman before September 2003.
Seligman identified three other arrangements that permitted frequent trading,
all of which had been terminated by September 2002. In January 2004, Seligman,
on a voluntary basis, publicly disclosed these four arrangements to its clients
and to shareholders of the Seligman Funds. Seligman also provided information
concerning mutual fund trading practices to the SEC and the Office of the
Attorney General of the State of New York (NYAG). In September 2005, the New
York staff of the SEC indicated that it was considering recommending to the
Commissioners of the SEC the instituting of a formal action against Seligman and
the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to
frequent trading in the Seligman Funds. Seligman responded to the staff in
October 2005 that it believed that any action would be both inappropriate and
unnecessary, especially in light of the fact that Seligman had previously
resolved the underlying issue with the Independent Directors of the Seligman
Funds and made recompense to the affected Seligman Funds.
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer
agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman
Parties), alleging, in substance, that, in addition to the four arrangements
noted above, the Seligman Parties permitted other persons to engage in frequent
trading and, as a result, the prospectus disclosure used by the registered
investment companies managed by Seligman is and has been misleading. The NYAG
included other related claims and also claimed that the fees charged by Seligman
to the Seligman Funds were excessive. The NYAG is seeking damages of at least
$80 million and restitution, disgorgement, penalties and costs and injunctive
relief. The Seligman Parties answered the complaint in December 2006 and believe
that the claims are without merit. Any resolution of these matters may include
the relief noted above or other sanctions or changes in procedures. Any damages
would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains
injunctive relief, Seligman and its affiliates could, in the absence of the SEC
in its discretion granting exemptive relief, be enjoined
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 47
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
from providing advisory and underwriting services to the Seligman Funds and
other registered investment companies. Seligman does not believe that the
foregoing legal action or other possible actions will have a material adverse
impact on Seligman or its clients, including the Seligman Funds and other
investment companies managed by it; however, there can be no assurance of this
or that these matters and any related publicity will not affect demand for
shares of the Seligman Funds and such other investment companies or have other
adverse consequences.
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.
10. SUBSEQUENT EVENT
Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase
Bank, N.A. and, in addition, JPMorgan Chase Bank, N.A. will serve as the
securities lending agent for the Fund.
- --------------------------------------------------------------------------------
48 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Threadneedle International Opportunity Fund
(the Fund), formerly the RiverSource International Opportunity Fund, (one of the
portfolios constituting the RiverSource International Series, Inc.) as of
October 31, 2008, and the related statement of operations for the year then
ended, and the statements of changes in net assets and the financial highlights
for each of the two years in the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of the Fund
for the periods presented through October 31, 2006, were audited by other
auditors whose report dated December 20, 2006, expressed an unqualified opinion
on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2008, by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) ------------
In our opinion, the financial statements and financial highlights audited by us
as referred to above present fairly, in all material respects, the financial
position of Threadneedle International Opportunity Fund of the RiverSource
International Series, Inc. at October 31, 2008, the results of its operations
for the year then ended, and changes in its net assets and the financial
highlights for each of the two years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
December 19, 2008
- --------------------------------------------------------------------------------
50 THREADNEEDLE INTERNATIONAL 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 Oct. 31, 2008
<Table>
<Caption>
INCOME DISTRIBUTIONS -- the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 0.00%
U.S. Government Obligations 0.00%
</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.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 51
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board. The following is a list of the Fund's Board members.
The RiverSource complex of funds that each Board member oversees consists of 162
funds, which includes 104 RiverSource funds and 58 Seligman 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 since Chief Justice, Minnesota Supreme Court, 1998-2006; None
901 S. Marquette Ave. 2006 Attorney
Minneapolis, MN 55402
Age 54
- ------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member since Chair, RiverSource Funds, 1999-2006; former Governor of None
901 S. Marquette Ave. 1999 Minnesota
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None
901 S. Marquette Ave. 2007 Leadership (consulting company)
Minneapolis, MN 55402
Age 54
- ------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None
901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of
Minneapolis, MN 55402 Business, Bentley College
Age 58
- ------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member since Attorney and Consultant None
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive
901 S. Marquette Ave. 2005 Insurance
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Chair of the Board President Emeritus and Professor of Economics, Carleton Valmont Industries,
901 S. Marquette Ave. since 2007, College Inc. (manufactures
Minneapolis, MN 55402 Board member since irrigation systems)
Age 69 2002
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
52 THREADNEEDLE INTERNATIONAL 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
- ------------------------------------------------------------------------------------------------------------------------------
John F. Maher Board member since Retired President and Chief Executive Officer and None
901 S. Marquette Ave. 2008 former Director, Great Western Financial Corporation
Minneapolis, MN 55402 (bank holding company) and its principal subsidiary,
Age 64 Great Western Bank (federal savings bank)
- ------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None
901 S. Marquette Ave. 2004 real estate and asset management company)
Minneapolis, MN 55402
Age 56
- ------------------------------------------------------------------------------------------------------------------------------
Leroy C. Richie Board member since Counsel, Lewis & Munday, P.C.; Director, Vibration Lead Outside
901 S. Marquette Ave. 2008 Control Technologies, LLC (auto vibration technology); Director, Digital
Minneapolis, MN 55402 Director and Chairman, Highland Park Michigan Economic Ally, Inc. (digital
Age 66 Development Corp; and Chairman, Detroit Public Schools imaging); and
Foundation. Formerly, Chairman and Chief Executive Infinity, Inc. (oil
Officer, Q Standards Worldwide, Inc. (library of and gas exploration
technical standards); Director, Kerr-McGee Corporation and production);
(diversified energy and chemical company); Trustee, New Director, OGE Energy
York University Law Center Foundation; Vice Chairman, Corp. (energy and
Detroit Medical Center and Detroit Economic Growth energy services
Corp. provider offering
physical delivery
and related services
for both electricity
and natural gas)
- ------------------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera
901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceutical, Inc.
Minneapolis, MN 55402 Biotech (biotechnology);
Age 64 Healthways, Inc.
(health management
programs)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 53
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
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 since President -- U.S. Asset Management and Chief Investment None
53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. and President,
Financial Center Vice President since Chairman of the Board and Chief Investment Officer,
Minneapolis, MN 55474 2002 RiverSource Investments, LLC since 2005; Director,
Age 48 President and Chief Executive Officer, Ameriprise
Certificate Company and 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.
- --------------------------------------------------------------------------------
54 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
Patrick T. Bannigan President since 2006 Director and Senior Vice President -- Asset Management,
172 Ameriprise Financial Products and Marketing, RiverSource Investments, LLC
Center since 2006; Director and Vice President -- Asset
Minneapolis, MN 55474 Management, Products and Marketing, RiverSource
Age 43 Distributors, Inc. since 2006; Managing Director and
Global Head of Product, Morgan Stanley Investment
Management, 2004-2006; President, Touchstone
Investments, 2002-2004
- --------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income,
172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments,
Center LLC since 2006; Vice President -- Investments,
Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice
Age 44 President -- Fixed Income, Ameriprise Financial, Inc.,
2002-2006 and RiverSource Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President since Vice President -- Asset Management and Trust Company
5228 Ameriprise Financial 2006 Services, RiverSource Investments, LLC since 2006; Vice
Center Minneapolis, MN President -- Operations and Compliance, RiverSource
55474 Investments, LLC, 2004-2006; Director of Product
Age 43 Development -- Mutual Funds, Ameriprise Financial,
Inc., 2001-2004
- --------------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise
105 Ameriprise Financial Financial, Inc. since 2002; Chief Financial Officer,
Center RiverSource Distributors, Inc. since 2006
Minneapolis, MN 55474
Age 53
- --------------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management,
5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel,
Center Secretary since 2006 RiverSource Distributors, Inc. and Chief Legal Officer
Minneapolis, MN 55474 and Assistant Secretary, RiverSource Investments, LLC
Age 49 since 2006; Vice President, General 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 Officer,
172 Ameriprise Financial Officer since 2006 RiverSource Investments, LLC since 2006;
Center Director -- Mutual Funds, Voyageur Asset Management,
Minneapolis, MN 55474 2003-2006; Director of Finance, Voyageur Asset
Age 48 Management, 2000-2003
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 55
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
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 Officer,
2934 Ameriprise Financial Prevention Officer Ameriprise Financial, Inc. since 2004; Manager Anti-
Center since 2004 Money Laundering, Ameriprise Financial, Inc., 2003-
Minneapolis, MN 55474 2004; Compliance Director and Bank Secrecy Act Officer,
Age 44 American Express Centurion Bank, 2000-2003
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
56 THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT
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.
- --------------------------------------------------------------------------------
THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND -- 2008 ANNUAL REPORT 57
THREADNEEDLE INTERNATIONAL 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.
Threadneedle(R) mutual funds are distributed by RiverSource
Distributors, Inc., Member FINRA, managed by RiverSource
Investments, LLC, and subadvised by Threadneedle
International Limited. These companies are part of
Ameriprise Financial, Inc.
(THREADNEEDLE LOGO) (C) 2008 RiverSource Distributors, Inc. S-6140 AG (12/08)
</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, John F. Maher 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 Oct. 31, to Ernst & Young LLP for
professional services rendered for the audit of the annual financial
statements for RiverSource International Series, Inc. were as follows:
2008 - $87,915 2007 - $82,950
(b) Audit - Related Fees. The fees for the year ended Oct. 31, to Ernst & Young
LLP for additional professional services rendered in connection with the
registrant's security count pursuant to Rule 17f-2 and the semiannual
financial statement review for RiverSource International Series, Inc. were
as follows:
2008 - $2,625 2007 - $2,385
(c) Tax Fees. The fees for the year ended Oct. 31, to Ernst & Young LLP for tax
compliance related services for RiverSource International Series, Inc. were
as follows:
2008 - $10,494 2007 - $ 9,900
(d) All Other Fees. The fees for the year ended Oct. 31, to Ernst & Young LLP
for additional professional services rendered for RiverSource International
Series, Inc. were as follows:
2008 - $0 2007 - $0
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by Ernst & Young
LLP for the registrant and to the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant must be
pre-approved by the audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above during
2008 and 2007 were pre-approved by the audit committee.
(f) Not applicable.
(g) Non-Audit Fees. The fees for the year ended Oct. 31, to Ernst & Young LLP
by the registrant for non-audit fees and by the registrant's investment
adviser, and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant were as
follows:
2008 - $619,819 2007 - $595,865
(h) 100% of the services performed in item (g) above during 2008 and 2007 were
pre-approved by the Ameriprise Financial Audit Committee and/or the
RiverSource Mutual Funds Audit Committee.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not
applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form
N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance
that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
RiverSource International Series, Inc.
(Registrant)
By /s/ Patrick T. Bannigan
-----------------------------------------
Patrick T. Bannigan
President and Principal Executive Officer
Date December 31, 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 December 31, 2008
By /s/ Jeffrey P. Fox
-----------------------------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date December 31, 2008