UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-5522
RIVERSOURCE SECTOR SERIES, INC.
(Exact name of registrant as specified in charter)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 671-1947
Date of fiscal year end: 6/30
Date of reporting period: 12/31
Semiannual Report
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
DIVIDEND OPPORTUNITY FUND
SEMIANNUAL REPORT FOR
THE PERIOD ENDED
DECEMBER 31, 2008
RIVERSOURCE DIVIDEND OPPORTUNITY FUND SEEKS TO
PROVIDE SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT
INCOME. SECONDARY OBJECTIVE IS GROWTH OF INCOME AND
CAPITAL.
(SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 2
Manager Commentary................. 5
Fund Expenses Example.............. 11
Portfolio of Investments........... 14
Statement of Assets and
Liabilities...................... 21
Statement of Operations............ 22
Statements of Changes in Net
Assets........................... 24
Financial Highlights............... 26
Notes to Financial Statements...... 35
Proxy Voting....................... 49
</Table>
(DALBAR LOGO)
The RiverSource mutual fund shareholder reports have
been awarded the Communications Seal from Dalbar Inc.,
an independent financial services research firm. The
Seal recognizes communications demonstrating a level
of excellence in the industry.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
(UNAUDITED)
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Dividend Opportunity Fund (the Fund) Class A shares declined
25.13% (excluding sales charge) for the six months ended Dec. 31, 2008.
> The Fund outperformed its benchmark, the Russell 1000(R) Value Index, which
decreased 26.93% during the same six-month period.
> The Fund also outperformed its peer group, as represented by the Lipper Equity
Income Funds Index, which fell 26.40% during the same period.
ANNUALIZED TOTAL RETURNS (for period ended Dec. 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
6 months* 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------
RiverSource Dividend
Opportunity Fund Class
A (excluding sales
charge) -25.13% -35.92% -5.94% +0.33% -0.92%
- ------------------------------------------------------------------------
Russell 1000 Value Index
(unmanaged)(1) -26.93% -36.85% -8.32% -0.79% +1.36%
- ------------------------------------------------------------------------
Lipper Equity Income
Funds Index(2) -26.40% -35.40% -7.65% -1.19% +0.50%
- ------------------------------------------------------------------------
</Table>
* 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.
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.
(1) The Russell 1000 Value Index, an unmanaged index, measures the performance
of those stocks in the Russell 1000 Index with lower price-to-book ratios
and lower forecasted growth values. The index reflects reinvestment of all
distributions and changes in market prices.
(2) The Lipper Equity Income Funds Index includes the 30 largest equity income
funds tracked by Lipper Inc. The index's returns include net reinvested
dividends. The Fund's performance is currently measured against this index
for purposes of determining the performance incentive adjustment.
- --------------------------------------------------------------------------------
2 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Total fund Net fund
expenses expenses(a)
- -----------------------------------------
Class A 1.11% 1.11%
- -----------------------------------------
Class B 1.87% 1.87%
- -----------------------------------------
Class C 1.87% 1.87%
- -----------------------------------------
Class I 0.72% 0.72%
- -----------------------------------------
Class R2(b) 1.52% 1.52%
- -----------------------------------------
Class R3(b) 1.27% 1.27%
- -----------------------------------------
Class R4 1.02% 1.01%
- -----------------------------------------
Class R5(b) 0.77% 0.77%
- -----------------------------------------
Class W 1.16% 1.16%
- -----------------------------------------
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until June 30, 2009, unless
sooner terminated at the discretion of the Fund's Board. Any amounts waived
will not be reimbursed by the Fund. Under this agreement, net fund expenses
(excluding fees and expenses of acquired funds), before giving effect to any
performance incentive adjustment (that increased the management fee by 0.05%
for the year ended June 30, 2008), will not exceed 1.06 for Class A, 1.82%
for Class B, 1.82% for Class C, 0.70% for Class I, 1.50% for Class R2, 1.25%
for Class R3, 0.96% for Class R4, 0.75% for Class R5 and 1.15% for Class W.
(b) Inception date for Class R2, Class R3 and Class R5 was Aug. 1, 2008.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT DEC. 31, 2008
SINCE
Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION**
Class A (inception
8/1/88) -25.13% -35.92% -5.94% +0.33% -0.92% N/A
- ------------------------------------------------------------------------------------
Class B (inception
3/20/95) -25.46% -36.47% -6.64% -0.43% -1.68% N/A
- ------------------------------------------------------------------------------------
Class C (inception
6/26/00) -25.38% -36.42% -6.65% -0.42% N/A -2.93%
- ------------------------------------------------------------------------------------
Class I (inception
3/4/04) -24.97% -35.69% -5.56% N/A N/A +0.31%
- ------------------------------------------------------------------------------------
Class R2 (inception
8/01/08) N/A N/A N/A N/A N/A -24.56%*
- ------------------------------------------------------------------------------------
Class R3 (inception
8/01/08) N/A N/A N/A N/A N/A -24.48%*
- ------------------------------------------------------------------------------------
Class R4 (inception
3/20/95) -25.05% -35.72% -5.64% +0.61% -0.71% N/A
- ------------------------------------------------------------------------------------
Class R5 (inception
8/01/08) N/A N/A N/A N/A N/A -24.39%*
- ------------------------------------------------------------------------------------
Class W (inception
12/1/06) -25.13% -35.99% N/A N/A N/A -16.20%
- ------------------------------------------------------------------------------------
With sales charge
Class A (inception
8/1/88) -29.43% -39.60% -7.80% -0.86% -1.43% N/A
- ------------------------------------------------------------------------------------
Class B (inception
3/20/95) -29.12% -39.55% -7.81% -0.78% -1.68% N/A
- ------------------------------------------------------------------------------------
Class C (inception
6/26/00) -26.11% -37.04% -6.65% -0.42% N/A -2.93%
- ------------------------------------------------------------------------------------
</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 are available to
institutional investors only. Class W shares are offered through qualifying
discretionary accounts.
*Not annualized.
**For classes with less than 10 years performance.
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.
- --------------------------------------------------------------------------------
4 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
(UNAUDITED)
Dear Shareholders:
RiverSource Dividend Opportunity Fund (the Fund) Class A shares declined 25.13%
(excluding sales charge) for the six months ended Dec. 31, 2008. The Fund
outperformed the Russell 1000(R) Value Index (Russell Index), which decreased
26.93%. The Fund also outperformed its peer group, as represented by the Lipper
Equity Income Funds Index, which fell 26.40% during the same period.
SIGNIFICANT PERFORMANCE FACTORS
The U.S. equity markets were characterized by negativity through most of the six
months ended Dec. 31, 2008. The period from September through November, in
particular, was one of the most challenging ever for investors. Volatility
soared, as the equity markets reacted to a litany of bad economic news. Investor
concerns were fostered by rising unemployment and a still-fragile housing market
as well as by continued financial disruptions. Underlying this uncertainty were
signs that U.S. economic growth was weakening and moving into a recession, as
evidenced by waning consumer demand and a dimming export sector, which, until
recently, had been a rare bright spot in the U.S. economic
SECTOR DIVERSIFICATION(1) (at Dec. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Consumer Discretionary 4.7%
- ------------------------------------------------
Consumer Staples 8.4%
- ------------------------------------------------
Energy 15.5%
- ------------------------------------------------
Financials 14.3%
- ------------------------------------------------
Health Care 11.1%
- ------------------------------------------------
Industrials 5.9%
- ------------------------------------------------
Information Technology 3.6%
- ------------------------------------------------
Materials 8.0%
- ------------------------------------------------
Telecommunication Services 15.3%
- ------------------------------------------------
Utilities 10.0%
- ------------------------------------------------
Other(2) 3.2%
- ------------------------------------------------
</Table>
(1) Sectors can be comprised of several industries. Please refer to the section
entitled "Portfolio of Investments" for a complete listing. No single
industry exceeds 25% of portfolio assets.
(2) Cash & Cash Equivalents.
The sectors identified above are based on the Global Industry Classification
Standard (GICS), which was developed by and is the exclusive property of Morgan
Stanley Capital International Inc. and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 5
MANAGER COMMENTARY (continued) -------------------------------------------------
picture. Global financial institutions cut back lending as other major financial
institutions either went bankrupt, were forced to merge or were taken over by
the government. Together, these factors heightened investor risk aversion and
fear. As a result, investors sold off all types of equity assets in a flight to
the relative safety of U.S. Treasuries. All sectors within the Russell Index
declined, led by energy (more specifically the energy sector's oil services
companies), which fell along with the dramatic decrease in crude oil prices.
Despite economic weakness and market turmoil, the Fund continued to increase its
dividend payout at a rate greater than inflation during the semiannual period.
Also, the Fund maintained a net dividend yield at a level in excess of 150% of
the broader market yield (as represented by the S&P 500 Index) during the
semiannual period. The net dividend yield is the dividend yield after expenses.
Having significant exposure to the utilities sector contributed the most to the
Fund's performance during the period. The utilities sector outperformed the
Russell Index and provided an attractive dividend yield. Within utilities,
positions in telecommunications companies QWEST COMMUNICATIONS INTL. and VERIZON
COMMUNICATIONS particularly
TOP TEN HOLDINGS (at Dec. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Chevron 4.5%
- ------------------------------------------------
AT&T 3.9%
- ------------------------------------------------
BP ADR 3.6%
- ------------------------------------------------
Verizon Communications 3.5%
- ------------------------------------------------
Pfizer 3.4%
- ------------------------------------------------
Lorillard 3.2%
- ------------------------------------------------
Bristol-Myers Squibb 3.1%
- ------------------------------------------------
Bank of America 2.3%
- ------------------------------------------------
US Bancorp 2.2%
- ------------------------------------------------
JPMorgan Chase & Co 2.1%
- ------------------------------------------------
</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.
Current and future portfolio holdings are subject to risk.
- --------------------------------------------------------------------------------
6 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
helped. Similarly, having only a modest allocation to the comparatively weaker
performing capital goods industry group boosted the Fund's results. Stock
selection within capital goods also helped, as the Fund maintained a sizable
position in CATERPILLAR, which was a standout performer, and only a small
position in GENERAL ELECTRIC, which declined substantially. Stock selection was
also effective in the health care sector, where pharmaceuticals companies
BRISTOL-MYERS SQUIBB and PFIZER performed especially well. Maintaining only a
small exposure to the weakly-performing information technology sector helped as
did strong stock selection in the sector. Positions in a basket of U.S. airline
companies further buoyed the Fund's results during the period.
Detracting from performance most was having a sizable allocation to materials,
the worst performing sector in the Russell Index during the period. A position
in diversified metals producer RIO TINTO particularly hurt, as its share price
declined on decreased commodity prices. Having only a modest exposure to
integrated oils also hurt, as this industry slightly outpaced the Russell Index
during the period. More notably, not having a material position in strongly-
performing EXXON MOBIL detracted from results as did having more sizable
positions in weaker competitors CHEVRON and BP.
CHANGES TO THE FUND'S PORTFOLIO
We reduced the Fund's exposure to the consumer staples sector, particularly
tobacco companies, including LORILLARD, REYNOLDS, AMERICAN TOBACCO and PHILIP
MORRIS INTL. These tobacco companies had performed well for an extended period
of time, so we took profits on concerns that federal regulation of the tobacco
industry might become increasingly restrictive with the incoming administration.
We also reduced the Fund's positions in COCA-COLA and KRAFT FOODS. We reduced
the Fund's allocation to the materials sector, primarily by trimming its
position in COMPASS MINERALS INTL. In the consumer discretionary sector, we
eliminated the Fund's holding in FORD MOTOR COMPANY.
We redeployed the proceeds from these sales primarily in the health care,
financials, utilities and information technology sectors. In health care, we
increased the Fund's position in BRISTOL-MYERS SQUIBB. In financials, we focused
on bank-related names, increasing the Fund's holdings in BANK OF AMERICA,
COMERICA and JPMORGAN CHASE. In utilities, we established
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
a position in PEPCO HOLDINGS and added to positions in QWEST COMMUNICATIONS
INTL. and VERIZON COMMUNICATIONS. In information technology, we increased the
Fund's holdings in MICROCHIP TECHNOLOGY and NOKIA. Other than these, we made no
meaningful changes to the Fund's portfolio during the period, maintaining a low
14% turnover rate.
OUR FUTURE STRATEGY
We expect economic activity, as measured by gross domestic product (GDP), to
continue to contract through the first half of 2009. However, we believe there
is a potential for a rally given attractive valuations, a large federal
government stimulus package, and potential stabilization in the credit markets.
Serving as a potential catalyst for this rally may be equity market volatility
levels; while still elevated, they are widely anticipated to be lower than those
of 2008. Another catalyst may be the great attention we expect to see focused on
the new U.S. administration's economic policies, which appear to be biased
toward aggressive intervention in and stimulus for the financial markets.
Further, interest rates are low and may stay that way for a while, and the major
drop in oil prices has helped put some cash into the pockets of consumers. It is
important to note that historically, equities generally rally one to two
quarters before an economic recovery takes hold.
At the end of 2008, several factors led us to believe that equity investments
were particularly attractive. Risk aversion among equity investors was at a
generational high, with valuation spreads between higher-risk assets and
comparatively risk-free assets reaching levels not seen since the 1970s.
Consistent with this were equity market price/earnings ratios at their lowest
levels in nearly 20 years. These factors, together with quick, unprecedented
government intervention into the equity markets, produced what we believe to be
a compelling opportunity to add cyclicality to the Fund's portfolio as we enter
2009. During the coming months, we expect to de-emphasize defensive sectors in
favor of industrials and other sectors that traditionally benefit from both
rising markets and economic recoveries.
As always, we take larger positions in sectors, industries or individual stocks
when we believe we have identified factors that have the potential to move the
share values higher while other investors have either missed, ignored or
strongly disagree with these factors. We intend to focus on
- --------------------------------------------------------------------------------
8 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
larger-cap stocks and to continue to add stocks offering greater dividend-yield
potential. Of course, we intend to continue carefully monitoring economic data
and shifts in market conditions as we seek stock-specific and industry-level
opportunities to add value for the Fund's shareholders.
We remain optimistic about dividend-paying stocks. At the end of the period, the
average yield of U.S. equities was above the yield of 10-year Treasury bonds for
the first time since 1958. While this points to the attractiveness of equities
from a yield perspective, we believe a goal of maintaining a net dividend yield
that exceeds the S&P 500 Index yield makes the Fund much more attractive than
10-year Treasuries for risk-tolerant investors who are seeking yield. Further,
we intend to continue to seek opportunities for yield from investments in
companies across a wide variety of sectors in an effort to mitigate the risk of
dividend cuts seen recently among several companies within the financials
sector. Indeed, we continue to seek a diversified mix of dividend-paying stocks,
with a focus on large-cap, value-oriented companies.
Despite economic weakness and market turmoil, the Fund continued to increase
its dividend payout at a rate greater than inflation during the semiannual
period.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
<Table>
(PHOTO - WARREN SPITZ) (PHOTO - LATON SPAHR)
Warren Spitz Laton Spahr, CFA(R)
Senior Portfolio Manager Portfolio Manager
(PHOTO - STEVE SCHROLL) (PHOTO - PAUL STOCKING)
Steve Schroll Paul Stocking
Portfolio Manager Portfolio Manager
</Table>
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
10 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
FUND EXPENSES EXAMPLE ----------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, 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 Dec. 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.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 11
FUND EXPENSES EXAMPLE (continued) ----------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JULY 1, 2008(A) DEC. 31, 2008 THE PERIOD(B) EXPENSE RATIO
- --------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $ 748.70 $4.45 1.01%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.11 $5.14 1.01%
- --------------------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $ 745.40 $7.74 1.76%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.33 $8.94 1.76%
- --------------------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $ 746.20 $7.75 1.76%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.33 $8.94 1.76%
- --------------------------------------------------------------------------------------------
Class I
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $ 750.30 $2.82 .64%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.98 $3.26 .64%
- --------------------------------------------------------------------------------------------
Class R2
- --------------------------------------------------------------------------------------------
Actual(d) $1,000 $ 754.40 $5.33 1.45%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.90 $7.37 1.45%
- --------------------------------------------------------------------------------------------
Class R3
- --------------------------------------------------------------------------------------------
Actual(d) $1,000 $ 758.20 $4.42 1.20%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,019.16 $6.11 1.20%
- --------------------------------------------------------------------------------------------
Class R4
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $ 749.50 $4.01 .91%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.62 $4.63 .91%
- --------------------------------------------------------------------------------------------
Class R5
- --------------------------------------------------------------------------------------------
Actual(d) $1,000 $ 756.10 $2.58 .70%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.68 $3.57 .70%
- --------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
12 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JULY 1, 2008(A) DEC. 31, 2008 THE PERIOD(B) EXPENSE RATIO
- --------------------------------------------------------------------------------------------
Class W
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $ 748.70 $4.76 1.08%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,019.76 $5.50 1.08%
- --------------------------------------------------------------------------------------------
</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 July 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 153/365 (to reflect the period
from Aug. 1, 2008 to Dec. 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).
(c) Based on the actual return for the six months ended Dec. 31, 2008: -25.13%
for Class A, -25.46% for Class B, -25.38% for Class C, -24.97% for Class I,
-25.05% and -25.13% for Class W.
(d) Based on the actual return for the period from Aug. 1, 2008 (when shares
became publicly available) to Dec. 31, 2008: -24.56% for Class R2, -24.48%
for Class R3 and -24.39% for Class R5.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 13
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
DEC. 31, 2008 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
COMMON STOCKS (94.8%)
ISSUER SHARES VALUE(a)
AEROSPACE & DEFENSE (0.8%)
Honeywell Intl 282,775 $9,283,503
- -------------------------------------------------------------------------------------
BEVERAGES (1.4%)
Coca-Cola 166,062 7,517,627
Diageo ADR 145,103(c) 8,233,144
---------------
Total 15,750,771
- -------------------------------------------------------------------------------------
CHEMICALS (4.0%)
Air Products & Chemicals 113,948 5,728,166
Dow Chemical 619,174 9,343,336
Eastman Chemical 146,887 4,657,787
EI du Pont de Nemours & Co 791,167 20,016,524
Olin 233,198 4,216,220
---------------
Total 43,962,033
- -------------------------------------------------------------------------------------
COMMERCIAL BANKS (5.4%)
Comerica 303,188 6,018,282
HSBC Holdings 607,473(c) 6,031,666
Natl Australia Bank 597,044(c) 8,953,800
PNC Financial Services Group 68,323 3,347,827
Regions Financial 367,805 2,927,728
US Bancorp 986,297 24,667,287
Wells Fargo & Co 280,171 8,259,441
---------------
Total 60,206,031
- -------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES (1.9%)
Deluxe 341,054 5,102,168
Pitney Bowes 285,797 7,282,107
RR Donnelley & Sons 329,031 4,468,241
Waste Management 131,434 4,355,723
---------------
Total 21,208,239
- -------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (0.3%)
Nokia ADR 207,656(c) 3,239,434
- -------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS (0.3%)
Seagate Technology 669,873(c) 2,967,537
- -------------------------------------------------------------------------------------
CONTAINERS & PACKAGING (0.7%)
Packaging Corp of America 614,369 8,269,407
- -------------------------------------------------------------------------------------
DISTRIBUTORS (0.6%)
Genuine Parts 163,168 6,177,540
- -------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (4.4%)
Bank of America 1,777,919 25,033,099
JPMorgan Chase & Co 742,605 23,414,336
KKR Financial Holdings LLC 311,972 492,916
---------------
Total 48,940,351
- -------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (14.7%)
AT&T 1,493,603 42,567,686
BT Group 3,330,789(c) 6,795,701
Deutsche Telekom ADR 640,068(c) 9,793,040
Embarq 401,506 14,438,156
FairPoint Communications 468,751 1,537,503
Frontier Communications 1,107,095 9,676,010
Qwest Communications Intl 4,235,809 15,418,345
Telefonos de Mexico ADR Series L 424,305(c) 8,884,947
Telmex Internacional ADR 424,305(c) 4,820,105
Telstra 2,515,371(c) 6,868,965
Verizon Communications 1,122,450 38,051,055
Windstream 499,550 4,595,860
---------------
Total 163,447,373
- -------------------------------------------------------------------------------------
ELECTRIC UTILITIES (4.2%)
American Electric Power 185,711 6,180,462
Duke Energy 685,100 10,283,351
Pepco Holdings 327,208 5,811,214
Pinnacle West Capital 208,570 6,701,354
Progress Energy 166,822 6,647,857
Southern 199,992 7,399,704
UIL Holdings 98,748 2,965,402
---------------
Total 45,989,344
- -------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (0.7%)
Hubbell Cl B 240,852 7,871,043
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
14 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(a)
ENERGY EQUIPMENT & SERVICES (1.8%)
Halliburton 392,394 $7,133,723
Schlumberger 120,114 5,084,426
Transocean 154,441(b) 7,297,337
---------------
Total 19,515,486
- -------------------------------------------------------------------------------------
FOOD PRODUCTS (1.8%)
B&G Foods Cl A 520,795 2,812,293
ConAgra Foods 416,517 6,872,531
Kraft Foods Cl A 275,103 7,386,515
Reddy Ice Holdings 674,461 971,224
Sara Lee 207,578 2,032,189
---------------
Total 20,074,752
- -------------------------------------------------------------------------------------
GAS UTILITIES (1.1%)
Nicor 350,456 12,174,841
- -------------------------------------------------------------------------------------
HOUSEHOLD DURABLES (1.3%)
Newell Rubbermaid 216,758 2,119,893
Tupperware Brands 522,935 11,870,625
---------------
Total 13,990,518
- -------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (0.2%)
Tomkins 1,415,646(c) 2,585,768
- -------------------------------------------------------------------------------------
INSURANCE (2.5%)
Allstate 276,548 9,059,712
Lincoln Natl 105,792 1,993,121
Marsh & McLennan Companies 126,410 3,067,971
Montpelier Re Holdings 549,636(c) 9,228,388
Unitrin 85,687 1,365,851
XL Capital Cl A 939,924(c) 3,477,719
---------------
Total 28,192,762
- -------------------------------------------------------------------------------------
MACHINERY (1.8%)
Caterpillar 306,477 13,690,327
Harsco 215,614 5,968,196
---------------
Total 19,658,523
- -------------------------------------------------------------------------------------
MARINE (--%)
Aries Maritime Transport 415,529(c) 145,435
- -------------------------------------------------------------------------------------
MEDIA (2.5%)
CBS Cl B 978,148 8,011,032
Cinemark Holdings 178,191 1,323,959
GateHouse Media 328,856 12,497
Natl CineMedia 686,118 6,957,237
Regal Entertainment Group Cl A 1,064,402 10,867,544
---------------
Total 27,172,269
- -------------------------------------------------------------------------------------
METALS & MINING (1.8%)
Compass Minerals Intl 242,420 14,220,357
Rio Tinto ADR 24,677(c) 2,194,032
Southern Copper 231,650 3,720,299
---------------
Total 20,134,688
- -------------------------------------------------------------------------------------
MULTILINE RETAIL (0.4%)
Macy's 455,724 4,716,743
- -------------------------------------------------------------------------------------
MULTI-UTILITIES (4.7%)
Ameren 92,246 3,068,102
CH Energy Group 75,884 3,899,679
Consolidated Edison 253,080 9,852,405
Dominion Resources 213,719 7,659,689
DTE Energy 174,514 6,224,914
Natl Grid 1,128,249(c) 11,310,401
NiSource 275,657 3,023,957
NSTAR 54,931 2,004,432
Public Service Enterprise Group 158,685 4,628,841
---------------
Total 51,672,420
- -------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS (13.5%)
BP ADR 848,176(c) 39,643,746
Chevron 670,174 49,572,771
Enbridge 671,162(c) 21,792,630
Enbridge Energy Management LLC 1(b) 14
Eni 409,662(c) 9,902,307
General Maritime 120,833 1,304,996
Kinder Morgan Management LLC --(b) 1
Royal Dutch Shell ADR 276,563(c) 14,641,245
Ship Finance Intl 165,376(c) 1,827,405
Spectra Energy 350,261 5,513,108
TransCanada 252,000(c) 6,839,280
---------------
Total 151,037,503
- -------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS (1.4%)
Intl Paper 183,680 2,167,424
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE(a)
PAPER & FOREST PRODUCTS (CONT.)
MeadWestvaco 334,122 $3,738,825
Stora Enso Series R 505,582(c) 4,022,997
Weyerhaeuser 189,210 5,791,718
---------------
Total 15,720,964
- -------------------------------------------------------------------------------------
PHARMACEUTICALS (10.8%)
Biovail 602,120(c) 5,690,034
Bristol-Myers Squibb 1,463,169 34,018,679
Johnson & Johnson 243,610 14,575,186
Merck & Co 719,380 21,869,152
Pfizer 2,117,811 37,506,433
Wyeth 153,676 5,764,387
---------------
Total 119,423,871
- -------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (REITS) (0.3%)
LaSalle Hotel Properties 275,094 3,039,789
- -------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (3.0%)
Intel 541,379 7,936,616
Microchip Technology 705,815 13,784,567
Taiwan Semiconductor Mfg ADR 1,453,714(c) 11,484,341
---------------
Total 33,205,524
- -------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.4%)
Capitol Federal Financial 97,582 4,449,739
- -------------------------------------------------------------------------------------
TOBACCO (5.1%)
Lorillard 619,150 34,889,103
Philip Morris Intl 493,620 21,477,406
---------------
Total 56,366,509
- -------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS (0.4%)
Babcock & Brown Air ADR 705,550(c) 4,776,574
- -------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.5%)
Vodafone Group ADR 252,972(c) 5,170,748
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $1,381,760,227) $1,050,538,032
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
BONDS (0.9%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
BROKERAGE
Goldman Sachs Group Cv
06-11-09 20.70% $7,751,600(d,e,f) $9,474,959
- -------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $7,751,600) $9,474,959
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PREFERRED STOCKS (0.6%)
ISSUER SHARES VALUE(a)
PHARMACEUTICALS (0.3%)
Schering-Plough 6.00% Cv 20,400 $3,550,875
- -------------------------------------------------------------------------------------
PROPERTY & CASUALTY (0.3%)
XL Capital 10.75% Cv 250,000(c) 2,500,000
XL Capital 7.00% Cv 255,800(c) 493,694
---------------
Total 2,993,694
- -------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost: $17,764,662) $6,544,569
- -------------------------------------------------------------------------------------
<Caption>
MONEY MARKET FUND (3.2%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 0.48% 34,958,643(g) $34,958,643
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $34,958,643) $34,958,643
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $1,442,235,132)(h) $1,101,516,203
=====================================================================================
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
INVESTMENTS IN DERIVATIVES
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DEC. 31, 2008
<Table>
<Caption>
CURRENCY TO BE CURRENCY TO BE UNREALIZED UNREALIZED
EXCHANGE DATE DELIVERED RECEIVED APPRECIATION DEPRECIATION
- -------------------------------------------------------------------------------------------
Jan. 2, 2009 197,744 138,917 $-- $(3,774)
U.S. Dollar European Monetary Unit
- -------------------------------------------------------------------------------------------
Jan. 5, 2009 478,970 336,360 -- (9,310)
U.S. Dollar European Monetary Unit
- -------------------------------------------------------------------------------------------
Total $-- $(13,084)
- -------------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. At Dec. 31, 2008, the
value of foreign securities represented 20.2% of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
may be determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At Dec. 31,
2008, the value of these securities amounted to $9,474,959 or 0.9% of net
assets.
(e) This privately issued security is an aggregate mandatory exchangeable note
whose investment results are designed to correspond generally to the
performance of a specific basket of common stocks. Upon maturity, the
security will be exchanged for either cash or at the option of the issuer,
the issuer may deliver shares of the referenced securities.
(f) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Dec. 31, 2008, is as follows:
<Table>
<Caption>
ACQUISITION
SECURITY DATES COST
----------------------------------------------------------------
Goldman Sachs Group*
20.70% Cv 2009 12-04-08 $7,751,600
</Table>
* Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended.
(g) Affiliated Money Market Fund -- See Note 5 to the financial statements. The
rate shown is the seven-day current annualized yield at Dec. 31, 2008.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 17
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(h) At Dec. 31, 2008, the cost of securities for federal income tax purposes
was approximately $1,442,235,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $54,503,000
Unrealized depreciation (395,222,000)
------------------------------------------------------------
Net unrealized depreciation $(340,719,000)
------------------------------------------------------------
</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.
- --------------------------------------------------------------------------------
18 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) seeks to
implement more uniform reporting relating to the fair valuation of securities
for financial statement purposes. Mutual funds are required to implement the
requirements of this standard for fiscal years beginning after Nov. 15, 2007.
While uniformity of presentation is the objective of the standard, industry
implementation has just begun and it is likely that there will be a range of
practices utilized and it will be some period of time before industry practices
become more uniform. For this reason care should be exercised in interpreting
this information and/or using it for comparison with other mutual funds.
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
- Level 1 -- quoted prices in active markets for identical securities
- Level 2 -- other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit risks,
etc.)
- Level 3 -- significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
Observable inputs are those based on market data obtained from sources
independent of the fund, and unobservable inputs reflect the fund's own
assumptions based on the best information available. The input levels are not
necessarily an indication of the risk or liquidity associated with investments
at that level.
The following table is a summary of the inputs used to value the Fund's
investments as of Dec. 31, 2008:
<Table>
<Caption>
FAIR VALUE AT DEC. 31, 2008
-------------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- -----------------------------------------------------------------------------------
Investments in
securities $1,081,213,796 $20,302,407 $-- $1,101,516,203
Other financial
instruments* -- (13,084) -- (13,084)
- -----------------------------------------------------------------------------------
Total $1,081,213,796 $20,289,323 $-- $1,101,503,119
- -----------------------------------------------------------------------------------
</Table>
* Other financial instruments are derivative instruments, such as forwards,
which are valued at the unrealized appreciation/depreciation on the
instrument.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 19
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
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.
- --------------------------------------------------------------------------------
20 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
DEC. 31, 2008 (UNAUDITED)
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $1,407,276,489) $1,066,557,560
Affiliated money market fund (identified cost $34,958,643) 34,958,643
- ----------------------------------------------------------------------------------------
Total investments in securities (identified cost $1,442,235,132) 1,101,516,203
Capital shares receivable 4,419,232
Dividends and accrued interest receivable 4,846,641
Receivable for investment securities sold 285,822
- ----------------------------------------------------------------------------------------
Total assets 1,111,067,898
- ----------------------------------------------------------------------------------------
LIABILITIES
Capital shares payable 2,010,833
Payable for investment securities purchased 663,630
Unrealized depreciation on forward foreign currency contracts 13,084
Accrued investment management services fees 17,605
Accrued distribution fees 380,341
Accrued transfer agency fees 5,956
Accrued administrative services fees 1,685
Accrued plan administration services fees 237
Other accrued expenses 188,370
- ----------------------------------------------------------------------------------------
Total liabilities 3,281,741
- ----------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $1,107,786,157
- ----------------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 1,962,480
Additional paid-in capital 1,887,309,802
Undistributed net investment income 14,017,703
Accumulated net realized gain (loss) (454,732,718)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (340,771,110)
- ----------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $1,107,786,157
- ----------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $834,983,116 147,862,660 $5.65(1)
Class B $ 95,776,119 17,076,295 $5.61
Class C $ 14,286,876 2,552,366 $5.60
Class I $162,160,410 28,654,224 $5.66
Class R2 $ 3,693 653 $5.66
Class R3 $ 3,694 653 $5.66
Class R4 $ 565,341 99,888 $5.66
Class R5 $ 3,694 653 $5.66
Class W $ 3,214 568 $5.66
- -----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $5.99. 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 DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 21
STATEMENT OF OPERATIONS --------------------------------------------------------
SIX MONTHS ENDED DEC. 31, 2008 (UNAUDITED)
<Table>
<Caption>
INVESTMENT INCOME
Income:
Dividends $ 33,483,898
Interest 2,335,284
Income distributions from affiliated money market fund 146,807
Fee income from securities lending 125,039
Less foreign taxes withheld (785,969)
- ---------------------------------------------------------------------------
Total income 35,305,059
- ---------------------------------------------------------------------------
Expenses:
Investment management services fees 3,417,075
Distribution fees
Class A 1,219,030
Class B 582,498
Class C 84,722
Class R2 9
Class R3 4
Class W 5
Transfer agency fees
Class A 963,559
Class B 123,339
Class C 17,261
Class R2 1
Class R3 1
Class R4 181
Class R5 1
Class W 4
Administrative services fees 356,142
Plan administration services fees
Class R2 4
Class R3 4
Class R4 907
Compensation of board members 17,583
Custodian fees 79,660
Printing and postage 135,800
Registration fees 38,076
Professional fees 23,154
Other 23,362
- ---------------------------------------------------------------------------
Total expenses 7,082,382
Expenses waived/reimbursed by the Investment Manager and
its affiliates (462,262)
Earnings and bank fee credits on cash balances (7,027)
- ---------------------------------------------------------------------------
Total net expenses 6,613,093
- ---------------------------------------------------------------------------
Investment income (loss) -- net 28,691,966
- ---------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
22 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions $(110,451,672)
Foreign currency transactions (244,980)
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments (110,696,652)
Net change in unrealized appreciation (depreciation) on
investments
and on translation of assets and liabilities in foreign
currencies (277,555,310)
- ---------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies (388,251,962)
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $(359,559,996)
- ---------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 23
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
DEC. 31, 2008 JUNE 30, 2008
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 28,691,966 $ 62,167,305
Net realized gain (loss) on investments (110,696,652) 56,219,781
Net change in unrealized appreciation (depreciation) on
investments and on translation of assets and liabilities in
foreign currencies (277,555,310) (471,877,412)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (359,559,996) (353,490,326)
- ---------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (21,012,668) (42,059,205)
Class B (2,021,717) (4,705,394)
Class C (301,908) (577,096)
Class I (3,769,793) (8,053,021)
Class R2 (93) N/A
Class R3 (97) N/A
Class R4 (16,878) (37,117)
Class R5 (102) N/A
Class W (82) (149)
- ---------------------------------------------------------------------------------------------------
Total distributions (27,123,338) (55,431,982)
- ---------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
24 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
DEC. 31, 2008 JUNE 30, 2008
(UNAUDITED)
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares $ 152,712,690 $ 333,666,137
Class B shares 10,599,006 30,861,475
Class C shares 2,370,319 6,798,093
Class I shares 38,187,947 55,427,460
Class R2 shares 5,000 N/A
Class R3 shares 5,000 N/A
Class R4 shares 31,967 308,726
Class R5 shares 5,000 N/A
Reinvestment of distributions at net asset value
Class A shares 19,878,941 39,955,948
Class B shares 1,943,897 4,536,786
Class C shares 276,426 525,590
Class I shares 3,769,554 8,052,561
Class R4 shares 16,878 37,117
Payments for redemptions
Class A shares (208,831,066) (353,444,406)
Class B shares (52,143,026) (122,803,455)
Class C shares (4,575,089) (6,247,970)
Class I shares (26,543,661) (56,505,344)
Class R4 shares (142,173) (550,381)
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (62,432,390) (59,381,663)
- ---------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (449,115,724) (468,303,971)
Net assets at beginning of period 1,556,901,881 2,025,205,852
- ---------------------------------------------------------------------------------------------------
Net assets at end of period $1,107,786,157 $1,556,901,881
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income $ 14,017,703 $ 12,449,075
- ---------------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 25
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $7.72 $9.65 $7.83 $7.30 $6.39
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .15(b) .30(b) .26 .25 .22
Net gains (losses) (both realized and
unrealized) (2.07) (1.96) 1.81 .50 .91
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.92) (1.66) 2.07 .75 1.13
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.15) (.27) (.25) (.22) (.22)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.65 $7.72 $9.65 $7.83 $7.30
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $835 $1,167 $1,453 $907 $808
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.09%(e) 1.11% 1.15% 1.16% 1.12%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 1.01%(e) 1.11% 1.15% 1.16% 1.12%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.54%(e) 3.31% 3.15% 3.27% 3.20%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 14% 20% 17% 19% 24%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (25.13%)(i) (17.46%) 26.66% 10.34% 17.79%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
(j) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
26 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $7.67 $9.59 $7.78 $7.25 $6.35
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .13(b) .22(b) .19 .19 .17
Net gains (losses) (both realized and
unrealized) (2.07) (1.94) 1.80 .50 .89
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.94) (1.72) 1.99 .69 1.06
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.20) (.18) (.16) (.16)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.61 $7.67 $9.59 $7.78 $7.25
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $96 $171 $303 $275 $297
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.85%(e) 1.87% 1.91% 1.93% 1.88%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 1.76%(e) 1.87% 1.91% 1.93% 1.88%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.73%(e) 2.48% 2.38% 2.50% 2.41%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 14% 20% 17% 19% 24%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (25.46%)(i) (18.15%) 25.76% 9.55% 16.84%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
(j) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 27
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $7.65 $9.57 $7.77 $7.25 $6.35
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .13(b) .23(b) .19 .18 .17
Net gains (losses) (both realized and
unrealized) (2.06) (1.95) 1.79 .50 .89
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.93) (1.72) 1.98 .68 1.06
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.20) (.18) (.16) (.16)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.60 $7.65 $9.57 $7.77 $7.25
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $14 $21 $26 $15 $12
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.85%(e) 1.87% 1.91% 1.92% 1.89%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 1.76%(e) 1.87% 1.91% 1.92% 1.89%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.76%(e) 2.56% 2.40% 2.50% 2.43%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 14% 20% 17% 19% 24%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (25.38%)(i) (18.15%) 25.74% 9.47% 16.86%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
(j) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
28 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(i) 2008 2007 2006 2005
Net asset value, beginning of period $7.73 $9.67 $7.85 $7.32 $6.41
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17(b) .33(b) .30 .27 .25
Net gains (losses) (both realized and
unrealized) (2.08) (1.97) 1.80 .51 .91
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.91) (1.64) 2.10 .78 1.16
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16) (.30) (.28) (.25) (.25)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.66 $7.73 $9.67 $7.85 $7.32
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $162 $197 $242 $46 $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .64%(e) .72% .76% .78% .70%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) .64%(e) .72% .76% .78% .70%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.94%(e) 3.70% 3.58% 3.52% 3.61%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 14% 20% 17% 19% 24%
- --------------------------------------------------------------------------------------------------------------
Total return (24.97%)(h) (17.19%) 27.07% 10.78% 18.24%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Not annualized.
(i) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 29
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS R2
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(b)
Net asset value, beginning of period $7.67
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .14
Net gains (losses) (both realized and
unrealized) (2.01)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.87)
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.66
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.50%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.27%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.82%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 14%
- --------------------------------------------------------------------------------------------------------------
Total return (24.56%)(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Aug. 1, 2008 (inception date) to Dec. 31, 2008
(Unaudited).
(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 were less than 0.01% of average net
assets for the period ended Dec. 31, 2008.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
30 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS R3
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(b)
Net asset value, beginning of period $7.67
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .15
Net gains (losses) (both realized and
unrealized) (2.01)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.86)
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.15)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.66
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.23%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.01%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 5.08%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 14%
- --------------------------------------------------------------------------------------------------------------
Total return (24.48%)(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Aug. 1, 2008 (inception date) to Dec. 31, 2008
(Unaudited).
(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 were less than 0.01% of average net
assets for the period ended Dec. 31, 2008.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 31
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(i) 2008 2007 2006 2005
Net asset value, beginning of period $7.74 $9.67 $7.85 $7.32 $6.41
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .16(b) .33(b) .27 .26 .23
Net gains (losses) (both realized and
unrealized) (2.08) (1.95) 1.81 .50 .91
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.92) (1.62) 2.08 .76 1.14
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16) (.31) (.26) (.23) (.23)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.66 $7.74 $9.67 $7.85 $7.32
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1 $1 $1 $1 $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .94%(e) 1.02% 1.03% .99% .94%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) .66%(e) .76% 1.02% .99% .94%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.84%(e) 3.62% 3.29% 3.37% 3.37%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 14% 20% 17% 19% 24%
- --------------------------------------------------------------------------------------------------------------
Total return (25.05%)(h) (17.00%) 26.75% 10.56% 17.93%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Not annualized.
(i) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
32 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS R5
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(b)
Net asset value, beginning of period $7.67
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .15
Net gains (losses) (both realized and
unrealized) (2.00)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.85)
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.66
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .75%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .71%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 5.37%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 14%
- --------------------------------------------------------------------------------------------------------------
Total return (24.39%)(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Aug. 1, 2008 (inception date) to Dec. 31, 2008
(Unaudited).
(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 were less than 0.01% of average net
assets for the period ended Dec. 31, 2008.
(i) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 33
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(j) 2008 2007(b)
Net asset value, beginning of period $7.73 $9.67 $8.80
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .15(c) .29(c) .25
Net gains (losses) (both realized and
unrealized) (2.08) (1.97) .81
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.93) (1.68) 1.06
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.26) (.19)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.66 $7.73 $9.67
- --------------------------------------------------------------------------------------------------------------
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%(f) 1.16% 1.19%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.08%(f) 1.16% 1.19%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.49%(f) 3.27% 2.97%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 14% 20% 17%
- --------------------------------------------------------------------------------------------------------------
Total return (25.13%)(i) (17.58%) 12.15%(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (inception date) to June 30, 2007.
(c) Per share 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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(i) Not annualized.
(j) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
34 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
(UNAUDITED AS TO DEC. 31, 2008)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource Dividend Opportunity Fund (the Fund) is a series of RiverSource
Sector Series, Inc. and is registered under the Investment Company Act of 1940
(as amended) as a diversified, open-end management investment company.
RiverSource Sector Series, Inc. has 10 billion authorized shares of capital
stock that can be allocated among the separate series as designated by the Board
of Directors (the Board). The Fund invests primarily in dividend-paying common
and preferred stocks.
The Fund offers Class A, Class B, Class C, Class I, Class 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 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 Dec. 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,
Class R5 and Class W 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 DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 35
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
Effective July 1, 2008, the Fund adopted 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. There was no impact to the
Fund's net assets or results of operations upon adoption. The fair valuation
measurements disclosure can be found following the Notes to Portfolio of
Investments.
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
- --------------------------------------------------------------------------------
36 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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.
ILLIQUID SECURITIES
At Dec. 31, 2008, investments in securities included issues that are illiquid
which the Fund currently limits to 15% of net assets, at market value, at the
time of purchase. The aggregate value of such securities at Dec. 31, 2008 was
$9,474,959 representing 0.86% of net assets. Certain illiquid securities may be
valued by management at fair value according to procedures approved, in good
faith, by the Board. According to Board guidelines, certain unregistered
securities are determined to be liquid and are not included within the 15%
limitation specified above. Assets are liquid if they can be sold or disposed of
in the ordinary course of business within seven days at approximately the value
at which the asset is valued by the Fund.
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
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 37
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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 Dec. 31, 2008, and for the six months
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 the 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 Dec. 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.
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
- --------------------------------------------------------------------------------
38 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures contracts,
investments in partnerships and losses deferred due to wash sales. The character
of distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Fund.
RECENT ACCOUNTING PRONOUNCEMENTS
The Fund has adopted FASB Staff Position No. 133-1 and FIN No. 45-4 (FSP FAS
133-1 and FIN 45-4), "Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No.
45". The amendments to FSP FAS 133-1 and FIN 45-4 require
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 39
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
enhanced disclosures about a fund's derivative and guarantees. 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, (c) how
derivative instruments and related hedged items affect a fund's financial
position, financial performance, and cash flows and (d) the current status of
the payment/ performance risk of the credit derivative. The amendments to FSP
FAS 133-1 and FIN 45-4 also require additional disclosures about the current
status of the payment/performance risk of a guarantee. At Dec. 31, 2008, the
Fund did not own nor was it a party to any credit derivative contracts within
the scope of these amendments.
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. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after Nov. 15, 2008. As of Dec. 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.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared and paid each calendar quarter,
when available, are reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed along
with the last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.61%
to 0.375% annually as the Fund's assets increase. The fee may be adjusted upward
or downward by a performance incentive adjustment determined monthly by
measuring the percentage difference over a rolling 12-month period between the
- --------------------------------------------------------------------------------
40 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
annualized performance of one Class A share of the Fund and the annualized
performance of the Lipper Equity Income Funds Index. In certain circumstances,
the Board may approve a change in the index. The maximum adjustment is 0.12% per
year. If the performance difference is less than 0.50%, the adjustment will be
zero. The adjustment decreased the management fee by $338,479 for the six months
ended Dec. 31, 2008. The management fee for the six months ended Dec. 31, 2008
was 0.54% of the Fund's average daily net assets, including the adjustment under
the terms of the performance incentive arrangement.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.06% to 0.03% annually as the
Fund's assets increase. The fee for the six months ended Dec. 31, 2008 was 0.06%
of the Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the six months ended Dec.
31, 2008, other expenses paid to this company were $4,106.
COMPENSATION OF BOARD MEMBERS
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.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL 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 agreements with RiverSource Distributors, Inc. and RiverSource Fund
Distributors, Inc. (collectively, the Distributor) for distribution and
shareholder services. Under a Plan and Agreement of Distribution pursuant to
Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's
average daily net assets attributable to Class A, 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 $3,575,000 and $130,000
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
$300,839 for Class A, $48,699 for Class B and $2,844 for Class C for the six
months ended Dec. 31, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the six months ended Dec. 31, 2008, the Investment Manager and its
affiliates waived/reimbursed certain fees and expenses such that net expenses
- --------------------------------------------------------------------------------
42 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
(excluding fees and expenses of acquired funds*), including the adjustment under
the terms of a performance incentive arrangement, were as follows:
<Table>
Class A............................................. 1.01%
Class B............................................. 1.76
Class C............................................. 1.76
Class R2............................................ 1.27
Class R3............................................ 1.01
Class R4............................................ 0.66
Class R5............................................ 0.71
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A.......................................... $405,244
Class B.......................................... 48,954
Class C.......................................... 7,022
Class R4......................................... 127
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R2........................................... $ 4
Class R3........................................... 4
Class R4........................................... 907
</Table>
The Investment Manager and its affiliates have contractually agreed to waive
certain fees and expenses until June 30, 2009, unless sooner terminated at the
discretion of the Board, such that net expenses (excluding fees and expenses of
acquired funds*), before giving effect to any performance incentive adjustment,
will not exceed the following percentage of the Fund's average daily net assets:
<Table>
Class A............................................. 1.06%
Class B............................................. 1.82
Class C............................................. 1.82
Class I............................................. 0.70
Class R2............................................ 1.50
Class R3............................................ 1.25
Class R4............................................ 0.96
Class R5............................................ 0.75
Class W............................................. 1.15
</Table>
* In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in
which it invests (also referred to as "acquired funds"), including
affiliated and non-affiliated pooled investment vehicles (including mutual
funds and exchange traded funds). Because the acquired funds have varied
expense and fee levels and the Fund may own different proportions of
acquired funds at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 43
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
EARNINGS AND BANK FEE CREDITS
During the six months ended Dec. 31, 2008, the Fund's transfer agency fees were
reduced by $7,027 as a result of bank fee credits from overnight cash balances.
CUSTODIAN FEES
Effective Dec. 15, 2008, the fund pays custodian fees to JPMorgan Chase Bank,
N.A. Prior to Dec. 15, 2008, the Fund paid 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 $182,240,664 and $267,560,887 respectively, for the six
months ended Dec. 31, 2008. Realized gains and losses are determined on an
identified cost basis.
Income from securities lending amounted to $125,039 for the six months ended
Dec. 31, 2008. Expenses paid to the Investment Manager as securities lending
agent were $8,337 for the six months ended Dec. 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. Effective Dec. 15, 2008,
JPMorgan Chase, N.A. will serve as the securities lending agent for the Fund. At
Dec. 31, 2008, the Fund had no securities out on loan.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED DEC. 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 25,215,399 3,109,262 (31,615,163) (3,290,502)
Class B 1,822,690 307,354 (7,374,395) (5,244,351)
Class C 408,622 43,828 (687,698) (235,248)
Class I 6,680,146 585,179 (4,039,512) 3,225,813
Class R2* 653 -- -- 653
Class R3* 653 -- -- 653
Class R4 5,462 2,611 (22,499) (14,426)
Class R5* 653 -- -- 653
- ----------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
44 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED JUNE 30, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 36,055,477 4,660,694 (40,059,510) 656,661
Class B 3,418,567 533,508 (13,264,038) (9,311,963)
Class C 748,301 61,937 (720,206) 90,032
Class I 5,941,045 935,656 (6,461,387) 415,314
Class R4 34,110 4,320 (61,365) (22,935)
- ----------------------------------------------------------------------------------
</Table>
* For the period from Aug. 1, 2008 (inception date) to Dec. 31, 2008.
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 $279,972,720 and $286,683,247, respectively, for the six
months ended Dec. 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 Dec. 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. (the Administrative Agent), 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
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 45
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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 six months ended Dec. 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., 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
$343,927,468 at June 30, 2008, that if not offset by capital gains will expire
in 2011. It is unlikely the Board will authorize a distribution of any net
realized capital gains until the available capital loss carry-over has been
offset or expires.
8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. In response to defendants' motion to dismiss the
complaint, the Court dismissed one of plaintiffs' four claims and granted
plaintiffs limited discovery. Defendants moved for summary judgment in April
2007. Summary judgment was
- --------------------------------------------------------------------------------
46 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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); 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.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 47
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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, each of Seligman, RiverSource Investments and their
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 including those funds
in the RiverSource complex of funds. Neither Seligman nor RiverSource
Investments believes that the foregoing legal action or other possible actions
will have a material adverse impact on Seligman, RiverSource Investments or
their current or former clients, including the Seligman Funds and other
investment companies managed by RiverSource Investments; 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
- --------------------------------------------------------------------------------
48 RIVERSOURCE DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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.
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 DIVIDEND OPPORTUNITY FUND -- 2008 SEMIANNUAL REPORT 49
RIVERSOURCE DIVIDEND OPPORTUNITY FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by the Fund's
current prospectus. RiverSource(R) mutual funds are
distributed by RiverSource Distributors, Inc., and
RiverSource Fund Distributors, Inc., Members FINRA, and
managed by RiverSource Investments, LLC. RiverSource is part
of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C) 2009 RiverSource Investments, LLC. S-6342 Y (2/09)
</Table>
Semiannual Report
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
REAL ESTATE FUND
SEMIANNUAL REPORT FOR
THE PERIOD ENDED
DECEMBER 31, 2008
RIVERSOURCE REAL ESTATE FUND SEEKS TO PROVIDE
SHAREHOLDERS WITH TOTAL RETURN FROM BOTH CURRENT
INCOME AND CAPITAL APPRECIATION.
(SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 3
Manager Commentary................. 6
Fund Expenses Example.............. 13
Portfolio of Investments........... 15
Statement of Assets and
Liabilities...................... 18
Statement of Operations............ 19
Statements of Changes in Net
Assets........................... 20
Financial Highlights............... 22
Notes to Financial Statements...... 28
Proxy Voting....................... 41
</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 REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
YOUR FUND AT A GLANCE ----------------------------------------------------------
(UNAUDITED)
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Real Estate Fund (the Fund) Class A shares declined 36.82%
(excluding sales charge) for the six months ended Dec. 31, 2008.
> The Fund outperformed its benchmark, the Dow Jones Wilshire Real Estate
Securities Index (Float-Weighted), which fell 37.71% during the same time
period.
> The Lipper Real Estate Funds Index, representing the Fund's peer group,
decreased 37.58% during the same time frame.
ANNUALIZED TOTAL RETURNS (for period ended Dec. 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Since
inception
6 months* 1 year 3 years 3/14/04
- ---------------------------------------------------------------------
RiverSource Real Estate Fund
Class A (excluding sales
charge) -36.82% -39.39% -11.90% -0.42%
- ---------------------------------------------------------------------
Dow Jones Wilshire Real
Estate Securities Index
(Float-Weighted)
(unmanaged)(1) -37.71% -39.83% -12.40% -1.12%
- ---------------------------------------------------------------------
Lipper Real Estate Funds
Index(2) -37.58% -39.17% -11.56% -1.20%
- ---------------------------------------------------------------------
</Table>
* 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.
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.
(1) The Dow Jones Wilshire Real Estate Securities Index (Float-Weighted), an
unmanaged float-weighted index, measures the performance of publicly traded
real estate securities, including REITs and real estate operating companies.
The index reflects reinvestment of all distributions and changes in market
prices.
(2) The Lipper Real Estate Funds Index includes the 30 largest real estate funds
tracked by Lipper Inc. The index's returns include net reinvested dividends.
The Fund's performance is currently measured against this index for purposes
of determining the performance incentive adjustment.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
STYLE
VALUE BLEND GROWTH
X LARGE
X MEDIUM SIZE
X SMALL
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Total fund Net fund
expenses expenses(a)
- -----------------------------------------
Class A 1.45% 1.37%
- -----------------------------------------
Class B 2.21% 2.14%
- -----------------------------------------
Class C 2.21% 2.13%
- -----------------------------------------
Class I 0.91% 0.91%
- -----------------------------------------
Class R4 1.21% 1.21%
- -----------------------------------------
Class W 1.35% 1.35%
- -----------------------------------------
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until June 30, 2009, unless
sooner terminated at the discretion of the Fund's Board. Any amounts waived
will not be reimbursed by the Fund. Under this agreement, net fund expenses
(excluding fees and expenses of acquired funds), before giving effect to any
performance incentive adjustment (that decreased the fee by 0.09% for the
year ended June 30, 2008), will not exceed 1.46% for Class A, 2.23% for
Class B, 2.22% for Class C, 1.01% for Class I, 1.31% for Class R4 and 1.46%
for Class W.
The RiverSource Real Estate Fund is a narrowly-focused sector fund and it may
exhibit higher volatility than funds with broader investment objectives.
Principal risks associated with the Fund include market risk, issuer risk,
diversification risk and sector/concentration risk. See the Fund's prospectus
for information on these and other risks associated with the Fund.
Investments in small- and mid-capitalization companies involve greater risks and
volatility than investments in larger, more established companies.
- --------------------------------------------------------------------------------
4 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT DEC. 31, 2008
SINCE
Without sales charge 6 MONTHS* 1 YEAR 3 YEARS INCEPTION
Class A (inception 3/4/04) -36.82% -39.39% -11.90% -0.42%
- -----------------------------------------------------------------------
Class B (inception 3/4/04) -37.14% -39.89% -12.58% -1.21%
- -----------------------------------------------------------------------
Class C (inception 3/4/04) -37.16% -39.94% -12.59% -1.21%
- -----------------------------------------------------------------------
Class I (inception 3/4/04) -36.76% -39.20% -11.52% -0.04%
- -----------------------------------------------------------------------
Class R4 (inception 3/4/04) -36.73% -39.10% -11.58% -0.14%
- -----------------------------------------------------------------------
Class W (inception 12/1/06) -36.89% -39.44% N/A -28.44%
- -----------------------------------------------------------------------
With sales charge
Class A (inception 3/4/04) -40.47% -42.85% -13.63% -1.63%
- -----------------------------------------------------------------------
Class B (inception 3/4/04) -40.24% -42.83% -13.52% -1.50%
- -----------------------------------------------------------------------
Class C (inception 3/4/04) -37.78% -40.53% -12.59% -1.21%
- -----------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum sales charge of 5.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase. Sales charges do
not apply to Class I, Class R4 and Class W shares. Class I and Class R4 are
available to institutional investors only. Class W shares are offered through
qualifying discretionary accounts.
*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.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 5
MANAGER COMMENTARY -------------------------------------------------------------
(UNAUDITED)
At Dec. 31, 2008, approximately 56% of the Fund's total outstanding shares were
owned in aggregate by affiliated funds-of-funds managed by RiverSource
Investments, LLC (RiverSource). As a result of asset allocation decisions by
RiverSource, it is possible RiverSource Real Estate Fund may experience
relatively large purchases or redemptions from affiliated funds-of-funds (see
page 37, Class I capital share transactions, for related activity during the
most recent fiscal period). RiverSource seeks to minimize the impact of these
transactions by structuring them over a reasonable period of time. RiverSource
Real Estate Fund may experience increased expenses as it buys and sells
securities to manage transactions for affiliated funds-of-funds. For more
information on the Fund's expenses, see the discussions beginning on pages 13
and 33.
Dear Shareholders,
RiverSource Real Estate Fund (the Fund) Class A shares declined 36.82%
(excluding sales charge) for the six months ended Dec. 31, 2008. The Fund
outperformed its benchmark, the Dow Jones Wilshire Real Estate Securities Index
(Float-Weighted) (Wilshire Index), which fell 37.71% during the same time
period. The Lipper Real Estate Funds Index, representing the Fund's peer group,
decreased 37.58% during the same time frame.
SECTOR DIVERSIFICATION (at Dec. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Apartments 17.7%
- ------------------------------------------------
Diversified Properties 10.1%
- ------------------------------------------------
Health Care 12.3%
- ------------------------------------------------
Hotels 4.1%
- ------------------------------------------------
Industrial 3.9%
- ------------------------------------------------
Manufactured Homes 1.3%
- ------------------------------------------------
Office Property 19.4%
- ------------------------------------------------
Regional Malls 10.2%
- ------------------------------------------------
Shopping Centers 11.8%
- ------------------------------------------------
Storage 7.1%
- ------------------------------------------------
Other(1) 2.1%
- ------------------------------------------------
</Table>
(1) Cash & Cash Equivalents.
- --------------------------------------------------------------------------------
6 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
SIGNIFICANT PERFORMANCE FACTORS
It would be an understatement to say that the semiannual period ended Dec. 31,
2008 was one of unprecedented volatility in the equity market in general and in
the real estate market in particular. The first half of the period actually
started off well for real estate investments, with the Wilshire Index generating
positive returns and significantly outpacing the broader equity market from July
through September. However, from mid-September through mid-November, the credit
markets were suddenly frozen. This led investors to become concerned that most
companies, including real estate investment trusts (REITs) and real estate
companies, would not have access to credit at any price. As a result, real
estate investments declined precipitously. It was in mid-September that the
financial turmoil culminated with the bankruptcy of Lehman Brothers. At that
point, all investments with leverage (debt) were shunned. Because REITs
typically use approximately 50% leverage, the fear was that REITs would go
bankrupt, too. Those REITs with the highest leverage were punished the most
severely; those with lower leverage, less so.
The volatility in REITs and other real estate companies came despite a rather
steady decline in the 10-year Treasury yield, which fell from 3.99% on June 30,
2008 to just 2.25% on Dec. 31, 2008. While interest rates
TOP TEN HOLDINGS (at Dec. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Simon Property Group* 7.5%
- ------------------------------------------------
Vornado Realty Trust* 5.8%
- ------------------------------------------------
Public Storage* 5.2%
- ------------------------------------------------
Boston Properties* 4.5%
- ------------------------------------------------
AvalonBay Communities* 4.2%
- ------------------------------------------------
HCP* 4.1%
- ------------------------------------------------
Ventas* 4.0%
- ------------------------------------------------
Federal Realty Investment Trust* 4.0%
- ------------------------------------------------
Regency Centers* 3.6%
- ------------------------------------------------
Equity Residential* 3.6%
- ------------------------------------------------
</Table>
* Real Estate Investment Trust
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
moved lower, the credit crisis caused yield spreads on commercial mortgage-
backed securities (CMBS) to increase to historically high levels. (Spread is the
difference in yields between CMBS and Treasuries.) A major source of debt
financing for REITs had been CMBS and unsecured debt. The almost complete lack
of debt financing moved the focus from the REITs' income statements to their
balance sheets. While REITs saw some deterioration in operating trends, for the
most part their income remained solid. However, the new focus on balance sheets
raised liquidity concerns for any REIT that had debt maturing within two years,
even if that debt could be easily refinanced under normal circumstances. The
tight credit markets and focus on balance sheets caused REITs in general to make
significant changes to adapt to this new environment. For example, REITs sought
to preserve cash by shutting down new development, limiting capital
expenditures, reducing operating expenses and cutting their dividends in some
cases. Indeed, more than 30 REITs cut their dividends during the semiannual
period. Economic conditions also led to a near standstill in property
transactions, as buyers and sellers had a difficult time agreeing on price with
the cost of capital so uncertain.
It is important to note that while underlying real estate fundamentals softened
in select subsectors, they remained relatively strong in others. Hotels, for
example, struggled due to the inherent nature of their short-term (nightly)
leases, oversupply and declining demand. Retail and industrial properties also
performed poorly, as consumer spending turned down sharply and factory orders
dropped. Offices, on the other hand, held up fairly well, given the multi-year,
long-term leases they enjoy. Health care properties, self-storage properties and
apartments fared even better. Health care properties proved to be a rather
defensive area due to being tied to the economy less than other segments of the
real estate market. Self-storage did well, as homeowners downsized. Apartments
benefited from the declining rate in homeownership and the fact that Fannie Mae
and Freddie Mac continued to provide financing for apartments and senior housing
developments through its affordable housing mandate.
Also, importantly, even with several REITs cutting their dividends during the
period, dividend yields for most REITs continued to grow by virtue of both the
actual dividend amount going up and as a percentage of share prices, which
generally declined.
- --------------------------------------------------------------------------------
8 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
Against this challenging backdrop and the losses experienced by the Fund, it may
be small solace that the Fund outperformed the Wilshire Index for the six months
ended Dec. 31, 2008. It is also a testament to the Fund's emphasis on both risk
management and investment opportunity. It also indicates that even in a broad
sector decline, subsector allocation and individual stock selection decisions
can help.
The Fund's results relative to the Wilshire Index benefited most during the
semiannual period by having comparatively modest exposure to the weakly-
performing community shopping center and regional mall REIT subsectors. Stock
selection within these two REIT subsectors as well as in the manufactured homes
REIT subsector also helped. From an individual stock perspective, a significant
position in FEDERAL REALTY INVESTMENT TRUST, whose shares declined yet
materially outperformed the Wilshire Index, was a strong contributor. Federal
Realty Investment Trust primarily owns, manages, develops and redevelops retail
and mixed-use properties in the Washington, D.C. area. Prudent timing in trades
of GENERAL GROWTH PROPERTIES, which primarily operates, develops and manages
shopping centers, and DUKE REALTY, which is a suburban office and industrial
property REIT, also boosted the Fund's relative results.
Detracting from the Fund's performance most was stock selection in the
industrial and hotel REIT subsectors. The Fund had a sizable position in the
poorly-performing hotel REIT subsector and had only a modest allocation to the
better-performing health care REIT subsector. From an individual stock
perspective, poor timing in trades of industrial REIT PROLOGIS detracted from
the Fund's results. A sizable position in BROOKFIELD PROPERTIES also hurt, as
this office company underperformed during the period. Having only a modest
holding in PUBLIC STORAGE detracted, as this self-storage REIT was one of the
very few REITs whose shares actually generated a positive return during the
period. Similarly, not owning a position in HEALTH CARE REIT, whose investments
include skilled nursing facilities, independent living, continuing care
retirement communities, assisted living facilities, and specialty care
facilities, detracted from the Fund's results. Health Care REIT's shares
declined only modestly during the period, significantly outperforming the
Wilshire Index.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
CHANGES TO THE FUND'S PORTFOLIO
Given extreme weakness in the real estate market, extraordinarily tight credit
conditions and heightened investor fears regarding the potential direction of
the economy, we continued to seek to upgrade the quality of the portfolio
overall. We eliminated holdings with higher leverage and reduced positions where
we felt discomfort based on stock-specific or event-specific concerns. We
increased holdings in what we believe are higher quality companies with strong
balance sheets, low leverage, superior management teams and a sustainable
competitive advantage. We also, of course, made adjustments based on relative
valuation analysis and shifts in market conditions.
As a byproduct of our bottom-up individual stock selection decisions, the Fund's
exposure to the apartment and health care REIT subsectors increased. As
indicated above, several names within these two subsectors benefited from the
ongoing availability of Fannie Mae and Freddie Mac financing. The Fund's
exposure to the hotel subsector decreased.
At the end of the period, the Fund had significant exposure to the apartment and
office subsectors and more modest allocations to the health care, hotel,
industrial and storage subsectors. As of Dec. 31, 2008, the Fund was virtually
equally weighted with the Wilshire Index in the remaining REIT subsectors.
OUR FUTURE STRATEGY
Looking at the glass half full, we believe that the credit markets will
eventually open up and that REITS will be among the prime beneficiaries. Another
reason for optimism is that less commercial real estate is being built
currently, so when the economic recovery does come and demand revives, having
decreased supply should speed up the turnaround for the real estate sector.
Further, for those REITs that are underleveraged, we feel that the recent REIT
market correction has created attractive opportunities to buy properties at
nearly distressed prices. This opportunity to buy properties at compelling
prices is one that we have not seen for many years now. Finally, despite
perceptions otherwise, most REITs have been cautious in terms of their levels of
leverage compared with private real estate companies. Therefore, we believe most
REITs should come out of the current shakeout with fundamentals and balance
sheets intact.
- --------------------------------------------------------------------------------
10 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
That said, real estate continued to face significant headwinds at the end of
December. Access to capital had not improved. Dividend cuts had become
increasingly prevalent with companies seeking to preserve capital. Development
projects were being put on hold or cancelled. Fundamentals were deteriorating,
as rents declined and vacancies increased. Looking forward in the near term,
macroeconomic trends may well also deteriorate further. Unemployment seemed set
to increase, and consumer spending was widely anticipated to moderate further.
All told, we believe REITs and real estate shares will likely remain under
pressure in the months ahead, though the recent correction appears to be setting
the stage for buying opportunities. The timing of these opportunities has yet to
be seen.
As we wait for signs of improvement, we will seek in the coming months to take
advantage of stock-specific buying opportunities created by recent market
weakness. We intend to look for select real estate companies and REITs where we
believe exaggerated valuation declines or a sustainable competitive advantage
puts these companies in a position to take advantage of current market
conditions. Our goal, as always, will be to use in-depth, bottom-up analysis of
fundamentals and market performance to find undervalued companies across the
United States that have solid dividend-paying abilities and attractive long-term
growth potential.
All told, we believe REITs and real estate shares will likely remain under
pressure in the months ahead, though the recent correction appears to be
setting the stage for buying opportunities.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 11
MANAGER COMMENTARY (continued) -------------------------------------------------
Our focus will be on securities of real estate companies with quality assets,
strong balance sheets and, more importantly than ever in our opinion,
experienced management teams.
Julene Melquist
Portfolio Manager
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
12 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
FUND EXPENSES EXAMPLE ----------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, 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 Dec. 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.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 13
FUND EXPENSES EXAMPLE (continued) ----------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JULY 1, 2008 DEC. 31, 2008 THE PERIOD(A) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 631.80 $ 5.84 1.42%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,018.05 $ 7.22 1.42%
- ------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 628.60 $ 8.99 2.19%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,014.17 $11.12 2.19%
- ------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 628.40 $ 8.95 2.18%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,014.22 $11.07 2.18%
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 632.40 $ 3.99 .97%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.32 $ 4.94 .97%
- ------------------------------------------------------------------------------------------
Class R4
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 632.70 $ 5.23 1.27%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,018.80 $ 6.46 1.27%
- ------------------------------------------------------------------------------------------
Class W
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 631.10 $ 5.84 1.42%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,018.05 $ 7.22 1.42%
- ------------------------------------------------------------------------------------------
</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 Dec. 31, 2008: -36.82%
for Class A, -37.14% for Class B, -37.16% for Class C, -36.76% for Class I,
-36.73% for Class R4 and -36.89% for Class W.
- --------------------------------------------------------------------------------
14 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
DEC. 31, 2008 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
COMMON STOCKS (97.2%)
ISSUER SHARES VALUE(a)
HOTELS, RESTAURANTS & LEISURE (0.6%)
Starwood Hotels & Resorts Worldwide 46,611 $834,337
- -------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (REITS) (96.1%)
Acadia Realty Trust 107,852 1,539,048
Alexandria Real Estate Equities 61,006 3,681,102
AMB Property 155,979 3,653,028
Apartment Investment & Management Cl A 62,118 717,463
AvalonBay Communities 91,334 5,533,014
Boston Properties 108,680 5,977,400
Brookfield Properties 388,773 3,005,216
Camden Property Trust 116,917 3,664,179
Corporate Office Properties Trust 67,957 2,086,280
Cousins Properties 59,762 827,704
Digital Realty Trust 97,420 3,200,247
Douglas Emmett 111,153 1,451,658
Duke Realty 106,808 1,170,616
EastGroup Properties 41,537 1,477,886
Equity Lifestyle Properties 44,833 1,719,794
Equity One 26,854 475,316
Equity Residential 158,116 4,715,019
Essex Property Trust 46,815 3,593,051
Extra Space Storage 90,846 937,531
Federal Realty Investment Trust 84,748 5,261,156
General Growth Properties 61,569 76,653
HCP 193,653 5,377,744
Healthcare Realty Trust 95,278 2,237,127
Highwoods Properties 112,257 3,071,352
Home Properties 48,999 1,989,359
Host Hotels & Resorts 461,912 3,496,674
Kilroy Realty 52,705 1,763,509
Kimco Realty 194,939 3,563,485
LaSalle Hotel Properties 94,458 1,043,761
Liberty Property Trust 133,752 3,053,558
Macerich 122,702 2,228,268
Mack-Cali Realty 51,761 1,268,145
Mid-America Apartment Communities 83,403 3,099,255
Public Storage 86,308 6,861,486
Regency Centers 101,047 4,718,895
Senior Housing Properties Trust 180,634 3,236,961
Simon Property Group 186,250 9,895,463
Sovran Self Storage 42,384 1,525,824
Taubman Centers 49,511 1,260,550
Ventas 157,960 5,302,717
Vornado Realty Trust 125,334 7,563,907
---------------
Total 127,321,401
- -------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT (0.5%)
Forest City Enterprises Cl A 90,249 604,668
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $191,810,762) $128,760,406
- -------------------------------------------------------------------------------------
<Caption>
MONEY MARKET FUND (2.0%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 0.48% 2,689,597(b) $2,689,597
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $2,689,597) $2,689,597
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $194,500,359)(c) $131,450,003
=====================================================================================
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(A) Securities are valued by using procedures described in Note 1 to the
financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(B) Affiliated Money Market Fund -- See Note 5 to the financial statements. The
rate shown is the seven-day current annualized yield at Dec. 31, 2008.
(C) At Dec. 31, 2008, the cost of securities for federal income tax purposes
was approximately $194,500,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $1,759,000
Unrealized depreciation (64,809,000)
-----------------------------------------------------------
Net unrealized depreciation $(63,050,000)
-----------------------------------------------------------
</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.
- --------------------------------------------------------------------------------
16 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) seeks to
implement more uniform reporting relating to the fair valuation of securities
for financial statement purposes. Mutual funds are required to implement the
requirements of this standard for fiscal years beginning after Nov. 15, 2007.
While uniformity of presentation is the objective of the standard, industry
implementation has just begun and it is likely that there will be a range of
practices utilized and it will be some period of time before industry practices
become more uniform. For this reason care should be exercised in interpreting
this information and/or using it for comparison with other mutual funds.
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
- Level 1 -- quoted prices in active markets for identical securities
- Level 2 -- other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit risks,
etc.)
- Level 3 -- significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
Observable inputs are those based on market data obtained from sources
independent of the fund, and unobservable inputs reflect the fund's own
assumptions based on the best information available. The input levels are not
necessarily an indication of the risk or liquidity associated with investments
at that level.
The following table is a summary of the inputs used to value the Fund's
investments as of Dec. 31, 2008:
<Table>
<Caption>
FAIR VALUE AT DEC. 31, 2008
----------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- -----------------------------------------------------------------------------------
Investments in
securities $131,450,003 $-- $-- $131,450,003
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(I) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(II) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(III)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(IV) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 17
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
DEC. 31, 2008 (UNAUDITED)
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $191,810,762) $128,760,406
Affiliated money market fund (identified cost $2,689,597) 2,689,597
- --------------------------------------------------------------------------------------
Total investments in securities (identified cost $194,500,359) 131,450,003
Cash 87,365
Capital shares receivable 141,587
Dividends receivable 1,234,001
- --------------------------------------------------------------------------------------
Total assets 132,912,956
- --------------------------------------------------------------------------------------
LIABILITIES
Capital shares payable 367,452
Accrued investment management services fees 2,914
Accrued distribution fees 23,457
Accrued transfer agency fees 860
Accrued administrative services fees 208
Accrued plan administration services fees 26
Other accrued expenses 64,618
- --------------------------------------------------------------------------------------
Total liabilities 459,535
- --------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $132,453,421
- --------------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 187,034
Additional paid-in capital 227,401,065
Undistributed net investment income 2,046,794
Accumulated net realized gain (loss) (34,131,116)
Unrealized appreciation (depreciation) on investments (63,050,356)
- --------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $132,453,421
- --------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $49,556,673 7,002,350 $7.08(1)
Class B $ 7,650,571 1,089,698 $7.02
Class C $ 902,900 128,710 $7.01
Class I $74,274,777 10,472,921 $7.09
Class R4 $ 66,563 9,446 $7.05
Class W $ 1,937 275 $7.04
- ----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $7.51. 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.
- --------------------------------------------------------------------------------
18 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
STATEMENT OF OPERATIONS --------------------------------------------------------
SIX MONTHS ENDED DEC. 31, 2008 (UNAUDITED)
<Table>
<Caption>
INVESTMENT INCOME
Income:
Dividends $ 4,999,411
Interest 11
Income distributions from affiliated money market fund 33,525
Less foreign taxes withheld (25,859)
- --------------------------------------------------------------------------
Total income 5,007,088
- --------------------------------------------------------------------------
Expenses:
Investment management services fees 724,482
Distribution fees
Class A 89,380
Class B 54,005
Class C 5,856
Class W 3
Transfer agency fees
Class A 142,024
Class B 22,794
Class C 2,411
Class R4 23
Class W 3
Administrative services fees 54,052
Plan administration services fees -- Class R4 114
Compensation of board members 2,428
Custodian fees 10,450
Printing and postage 30,360
Registration fees 32,165
Professional fees 18,709
Other 3,057
- --------------------------------------------------------------------------
Total expenses 1,192,316
Expenses waived/reimbursed by the Investment Manager and
its affiliates (81,629)
Earnings and bank fee credits on cash balances (129)
- --------------------------------------------------------------------------
Total net expenses 1,110,558
- --------------------------------------------------------------------------
Investment income (loss) -- net 3,896,530
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (34,093,718)
Foreign currency transactions 1,994
- --------------------------------------------------------------------------
Net realized gain (loss) on investments (34,091,724)
Net change in unrealized appreciation (depreciation) on
investments (43,570,427)
- --------------------------------------------------------------------------
Net gain (loss) on investments (77,662,151)
- --------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $(73,765,621)
- --------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 19
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
DEC. 31, 2008 JUNE 30, 2008
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 3,896,530 $ 5,584,208
Net realized gain (loss) on investments (34,091,724) 7,805,861
Net change in unrealized appreciation (depreciation) on
investments (43,570,427) (47,066,092)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (73,765,621) (33,676,023)
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (651,832) (1,484,774)
Class B (58,518) (106,391)
Class C (6,869) (11,115)
Class I (1,128,727) (1,829,893)
Class R4 (1,004) (2,902)
Class W (24) (56)
Net realized gain
Class A (513,651) (14,679,913)
Class B (79,805) (2,506,709)
Class C (9,354) (232,761)
Class I (772,903) (8,717,442)
Class R4 (681) (20,584)
Class W (20) (549)
- ---------------------------------------------------------------------------------------------
Total distributions (3,223,388) (29,593,089)
- ---------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
20 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
DEC. 31, 2008 JUNE 30, 2008
(UNAUDITED)
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares $ 8,556,777 $ 22,580,376
Class B shares 975,242 2,597,783
Class C shares 212,613 579,010
Class I shares 41,134,155 74,017,463
Class R4 shares 1,500 8,000
Reinvestment of distributions at net asset value
Class A shares 1,135,122 15,706,217
Class B shares 134,675 2,534,302
Class C shares 14,975 236,189
Class I shares 1,901,533 10,545,077
Class R4 shares 1,589 21,205
Payments for redemptions
Class A shares (13,612,997) (64,940,426)
Class B shares (2,800,806) (14,671,042)
Class C shares (221,599) (1,181,708)
Class I shares (43,073,714) (42,696,102)
Class R4 shares (6,025) (64,415)
- ---------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions (5,646,960) 5,271,929
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (82,635,969) (57,997,183)
Net assets at beginning of period 215,089,390 273,086,573
- ---------------------------------------------------------------------------------------------
Net assets at end of period $132,453,421 $215,089,390
- ---------------------------------------------------------------------------------------------
Undistributed (excess of distributions over) net investment
income $ 2,046,794 $ (2,762)
- ---------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 21
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $11.42 $15.83 $15.30 $13.44 $10.46
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20(b) .33(b) .21 .30 .32
Net gains (losses) (both realized and
unrealized) (4.38) (2.55) 1.37 2.76 2.94
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (4.18) (2.22) 1.58 3.06 3.26
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.20) (.19) (.14) (.18)
Distributions from realized gains (.07) (1.99) (.86) (1.06) (.10)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.16) (2.19) (1.05) (1.20) (.28)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.08 $11.42 $15.83 $15.30 $13.44
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $50 $86 $147 $107 $62
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.62%(e) 1.45% 1.51% 1.55% 1.57%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 1.42%(e) 1.40% 1.51% 1.53% 1.49%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.05%(e) 2.41% 1.41% 2.37% 3.56%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 52% 38% 47% 63%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (36.82%)(i) (14.32%) 9.97% 24.02% 31.32%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
(j) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
22 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $11.34 $15.72 $15.20 $13.37 $10.43
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .16(b) .22(b) .05 .18 .22
Net gains (losses) (both realized and
unrealized) (4.35) (2.52) 1.39 2.75 2.93
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (4.19) (2.30) 1.44 2.93 3.15
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) (.09) (.06) (.04) (.11)
Distributions from realized gains (.07) (1.99) (.86) (1.06) (.10)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.13) (2.08) (.92) (1.10) (.21)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.02 $11.34 $15.72 $15.20 $13.37
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $8 $14 $29 $27 $18
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 2.39%(e) 2.21% 2.27% 2.32% 2.34%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 2.19%(e) 2.16% 2.27% 2.30% 2.27%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.29%(e) 1.62% .64% 1.59% 2.77%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 52% 38% 47% 63%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (37.14%)(i) (14.92%) 9.13% 23.06% 30.31%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
(j) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 23
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $11.33 $15.72 $15.20 $13.37 $10.43
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .16(b) .23(b) .05 .18 .21
Net gains (losses) (both realized and
unrealized) (4.35) (2.54) 1.40 2.75 2.93
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (4.19) (2.31) 1.45 2.93 3.14
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) (.09) (.07) (.04) (.10)
Distributions from realized gains (.07) (1.99) (.86) (1.06) (.10)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.13) (2.08) (.93) (1.10) (.20)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.01 $11.33 $15.72 $15.20 $13.37
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1 $1 $2 $2 $1
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 2.39%(e) 2.21% 2.26% 2.32% 2.33%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 2.18%(e) 2.16% 2.26% 2.29% 2.27%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.42%(e) 1.66% .66% 1.61% 2.79%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 52% 38% 47% 63%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (37.16%)(i) (14.96%) 9.18% 23.07% 30.29%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
(j) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
24 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(i) 2008 2007 2006 2005
Net asset value, beginning of period $11.45 $15.87 $15.33 $13.46 $10.46
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .22(b) .40(b) .32 .36 .35
Net gains (losses) (both realized and
unrealized) (4.40) (2.56) 1.35 2.76 2.95
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (4.18) (2.16) 1.67 3.12 3.30
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.27) (.27) (.19) (.20)
Distributions from realized gains (.07) (1.99) (.86) (1.06) (.10)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.18) (2.26) (1.13) (1.25) (.30)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.09 $11.45 $15.87 $15.33 $13.46
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $74 $113 $95 $57 $53
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .97%(e) .91% 1.04% 1.09% 1.10%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) .97%(e) .91% 1.04% 1.09% 1.10%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.65%(e) 2.89% 1.87% 2.85% 4.04%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 52% 38% 47% 63%
- --------------------------------------------------------------------------------------------------------------
Total return (36.76%)(h) (13.90%) 10.52% 24.55% 31.78%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Not annualized.
(i) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 25
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(i) 2008 2007 2006 2005
Net asset value, beginning of period $11.38 $15.79 $15.26 $13.41 $10.47
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .22(b) .40(b) .24 .32 .38
Net gains (losses) (both realized and
unrealized) (4.37) (2.53) 1.37 2.75 2.89
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (4.15) (2.13) 1.61 3.07 3.27
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.29) (.22) (.16) (.23)
Distributions from realized gains (.07) (1.99) (.86) (1.06) (.10)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.18) (2.28) (1.08) (1.22) (.33)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.05 $11.38 $15.79 $15.26 $13.41
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $-- $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.27%(e) 1.21% 1.34% 1.36% 1.39%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 1.02%(e) .96% 1.34% 1.35% 1.34%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.49%(e) 2.86% 1.58% 2.53% 3.79%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 52% 38% 47% 63%
- --------------------------------------------------------------------------------------------------------------
Total return (36.73%)(h) (13.74%) 10.17% 24.22% 31.48%
- --------------------------------------------------------------------------------------------------------------
</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) Adjusted to an annual basis.
(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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(h) Not annualized.
(i) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
26 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended June 30, 2008(j) 2008 2007(b)
Net asset value, beginning of period $11.37 $15.78 $18.17
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20(c) .34(c) .24
Net gains (losses) (both realized and
unrealized) (4.37) (2.55) (1.62)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (4.17) (2.21) (1.38)
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.21) (.15)
Distributions from realized gains (.07) (1.99) (.86)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.16) (2.20) (1.01)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.04 $11.37 $15.78
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.45%(f) 1.35% 1.48%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) 1.42%(f) 1.35% 1.48%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.12%(f) 2.48% 1.19%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 52% 38%
- --------------------------------------------------------------------------------------------------------------
Total return (36.89%)(i) (14.30%) (7.90%)(i)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (inception date) to June 30, 2007.
(c) Per share 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 were less than 0.01% of average net
assets for the six months ended Dec. 31, 2008 and for the year ended June
30, 2008.
(i) Not annualized.
(j) Six months ended Dec. 31, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 27
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
(UNAUDITED AS TO DEC. 31, 2008)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource Real Estate Fund (the Fund) is a series of RiverSource Sector
Series, Inc. and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. RiverSource
Sector Series, Inc. has 10 billion authorized shares of capital stock that can
be allocated among the separate series as designated by the Board of Directors
(the Board). The Fund invests primarily in equity securities of companies
operating in the real estate industry, including equities of real estate
investment trusts (REITs), and other real estate related investments.
The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
- - Class W shares are sold without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At Dec. 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 W shares. At Dec.
31, 2008, the Investment Manager and the RiverSource affiliated funds-of-funds
owned approximately 56% of the total outstanding Fund shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
- --------------------------------------------------------------------------------
28 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
Effective July 1, 2008, the Fund adopted 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. There was no impact to the
Fund's net assets or results of operations upon adoption. The fair valuation
measurements disclosure can be found following the Notes to Portfolio of
Investments.
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
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 29
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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
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 Dec. 31, 2008, and for the six
months 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
- --------------------------------------------------------------------------------
30 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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 the 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 Dec. 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.
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 Dec. 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
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 31
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of foreign currency
transactions, re-characterization of REIT distributions and losses deferred due
to wash sales. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
RECENT ACCOUNTING PRONOUNCEMENT
The Fund has adopted FASB Staff Position No. 133-1 and FIN No. 45-4 (FSP FAS
133-1 and FIN 45-4), "Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No.
45". The amendments to FSP FAS 133-1 and FIN 45-4 require enhanced disclosures
about a fund's derivative and guarantees. 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, (c) how derivative instruments and related
hedged items affect a fund's financial position, financial performance, and cash
flows and (d) the current status of the payment/performance risk of the credit
derivative. The amendments to FSP FAS 133-1 and FIN 45-4 also require additional
disclosures about the current status of the payment/performance risk of a
guarantee. At Dec. 31, 2008, the Fund did not
- --------------------------------------------------------------------------------
32 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
own nor was it a party to any credit derivative contracts within the scope of
these amendments.
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. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after Nov. 15, 2008. As of Dec. 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.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared and paid each calendar quarter,
when available, are reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed along
with the last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
The Fund receives distributions from holdings in REITs which report information
on the character components of their distributions annually. A portion of
distributions received from REITS during the period is estimated to be capital
gain and a portion is estimated to be a return of capital, which is recorded as
a reduction of the cost basis of securities held. These estimates are
subsequently adjusted when the actual character of the distributions are
disclosed by the REITs.
2. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.84%
to 0.72% annually as the Fund's assets increase. The fee may be adjusted upward
or downward by a performance incentive adjustment determined monthly by
measuring the percentage difference over a rolling 12-month period between the
annualized performance of one Class A share of the Fund and the annualized
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 33
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
performance of the Lipper Real Estate Funds Index. In certain circumstances, the
Board may approve a change in the index. The maximum adjustment is 0.12% per
year. If the performance difference is less than 0.50%, the adjustment will be
zero. The adjustment decreased the management fee by $32,242 for the six months
ended Dec. 31, 2008. The management fee for the six months ended Dec. 31, 2008
was 0.80% of the Fund's average daily net assets, including the adjustment under
the terms of the performance incentive arrangement.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.06% to 0.03% annually as the
Fund's assets increase. The fee for the six months ended Dec. 31, 2008 was 0.06%
of the Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the six months ended Dec.
31, 2008, other expenses paid to this company were $749.
COMPENSATION OF BOARD MEMBERS
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
RiverSource funds. The Fund's liability for these amounts is adjusted for market
value changes and remains in the Fund until distributed in accordance with the
Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual account-based fee at a rate equal to $19.50 for Class A, $20.50
for Class B and $20.00 for Class C for this service. The Fund also pays the
Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's
average daily net assets attributable to Class R4 shares and an annual asset-
based fee at a rate of 0.20% of the Fund's average daily net assets attributable
to Class W shares.
- --------------------------------------------------------------------------------
34 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statement of Operations.
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 agreements with RiverSource Distributors, Inc. and RiverSource Fund
Distributors, Inc. (collectively, the Distributor) for distribution and
shareholder services. Under a Plan and Agreement of Distribution pursuant to
Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's
average daily net assets attributable to Class A and Class W shares and a fee at
an annual rate of up to 1.00% of the Fund's average daily net assets
attributable to Class B and Class C shares. 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 $491,000 and $10,000 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
$51,128 for Class A, $4,013 for Class B and $190 for Class C for the six months
ended Dec. 31, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the six months ended Dec. 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............................................. 1.42%
Class B............................................. 2.19
Class C............................................. 2.18
Class R4............................................ 1.02
Class W............................................. 1.42
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 35
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A........................................... $69,662
Class B........................................... 10,676
Class C........................................... 1,177
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R4........................................... $114
</Table>
The Investment Manager and its affiliates have contractually agreed to waive
certain fees and expenses until June 30, 2009, unless sooner terminated at the
discretion of the Board, such that net expenses (excluding fees and expenses of
acquired funds*), before giving effect to any performance incentive adjustment,
will not exceed the following percentage of the Fund's average daily net assets:
<Table>
Class A............................................. 1.46%
Class B............................................. 2.23
Class C............................................. 2.22
Class I............................................. 1.01
Class R4............................................ 1.31
Class W............................................. 1.46
</Table>
* In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in
which it invests (also referred to as "acquired funds"), including
affiliated and non-affiliated pooled investment vehicles (including mutual
funds and exchange traded funds). Because the acquired funds have varied
expense and fee levels and the Fund may own different proportions of
acquired funds at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
EARNINGS AND BANK FEE CREDITS
During the six months ended Dec. 31, 2008, the Fund's transfer agency fees were
reduced by $129 as a result of bank fee credits from overnight cash balances.
CUSTODIAN FEES
Effective Dec. 15, 2008, the Fund pays custodian fees to JPMorgan Chase Bank,
N.A. Prior to Dec. 15, 2008, the Fund paid 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 $37,645,957 and $40,437,439, respectively, for the six
months ended Dec. 31, 2008. Realized gains and losses are determined on an
identified cost basis.
- --------------------------------------------------------------------------------
36 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED DEC. 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 865,096 132,843 (1,524,884) (526,945)
Class B 99,453 16,456 (282,962) (167,053)
Class C 24,425 1,843 (22,837) 3,431
Class I 4,900,910 221,787 (4,545,346) 577,351
Class R4 131 187 (475) (157)
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED JUNE 30, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 1,620,097 1,327,612 (4,675,335) (1,727,626)
Class B 193,231 217,558 (1,021,054) (610,265)
Class C 44,818 20,266 (88,461) (23,377)
Class I 5,791,409 883,959 (2,746,559) 3,928,809
Class R4 569 1,795 (4,775) (2,411)
- ----------------------------------------------------------------------------------
</Table>
5. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the RiverSource funds
and other institutional clients of RiverSource Investment. The cost of the
Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term
Cash Fund aggregated $38,763,960 and $52,107,958, respectively, for the six
months ended Dec. 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 Dec. 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. (the Administrative Agent), 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
- --------------------------------------------------------------------------------
RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 37
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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 six months ended Dec. 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., 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. 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
- --------------------------------------------------------------------------------
38 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
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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); 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
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RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 39
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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, each of Seligman, RiverSource Investments and their
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 including those funds
in the RiverSource complex of funds. Neither Seligman nor RiverSource
Investments believes that the foregoing legal action or other possible actions
will have a material adverse impact on Seligman, RiverSource Investments or
their current or former clients, including the Seligman Funds and other
investment companies managed by RiverSource Investments; 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
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40 RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT
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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.
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.
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RIVERSOURCE REAL ESTATE FUND -- 2008 SEMIANNUAL REPORT 41
RIVERSOURCE REAL ESTATE FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by the Fund's
current prospectus. RiverSource(R) mutual funds are
distributed by RiverSource Distributors, Inc., and
RiverSource Fund Distributors, Inc., Members FINRA, and
managed by RiverSource Investments, LLC. RiverSource is part
of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C) 2009 RiverSource Investments, LLC. S-6292 F (2/09)
</Table>
Item 2. Code of Ethics. Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert. Not applicable for semi-annual
reports.
Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual
reports.
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) Not applicable for semi-annual reports.
(a)(2) Separate certification for the Registrant's principal executive officer
and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached
as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Sector Series, Inc.
By /s/ Patrick T. Bannigan
-------------------------------
Patrick T. Bannigan
President and Principal Executive Officer
Date March 4, 2009
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 March 4, 2009
By /s/ Jeffrey P. Fox
-----------------------------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date March 4, 2009