-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PfB1fYRZTkmx5TNw70NylI39pVGx/Fd3pTMYzgd41Zz/NvOEdXaUVaWp+sOEWXo2 jg+mcmARIgPt2lM37H4PnA== 0000950123-09-026132.txt : 20090728 0000950123-09-026132.hdr.sgml : 20090728 20090728115603 ACCESSION NUMBER: 0000950123-09-026132 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20090728 DATE AS OF CHANGE: 20090728 EFFECTIVENESS DATE: 20090730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE GOVERNMENT INCOME SERIES INC CENTRAL INDEX KEY: 0000764802 IRS NUMBER: 412021315 STATE OF INCORPORATION: MN FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-96512 FILM NUMBER: 09966455 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSOURCE GOVERNMENT INCOME SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP GOVERNMENT INCOME SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP FEDERAL INCOME FUND INC /MN/ DATE OF NAME CHANGE: 20000829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE GOVERNMENT INCOME SERIES INC CENTRAL INDEX KEY: 0000764802 IRS NUMBER: 412021315 STATE OF INCORPORATION: MN FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04260 FILM NUMBER: 09966456 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSOURCE GOVERNMENT INCOME SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP GOVERNMENT INCOME SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP FEDERAL INCOME FUND INC /MN/ DATE OF NAME CHANGE: 20000829 0000764802 S000003306 RiverSource Short Duration U.S. Government Fund C000008827 RiverSource Short Duration U.S. Government Fund Class I AGMIX C000008828 RiverSource Short Duration U.S. Government Fund Class A IFINX C000008829 RiverSource Short Duration U.S. Government Fund Class B ISHOX C000008830 RiverSource Short Duration U.S. Government Fund Class C AXFCX C000042928 RiverSource Short Duration U.S. Government Fund Class R4 IDFYX C000042929 RiverSource Short Duration U.S. Government Fund Class W RSDWX C000076520 RiverSource Short Duration U.S. Government Fund Class R2 0000764802 S000003307 RiverSource U.S. Government Mortgage Fund C000008832 RiverSource U.S. Government Mortgage Fund Class I RVGIX C000008834 RiverSource U.S. Government Mortgage Fund Class A AUGAX C000008835 RiverSource U.S. Government Mortgage Fund Class B AUGBX C000008836 RiverSource U.S. Government Mortgage Fund Class C AUGCX C000042930 RiverSource U.S. Government Mortgage Fund Class R4 RSGYX 485BPOS 1 c51790e485bpos.txt FORM 485BPOS SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. _____ Post-Effective Amendment No. 47 (File No. 2-96512) [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 49 (File No. 811-4260) [X] RIVERSOURCE GOVERNMENT INCOME SERIES, INC. 50606 Ameriprise Financial Center Minneapolis, Minnesota 55474 Scott R. Plummer 5228 Ameriprise Financial Center Minneapolis, MN 55474 (612) 671-1947 Approximate Date of Proposed Public Offering: It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to paragraph (b) [X] on July 30, 2009 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND PROSPECTUS JULY 30, 2009 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND SEEKS TO PROVIDE SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME AND SAFETY OF PRINCIPAL CONSISTENT WITH INVESTMENT IN U.S. GOVERNMENT AND GOVERNMENT AGENCY SECURITIES. Classes A, B, C, I, R2, R4 and W As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. You may qualify for sales charge discounts on purchases of Class A shares. Please notify your financial intermediary if you have other accounts holding shares of funds in the RiverSource Family of Funds to determine whether you qualify for a sales charge discount. See "Buying and Selling Shares" for more information. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE TABLE OF CONTENTS THE FUND.......................................... 3P Objective......................................... 3p Principal Investment Strategies................... 3p Principal Risks................................... 4p Past Performance.................................. 5p Fees and Expenses................................. 10p Other Investment Strategies and Risks............. 13p Fund Management and Compensation.................. 15p FINANCIAL HIGHLIGHTS.............................. 17P BUYING AND SELLING SHARES......................... S.1 Description of Share Classes...................... S.2 Investment Options -- Classes of Shares......... S.2 Sales Charges................................... S.7 Opening an Account.............................. S.16 Exchanging or Selling Shares...................... S.19 Exchanges....................................... S.22 Selling Shares.................................. S.25 PRICING AND VALUING OF FUND SHARES................ S.26 DISTRIBUTIONS AND TAXES........................... S.27 GENERAL INFORMATION............................... S.30
RIVERSOURCE FAMILY OF FUNDS The RiverSource Family of Funds includes a comprehensive array of funds from RiverSource Investments. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource family. RiverSource funds, RiverSource Partners funds, Seligman funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section of this prospectus. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource Family of Funds. RiverSource Variable Portfolio Funds and Seligman (Variable) Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated and unaffiliated insurance companies. - -------------------------------------------------------------------------------- 2P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS THE FUND OBJECTIVE RiverSource Short Duration U.S. Government Fund (the Fund) seeks to provide shareholders with a high level of current income and safety of principal consistent with investment in U.S. government and government agency securities. Because any investment involves risk, there is no assurance these objectives can be achieved. Only shareholders can change the Fund's objectives. PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, at least 80% of the Fund's net assets are invested in debt securities issued or guaranteed as to principal and interest by the U.S. government, or its agencies or instrumentalities. Shareholders will be given at least 60 days' notice of any change in the 80% policy. The Fund invests in direct obligations of the U.S. government, such as Treasury bonds, bills, and notes, and of its agencies and instrumentalities. The Fund may invest to a substantial degree in securities issued by various entities sponsored by the U.S. government, such as the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). These issuers are chartered or sponsored by acts of Congress; however, their securities are neither issued nor guaranteed by the United States Treasury. When market conditions are favorable, the Fund may also invest in debt securities that are not issued by the U.S. government, its agencies or instrumentalities, or that are denominated in currencies other than the U.S. dollar. In pursuit of the Fund's objectives, the investment manager (RiverSource Investments, LLC) chooses investments by: - - Reviewing credit characteristics and the interest rate outlook. - - Identifying and buying securities that are high quality or have similar qualities, in the investment manager's opinion, even though they are not rated or have been given a lower rating by a rating agency. Under normal market conditions, the Fund will seek to maintain an average portfolio duration of one to three years. Duration measures the sensitivity of bond prices to changes in interest rates. The longer the duration of a bond, the longer it will take to repay the principal and interest obligations and the more sensitive it will be to changes in interest rates. For example, a three year duration means a bond is expected to decrease in value by 3% if interest rates rise 1% and increase in value by 3% if interest rates fall 1%. In evaluating whether to sell a security, the investment manager considers, among other factors, whether: - The security is overvalued relative to alternative investments. - The investment manager wishes to lock-in profits. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 3P - Whether changes are anticipated in the interest rate or economic outlook. - The investment manager identifies a more attractive opportunity. The investment manager may use derivatives such as futures, options, forward contracts and swaps, including credit default swaps, in an effort to produce incremental earnings, to hedge existing positions, to increase market exposure and investment flexibility, or to obtain or reduce credit exposure. PRINCIPAL RISKS Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objectives. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. CREDIT RISK. Credit risk is the risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the Fund purchases unrated securities, or if the rating of a security is reduced after purchase, the Fund will depend on the investment manager's analysis of credit risk more heavily than usual. DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including counterparty credit risk, leverage risk, hedging risk, correlation risk, and liquidity risk. Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. - -------------------------------------------------------------------------------- 4P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. INTEREST RATE RISK. Interest rate risk is the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates. MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. PREPAYMENT AND EXTENSION RISK. Prepayment and extension risk is the risk that a bond or other security might be called or otherwise converted, prepaid, or redeemed before maturity. This risk is primarily associated with asset-backed securities, including mortgage-backed securities. If a security is converted, prepaid, or redeemed before maturity, particularly during a time of declining interest rates, the investment managers may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the Fund. Conversely, as interest rates rise, the likelihood of prepayment decreases. The investment managers may be unable to capitalize on securities with higher interest rates because the Fund's investments are locked in at a lower rate for a longer period of time. PAST PERFORMANCE The following bar chart and table provide some illustration of the risks of investing in the Fund by showing, respectively: - - how the Fund's performance has varied for each full calendar year shown on the bar chart; and - - how the Fund's average annual total returns compare to recognized indexes shown on the table. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 5P Both the bar chart and the table assume that all distributions have been reinvested. The performance of different classes varies because of differences in sales charges and other fees and expenses. How the Fund has performed in the past (before and after taxes) does not indicate how the Fund will perform in the future. Performance reflects any fee waivers/expense caps in effect for the periods reported. In the absence of such fee waivers/expense caps, performance would have been lower. See "Fees and Expenses" for any current fee waivers/expense caps. Bar Chart. Class A share information is shown in the bar chart; the sales charge for Class A shares is not reflected in the bar chart. Table. The table shows total returns from hypothetical investments in Class A, Class B, Class C, Class I, Class R4 and Class W shares of the Fund. These returns are compared to the indexes shown for the same periods. For purposes of the performance calculation in the table we assumed: - - the maximum sales charge for Class A shares; - - sales at the end of the period and deduction of the applicable contingent deferred sales charge (CDSC) for Class B and Class C shares; - - no sales charge for Class I, Class R4 and Class W shares; and - - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. - -------------------------------------------------------------------------------- 6P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS AFTER-TAX RETURNS After-tax returns are shown only for Class A shares. After-tax returns for the other classes will vary. After-tax returns are calculated using the highest historical individual federal marginal income tax rate and do not reflect the impact of state and local taxes. Actual after-tax returns will depend on your tax situation and most likely will differ from the returns shown in the table. If you hold your shares in a tax-deferred account, such as a 401(k) plan or an IRA, the after-tax returns do not apply to you since you will not incur taxes until you begin to withdraw from your account. The return after taxes on distributions for a period may be the same as the return before taxes for the same period if there were no distributions or if the distributions were small. The return after taxes on distributions and sale of Fund shares for a period may be greater than the return before taxes for the same period if there was a tax loss realized on sale of Fund shares. The benefit of the tax loss (since it can be used to offset other gains) may result in a higher return. CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +1.13% +5.90% +6.77% +5.94% +1.03% +0.82% +1.33% +3.95% +5.28% -1.53% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +3.53% (quarter ended Sept. 30, 2001) and the lowest return for a calendar quarter was -1.49% (quarter ended March 31, 2000). The 3.00% sales charge applicable to Class A shares of the Fund, which changed from 4.75% effective March 3, 2008, is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The Fund's Class A year-to-date return at June 30, 2009 was +3.22%. The Fund formerly was a "feeder" fund in a master/feeder arrangement where the Fund invested all of its assets in a corresponding "master" fund with an identical investment objective and investment strategies. As of Oct. 18, 2005, the Fund became a stand-alone fund that invests directly in a portfolio of securities. The information shown in the table and in the financial highlights for the Fund includes the activity of the Fund when it was a feeder in a master/feeder arrangement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 7P AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2008)
SINCE SINCE SINCE INCEPTION INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS I) (CLASS W) RiverSource Short Duration U.S. Government Fund: Class A(*) Return before taxes -6.24% +0.97% +2.50% N/A N/A N/A Return after taxes on distributions -7.34% -0.20% +0.99% N/A N/A N/A Return after taxes on distributions and sale of fund shares -4.05% +0.15% +1.20% N/A N/A N/A Class B Return before taxes -7.04% +0.82% +2.25% N/A N/A N/A Class C Return before taxes -3.22% +1.18% N/A +2.64%(a) N/A N/A Class I Return before taxes -1.36% N/A N/A N/A +2.21%(b) N/A Class R4 Return before taxes -1.40% +2.11% +3.19% N/A N/A N/A Class W Return before taxes -1.59% N/A N/A N/A N/A +1.65%(c) Barclays Capital U.S. 1-3 Year Government Index (reflects no deduction for fees, expenses or taxes) +6.66% +4.11% +4.81% +4.97%(d) +4.12%(e) +6.54%(f) Lipper Short U.S. Government Funds Index +3.46% +3.13% +3.98% +4.05%(d) +3.12%(e) +4.28%(f)
(*) On March 3, 2008, the maximum sales charge for Class A shares changed from 4.75% to 3.00%. The actual returns for periods prior to March 3, 2008 would have been lower if a 4.75% maximum sales charge then in effect was included. (a) Inception date is June 26, 2000. (b) Inception date is March 4, 2004. (c) Inception date is Dec. 1, 2006. (d) Measurement period started June 26, 2000. (e) Measurement period started March 4, 2004. (f) Measurement period started Dec. 1, 2006. The Barclays Capital U.S. 1-3 Year Government Index, an unmanaged index, is made up of all publicly issued, non-convertible domestic debt of the U.S. government, or agency thereof, or any quasi-federal corporation. The index also includes corporate debt guaranteed by the U.S. government. Only notes and bonds with a minimum maturity of one year up to a maximum maturity of 2.9 years are included. The index reflects reinvestment of all distributions and changes in market prices. The Lipper Short U.S. Government Funds Index includes the 30 largest short U.S. government funds tracked by Lipper Inc. The index's returns include net reinvested dividends. Inception date for Class R2 is Aug. 3, 2009 and therefore performance information for this class is not present. - -------------------------------------------------------------------------------- 8P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS Past performance for Class R2 for the period prior to the beginning of operations may be calculated based on the performance of Class B. Past performance for Class W for the period prior to the beginning of operations may be calculated based on the performance of Class A. The blended class performance will be adjusted to reflect differences in sales charges, but not differences in annual Fund operating expenses (for example, 12b-1 fees). The use of blended performance generally results in a presentation of higher performance for classes with higher operating expenses than those of the class with which they are blended, and a presentation of lower performance for classes with lower operating expenses than those of the class with which they are blended. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 9P FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Annual fund operating expenses are based on expenses incurred during the Fund's most recently completed fiscal year, and are expressed as a percentage (expense ratio) of the Fund's average net assets during the period. The expense ratios have been adjusted to reflect current fee schedules but have not been adjusted to reflect the Fund's assets as of a different period or point in time, as asset levels will fluctuate. As of the date of this prospectus, the Fund's net assets are lower than the Fund's average net assets during the most recently completed fiscal year. In general, a fund's annual operating expenses will increase as the fund's assets decrease. Accordingly, the Fund's annual operating expenses, if adjusted based on net assets as of the date of this prospectus, would be higher than are expressed in the fee and expense table below. The commitment by the investment manager and its affiliates to waive fees and/or cap (reimburse) expenses limits the impact that any decrease in the Fund's assets will have on its total annual (net) operating expenses in the current fiscal year. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS R2 CLASS R4 CLASS A CLASS B CLASS C CLASS W Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 3.00%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C CLASS W Management fees 0.48% 0.48% 0.48% 0.48% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.25% Other expenses(c) 0.29% 0.30% 0.30% 0.31% Total annual fund operating expenses 1.02% 1.78% 1.78% 1.04% Fee waiver/expense reimbursement 0.16% 0.16% 0.16% 0.11% Total annual (net) fund operating expenses(d) 0.86% 1.62% 1.62% 0.93%
- -------------------------------------------------------------------------------- 10P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS I CLASS R2 CLASS R4 Management fees 0.48% 0.48% 0.48% Distribution and/or service (12b-1) fees 0.00% 0.50% 0.00% Other expenses(c) 0.12% 0.42% 0.42% Total annual fund operating expenses 0.60% 1.40% 0.90% Fee waiver/expense reimbursement 0.12% 0.12% 0.12% Total annual (net) fund operating expenses(d) 0.48% 1.28% 0.78%
(a) This charge may be reduced depending on the total value of your investments in the RiverSource Family of Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares purchased without an initial sales charge and sold within 18 months after purchase. See "Sales Charges." (c) Other expenses include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R2 and Class R4). Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will 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 by the Fund with respect to such investments will vary. Other expenses for Class R2 are based on estimated amounts for current fiscal year. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2010, 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), will not exceed 0.86% for Class A, 1.62% for Class B, 1.62% for Class C, 0.48% for Class I, 1.28% for Class R2, 0.78% for Class R4 and 0.93% for Class W. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 11P EXAMPLES These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. These examples also assume that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $385 $600 $ 832 $1,501 Class B $665(b) $845(b) $1,151(b) $1,885(c) Class C $265(b) $545 $ 951 $2,087 Class I $ 49 $180 $ 324 $ 742 Class R2 $130 $432 $ 755 $1,674 Class R4 $ 80 $275 $ 488 $1,101 Class W $ 95 $320 $ 564 $1,266
(a) Includes a 3.00% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares one month after the completion of the eighth year of ownership. You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $385 $600 $832 $1,501 Class B $165 $545 $951 $1,885(b) Class C $165 $545 $951 $2,087 Class I $ 49 $180 $324 $ 742 Class R2 $130 $432 $755 $1,674 Class R4 $ 80 $275 $488 $1,101 Class W $ 95 $320 $564 $1,266
(a) Includes a 3.00% sales charge. (b) Based on conversion of Class B shares to Class A shares one month after the completion of the eighth year of ownership. - -------------------------------------------------------------------------------- 12P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS OTHER INVESTMENT STRATEGIES AND RISKS Other Investment Strategies. In addition to the principal investment strategies previously described, the Fund may utilize investment strategies that are not principal investment strategies, including investment in affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds (ETFs), also referred to as "acquired funds") ownership of which results in the Fund bearing its proportionate share of the acquired funds' fees and expenses and proportionate exposure to the risks associated with the acquired funds' underlying investments. ETFs are generally designed to replicate the price and yield of a specified market index. An ETF's share price may not track its specified market index and may trade below its net asset value resulting in a loss. ETFs generally use a "passive" investment strategy and will not attempt to take defensive positions in volatile or declining markets. An active secondary market in an ETF's shares may not develop or be maintained and may be halted or interrupted due to actions by its listing exchange, unusual market conditions or other reasons. There can be no assurance an ETF's shares will continue to be listed on an active exchange. For more information on strategies and holdings, and the risks of such strategies, including derivative instruments that the Fund may use, see the Fund's SAI and its annual and semiannual reports. Unusual Market Conditions. During unusual market conditions, the Fund may temporarily invest more of its assets in money market securities than during normal market conditions. Although investing in these securities would serve primarily to attempt to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, the portfolio managers may make frequent securities trades that could result in increased fees, expenses and taxes, and decreased performance. Instead of investing in money market securities directly, the Fund may invest in shares of an affiliated or unaffiliated money market fund. See "Cash Reserves" under the section "General Information'' for more information. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 13P Securities Transaction Commissions. Securities transactions involve the payment by the Fund of brokerage commissions to broker-dealers, on occasion as compensation for research or brokerage services (commonly referred to as "soft dollars"), as the portfolio managers buy and sell securities for the Fund in pursuit of its objective. A description of the policies governing the Fund's securities transactions and the dollar value of brokerage commissions paid by the Fund are set forth in the SAI. Funds that invest primarily in fixed income securities do not typically generate brokerage commissions that are used to pay for research or brokerage services. The brokerage commissions set forth in the SAI do not include implied commissions or mark-ups (implied commissions) paid by the Fund for principal transactions (transactions made directly with a dealer or other counterparty), including most fixed income securities (and certain other instruments, including derivatives). Brokerage commissions do not reflect other elements of transaction costs, including the extent to which the Fund's purchase and sale transactions may cause the market to move and change the market price for an investment. Although brokerage commissions and implied commissions are not reflected in the expense table under "Fees and Expenses," they are reflected in the total return of the Fund. Portfolio Turnover. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of brokerage commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. Capital gains and increased brokerage commissions or mark-ups paid to broker-dealers may adversely affect a fund's performance. The Fund's historical portfolio turnover rate, which measures how frequently the Fund buys and sells investments, is shown in the "Financial Highlights." Directed Brokerage. The Fund's Board of Directors (Board) has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the Fund as a factor in the selection of broker-dealers through which to execute securities transactions. Additional information regarding securities transactions can be found in the SAI. - -------------------------------------------------------------------------------- 14P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS FUND MANAGEMENT AND COMPENSATION INVESTMENT MANAGER RiverSource Investments, LLC (the investment manager or RiverSource Investments), 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is the investment manager to the RiverSource Family of Funds (including the RiverSource funds, Threadneedle funds and Seligman funds), and is a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for the RiverSource Family of Funds, RiverSource Investments manages investments for itself and its affiliates. For institutional clients, RiverSource Investments and its affiliates provide investment management and related services, such as separate account asset management, and institutional trust and custody, as well as other investment products. For all of its clients, RiverSource Investments seeks to allocate investment opportunities in an equitable manner over time. See the SAI for more information. The RiverSource funds have received an order from the Securities and Exchange Commission that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or change the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. Before certain fixed income funds may rely on the order, holders of a majority of the fund's outstanding voting securities will need to approve operating the fund in this manner. There is no assurance shareholder approval will be received, and no changes will be made without shareholder approval until that time. For more information, see the SAI. RiverSource Investments or its affiliates may have other relationships, including significant financial relationships, with current or potential subadvisers or their affiliates, which may create a conflict of interest. In making recommendations to the Board to appoint or to change a subadviser, or to change the terms of a subadvisory agreement, RiverSource Investments does not consider any other relationship it or its affiliates may have with a subadviser, and RiverSource Investments discloses the nature of any material relationships it has with a subadviser to the Board. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 15P The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal year was 0.48% of the Fund's average daily net assets. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. Portfolio Manager(s). The portfolio managers responsible for the day-to-day management of the Fund are: Todd White, Portfolio Manager - - Managed the Fund since 2008. - - Sector leader of the liquid and structured assets sector team. - - Joined RiverSource Investments in 2008. - - Managing Director, Global Head of the Asset-Backed and Mortgage-Backed Securities businesses, and North American Head of the Interest Rate business, HSBC, 2004 to 2008; Managing Director and Head of Business for Mortgage Pass- Through and Options, Lehman Brothers, 2000 to 2004. - - Began investment career in 1986. - - BS, Indiana University. John G. McColley, Portfolio Manager - - Managed the Fund since 2009. - - Sector manager on the liquid and structured assets sector team. - - Joined RiverSource Investments in 1985. - - Began investment career in 1984. - - BS, Carlson School of Management, University of Minnesota. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. - -------------------------------------------------------------------------------- 16P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL YEARS ENDED ON OR AFTER MAY 31, 2008 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. THE INFORMATION FOR THE PERIODS ENDED ON OR BEFORE MAY 31, 2007 HAS BEEN AUDITED BY OTHER AUDITORS. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 17P CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14(b) .19(b) .19 .15 .12 Net gains (losses) (both realized and unrealized) (.11) .01 .05 (.10) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .20 .24 .05 .09 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.19) (.19) (.16) (.12) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.63 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $529 $539 $514 $641 $894 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.02% 1.04% 1.03% 1.06% 1.01% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .89% .89% .89% .89% .93% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.00% 3.93% 3.99% 3.27% 2.49% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return(h) .59% 4.27% 5.12% 1.00% 1.92% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.88% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 18P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .15(b) .15 .12 .08 Net gains (losses) (both realized and unrealized) (.11) .01 .05 (.11) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.01) .16 .20 .01 .05 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.15) (.15) (.12) (.08) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.63 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $113 $159 $216 $338 $588 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.78% 1.80% 1.79% 1.82% 1.76% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.68% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.26% 3.18% 3.23% 2.50% 1.73% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return(h) (.18%) 3.48% 4.34% .26% 1.16% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.64% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 19P CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .15(b) .15 .12 .08 Net gains (losses) (both realized and unrealized) (.11) .02 .05 (.11) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.01) .17 .20 .01 .05 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.16) (.15) (.12) (.08) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.63 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $13 $10 $10 $15 $24 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.78% 1.80% 1.80% 1.83% 1.77% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.68% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.21% 3.18% 3.24% 2.51% 1.73% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return(h) (.17%) 3.49% 4.34% .26% 1.16% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.64% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 20P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.74 $4.69 $4.79 $4.83 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .16(b) .20(b) .20 .17 .14 Net gains (losses) (both realized and unrealized) (.11) .01 .05 (.10) (.04) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .05 .21 .25 .07 .10 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.21) (.20) (.17) (.14) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.64 $4.74 $4.74 $4.69 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $42 $93 $55 $62 $31 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .60% .60% .59% .62% .57% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .51% .51% .54% .58% .57% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.49% 4.23% 4.37% 3.66% 2.98% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return 1.18% 4.45% 5.50% 1.56% 2.06% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.50% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 21P CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(b) .19(b) .19 .16 .13 Net gains (losses) (both realized and unrealized) (.11) .02 .05 (.11) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .04 .21 .24 .05 .10 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.20) (.19) (.16) (.13) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.64 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $5 $4 $19 $100 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .90% .90% .86% .88% .84% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .76% .76% .72% .72% .76% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.15% 4.06% 4.09% 3.27% 2.66% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return .93% 4.41% 5.31% 1.19% 2.10% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.75% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. - -------------------------------------------------------------------------------- 22P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007(b) Net asset value, beginning of period $4.74 $4.73 $4.75 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14(c) .18(c) .08 Net gains (losses) (both realized and unrealized) (.12) .02 (.02) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .02 .20 .06 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.13) (.19) (.08) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.63 $4.74 $4.73 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.04% 1.06% 1.00%(f) - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .96% .95% .95%(f) - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.95% 3.87% 4.02%(f) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(i) 271% 209% 168% - -------------------------------------------------------------------------------------------------------------- Total return .52% 4.21% 1.42%(j) - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to May 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) 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). (h) 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 years ended May 31, 2009 and 2008. (i) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 PROSPECTUS 23P RIVERSOURCE FAMILY OF FUNDS THE RIVERSOURCE FAMILY OF FUNDS (EACH INDIVIDUALLY A "FUND" AND, COLLECTIVELY, THE "FUNDS") INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, "SELIGMAN" FUNDS AND "THREADNEEDLE" FUNDS. (THE RIVERSOURCE FUNDS, RIVERSOURCE PARTNERS FUNDS AND THREADNEEDLE FUNDS MAY BE COLLECTIVELY REFERRED TO AS THE "RIVERSOURCE FUNDS".) THE FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD") AND THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THE SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL FUNDS IN THE RIVERSOURCE FAMILY OF FUNDS OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." BUYING AND SELLING SHARES The funds are available directly and through broker-dealers, banks and other financial intermediaries or institutions (financial intermediaries), and through certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial intermediaries. NOT ALL FINANCIAL INTERMEDIARIES OFFER THE FUNDS. FINANCIAL INTERMEDIARIES THAT OFFER THE FUNDS MAY CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. Additionally, recordkeeping, transaction processing and payments of distributions relating to your account may be performed by the financial intermediaries through which your shares of the fund are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial intermediary through which you purchased or at which you maintain your shares of the fund to make changes to your account or to give instructions concerning your account, or to obtain information about your account. The fund and its service providers, including the distributor and the transfer agent, are not responsible for the failure of one of these financial intermediaries to carry out its obligations to its customers. - -------------------------------------------------------------------------------- S.1 S-6400-9 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The funds offer different classes of shares. There are differences among the fees and expenses for each share class. See the "Fees and Expenses" table for more information. Not everyone is eligible to buy every share class. After determining which share classes you are eligible to buy, decide which share class best suits your needs. Your financial advisor can help you with this decision. The following table shows the key features of each share class. Not all funds offer all classes of shares. INVESTMENT OPTIONS SUMMARY
Contingent Distribution Plan Initial Deferred Sales and/or Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Services Fee - ----------------------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No.(c) Yes. No. all investors. time of purchase. 0.25%(g) Lower or no sales charge for larger investments. - ----------------------------------------------------------------------------------------------------------------------------- Class B(d)(e)(f) Available to No. Entire Maximum 5% CDSC Yes. No. all investors. purchase price is during the first 1.00%(g) invested in shares year decreasing to of the fund. 0% after six years. - ----------------------------------------------------------------------------------------------------------------------------- Class C(f) Available to No. Entire 1% CDSC may apply Yes. No. all investors. purchase price is if you sell shares 1.00%(g) invested in shares within one year of the fund. after purchase. - ----------------------------------------------------------------------------------------------------------------------------- Class I Limited to No. No. No. No. qualifying institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to No. No. Yes. Yes. qualifying 0.50% 0.25% institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to No. No. Yes. Yes. qualifying 0.25% 0.25% institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to No. No. No. Yes. qualifying 0.25% institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to No. No. No. No. qualifying institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25%(g) discretionary managed accounts. - -----------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- S.2 INVESTMENT OPTIONS SUMMARY (CONTINUED)
Contingent Distribution Plan Initial Deferred Sales and/or Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Services Fee - ----------------------------------------------------------------------------------------------------------------------------- Class Y Limited to No. No. No. Yes. qualifying 0.15% institutional investors. - -----------------------------------------------------------------------------------------------------------------------------
(a) See "Buying and Selling Shares, Determining which class of shares to purchase" for more information on availability of share classes and eligible investors. See "Buying and Selling Shares, Opening an Account" for information on minimum investment and account balance requirements. (b) For each of Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, each fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, that allows it to pay distribution and shareholder servicing-related expenses for the sale of shares and the servicing of shareholders. This plan has been reviewed and approved by the Board. Because these fees are paid out of fund assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of distribution (sales) or servicing charges. (c) A 1% CDSC may be assessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. For all funds except money market funds. (d) Class B shares automatically convert to Class A shares. See "Buying and Selling Shares, Sales Charges, Class B and Class C -- CDSC alternative" for more information on the timing of conversion of Class B shares to Class A shares. Timing of conversion will vary depending on the date of your original purchase of the Class B shares. (e) Class B shares of RiverSource Absolute Return Currency and Income Fund are only available for exchanges from Class B shares of another fund in the RiverSource Family of Funds. Class B shares of each of RiverSource Floating Rate Fund, RiverSource Inflation Protected Securities Fund, RiverSource Intermediate Tax-Exempt Fund, RiverSource Limited Duration Bond Fund and RiverSource Short Duration U.S. Government Fund are closed to new investors and new purchases. (Existing shareholders in these funds may continue to own Class B shares and make exchanges into and out of existing accounts where Class B shares of these funds are maintained.) (f) The money market funds may offer Class B and Class C shares, but only to facilitate exchanges with other funds offering Class B and Class C shares, respectively. (g) For RiverSource Cash Management Fund and RiverSource Tax-Exempt Money Market Fund, Class A is 0.10%. For RiverSource Cash Management Fund, Class B is 0.85%, Class C is 0.75% and Class W is 0.10%. DISTRIBUTION AND SERVICE FEES The distribution and shareholder servicing fees for Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, are subject to the requirements of Rule 12b-1 under the Investment Company Act of 1940, as amended, and are used to reimburse the distributor for certain expenses it incurs in connection with distributing the fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and/or shareholder servicing fees to financial intermediaries that sell shares of the fund or provide services to fund shareholders, up to 0.50% of the average daily net assets of Class R2 shares sold and held through them and up to 0.25%* of the average daily net assets of Class A, Class B, Class C, Class R3 and Class W shares sold and held through them. For Class A, Class B, Class R2, Class R3 and Class W shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor pays these fees in advance for the first 12 months. Financial intermediaries also receive distribution - -------------------------------------------------------------------------------- S.3 fees up to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay 12 months after purchase. For Class B shares, and, for the first 12 months following the sale of Class C shares, the fund's distributor retains the distribution fee of up to 0.75% in order to finance the payment of sales commissions to financial intermediaries, and to pay for other distribution related expenses. Financial intermediaries may compensate their financial advisors with the shareholder servicing and distribution fees paid to them by the distributor. IF YOU MAINTAIN SHARES OF THE FUND DIRECTLY WITH THE FUND, WITHOUT WORKING DIRECTLY WITH A FINANCIAL INTERMEDIARY OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES MAY BE RETAINED BY THE DISTRIBUTOR AS REIMBURSEMENT FOR INCURRING CERTAIN DISTRIBUTION AND SHAREHOLDER SERVICING RELATED EXPENSES. * For RiverSource Cash Management Fund, financial intermediaries receive fees up to 0.10% of the average daily net assets of Class A, Class B and Class W shares sold and held through them. PLAN ADMINISTRATION FEE Class R2, Class R3, Class R4 and Class Y shares pay an annual plan administration services fee for the provision of various administrative, recordkeeping, communication and educational services. The fee for Class R2, Class R3 and Class R4 shares is equal on an annual basis to 0.25% of average daily net assets attributable to the respective class. The fee for Class Y shares is equal on an annual basis to 0.15% of average daily net assets attributable to the class. DETERMINING WHICH CLASS OF SHARES TO PURCHASE Each of the fund's classes represent an interest in the same portfolio of investments. However, as set forth above, each class has its own sales charge schedule, and its ongoing distribution and shareholder service fees may differ from other classes. When deciding which class of shares to buy, you should consider, among other things: - - The amount you plan to invest. - - How long you intend to remain invested in the fund or another fund in the RiverSource Family of Funds. - - Whether you may be eligible for reduced or no sales charges when you buy or sell shares. Your authorized financial intermediary or financial advisor will be able to help you decide which class of shares best meets your needs. - -------------------------------------------------------------------------------- S.4 CLASS A, CLASS B AND CLASS C SHARES* Class B shares of RiverSource Absolute Return Currency and Income Fund are not currently available for new purchases. However, if you own Class B shares of another fund in the RiverSource Family of Funds, you may exchange into Class B shares of RiverSource Absolute Return Currency and Income Fund, if you meet the minimum investment and account balance requirements set forth in "Opening an Account," subject to the limitations set forth in this section. New purchases of Class B shares will not be permitted if your rights of accumulation are $50,000 or higher, and new purchases of Class C shares will not be permitted if your rights of accumulation are $1,000,000 or higher. See "Sales Charges, Initial Sales Charge -- Rights of Accumulation" for information on rights of accumulation. Class B shares have a higher annual distribution fee than Class A shares and a contingent deferred sales charge (CDSC) for six years. Class B shares convert to Class A shares. Class B shares purchased through reinvested dividends and distributions will convert to Class A shares in the same proportion as the other Class B shares. See "Class B and Class C -- CDSC alternative" for information on timing of Class B share conversion to Class A shares. Class C shares have a higher annual distribution fee than Class A shares and a CDSC for one year. Class C shares have no sales charge if you hold the shares for longer than one year. Unlike Class B shares, Class C shares do not convert to Class A shares. As a result, you will pay a distribution fee for as long as you hold Class C shares. If you choose a share class with a CDSC (Class B or Class C), you should consider the length of time you intend to hold your shares. To help you determine which investment is best for you, consult your financial intermediary or financial advisor. * For money market funds, new investments must be made in Class A shares of the fund. The money market funds offer Class B and Class C shares only to facilitate exchanges between classes of these shares in other funds. CLASS I SHARES. The following eligible investors may purchase Class I shares: - - Any fund distributed by the distributor, if the fund seeks to achieve its investment objective by investing primarily in shares of funds in the RiverSource Family of Funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial intermediary. - -------------------------------------------------------------------------------- S.5 CLASS R AND CLASS Y SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4, Class R5 and Class Y shares: - - Qualified employee benefit plans. - - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code. - - Non-qualified deferred compensation plans whose participants are included in a qualified employee benefit plan described above. - - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. - - Health Savings Accounts created pursuant to public law 108-173. Additionally, if approved by the distributor, the following eligible institutional investors may purchase Class R5 shares: - - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all funds in the RiverSource Family of Funds). - - Bank trust departments. Class R and Class Y shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SARSEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial intermediary. CLASS W SHARES. The following eligible investors may purchase Class W shares: - - Investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs. Class W shares may be purchased, sold or exchanged only through the distributor or an authorized financial intermediary. Shares originally purchased in a discretionary managed account may continue to be held in Class W outside of a discretionary managed account, but no additional Class W purchases may be made and no exchanges to Class W shares of another fund may be made outside of a discretionary managed account. IN ADDITION, FOR CLASS I, CLASS R, CLASS W AND CLASS Y SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INTERMEDIARIES TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. Please consult your financial advisor for assistance in selecting the appropriate class of shares. For more information, see the SAI. - -------------------------------------------------------------------------------- S.6 SALES CHARGES FOR FUNDS OTHER THAN MONEY MARKET FUNDS CLASS A -- INITIAL SALES CHARGE ALTERNATIVE: Your purchase price for Class A shares is generally the net asset value (NAV) plus a front-end sales charge. The distributor receives the sales charge and re- allows a portion of the sales charge to the financial intermediary through which you purchased the shares. The distributor retains the balance of the sales charge. The distributor retains the full sales charge you pay when you purchase shares of the fund directly from the fund (not through an authorized financial intermediary). Sales charges vary depending on the amount of your purchase. INITIAL SALES CHARGE(A) FOR CLASS A SHARES For equity funds and funds-of-funds (equity)*
Maximum reallowance AS A % OF As a % of as a % of TOTAL MARKET VALUE PURCHASE PRICE(b) net amount invested purchase price - ----------------------------------------------------------------------------------- Up to $49,999 5.75% 6.10% 5.00% $50,000--$99,999 4.75 4.99 4.00 $100,000--$249,999 3.50 3.63 3.00 $250,000--$499,999 2.50 2.56 2.15 $500,000--$999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00(c),(d)
For fixed income funds except those listed below and funds-of-funds (fixed income)*
Maximum reallowance AS A % OF As a % of as a % of TOTAL MARKET VALUE PURCHASE PRICE(b) net amount invested purchase price - ----------------------------------------------------------------------------------- Up to $49,999 4.75% 4.99% 4.00% $50,000--$99,999 4.25 4.44 3.50 $100,000--$249,999 3.50 3.63 3.00 $250,000--$499,999 2.50 2.56 2.15 $500,000--$999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00(c),(d)
- -------------------------------------------------------------------------------- S.7 For RiverSource Absolute Return Currency and Income Fund, RiverSource Floating Rate Fund, RiverSource Inflation Protected Securities Fund, RiverSource Intermediate Tax-Exempt Fund, RiverSource Limited Duration Bond Fund and RiverSource Short Duration U.S. Government Fund
Maximum reallowance AS A % OF As a % of as a % of TOTAL MARKET VALUE PURCHASE PRICE(b) net amount invested purchase price - ----------------------------------------------------------------------------------- Up to $49,999 3.00% 3.09% 2.50% $50,000--$99,999 3.00 3.09 2.50 $100,000--$249,999 2.50 2.56 2.15 $250,000--$499,999 2.00 2.04 1.75 $500,000--$999,999 1.50 1.52 1.25 $1,000,000 or more 0.00 0.00 0.00(c),(d)
* "Funds-of-funds (equity)" includes -- RiverSource Portfolio Builder Aggressive Fund, RiverSource Portfolio Builder Moderate Aggressive Fund, RiverSource Portfolio Builder Moderate Fund, RiverSource Portfolio Builder Total Equity Fund, Seligman Asset Allocation Aggressive Growth Fund, Seligman Asset Allocation Balanced Fund, Seligman Asset Allocation Growth Fund, Seligman Asset Allocation Moderate Growth Fund, Seligman TargETFund 2045, Seligman TargETFund 2035, Seligman TargETFund 2025, Seligman TargETFund 2015 and Seligman TargETFund Core. "Funds-of-funds (fixed income)" includes -- RiverSource Income Builder Basic Income Fund, RiverSource Income Builder Enhanced Income Fund, RiverSource Income Builder Moderate Income Fund, RiverSource Portfolio Builder Conservative Fund and RiverSource Portfolio Builder Moderate Conservative Fund. (a) Because of rounding in the calculation of the offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. (b) Purchase price includes the sales charge. (c) Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial intermediary the following out of its own resources: a sales commission of up to 1.00% for a sale of $1,000,000 to $3,999,999; a sales commission up to 0.50% for a sale of $4,000,000 to $49,999,999; and a sales commission up to 0.25% for a sale of $50,000,000 or more. (d) For certain eligible employee benefit plans defined under section 401(a), 401(k), 457 and 403(b) which meet eligibility rules for the waiver of applicable sales charges, the distributor may pay the following out of its own resources: a sales commission of 1.00% for a sale of $1 to $3,999,999 received in eligible employee benefit plans; a sales commission up to 0.50% for a sale of $4,000,000 to $49,999,999; and a sales commission up to 0.25% for a sale of $50,000,000 or more. See "Initial Sales Charge -- Waivers of the sales charge for Class A shares" for employee benefit plan eligibility rules. There is no initial sales charge on reinvested dividends or capital gain distributions. INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA). You may be able to reduce the sales charge on Class A shares, based on the combined market value of accounts in your ROA group. Your ROA group includes the current market values of the following investments which are eligible to be added together for purposes of determining the sales charge on your next purchase: - - Your current investment in a fund; and - -------------------------------------------------------------------------------- S.8 - - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other funds in the RiverSource Family of Funds, provided your investment was subject to a sales charge. Your household consists of you, your spouse or domestic partner and your unmarried children under age 21, all of whom share a mailing address. The following accounts are eligible to be included in your ROA group in order to determine the sales charge on your purchase: - - Individual or joint accounts; - - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested in Class A, Class B or Class C shares that were subject to a sales charge; - - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; - - Revocable trust accounts for which you or a member of your household, individually, is the beneficial owner/grantor; - - Accounts held in the name of your, your spouse's, or your domestic partner's sole proprietorship or single owner limited liability company or S corporation; and - - Qualified retirement plan assets, provided that you are the sole owner of the business sponsoring the plan, are the sole participant (other than a spouse) in the plan, and have no intention of adding participants to the plan. The following accounts are NOT eligible to be included in your ROA group in order to determine the sales charge on your purchase: - - Accounts of pension and retirement plans with multiple participants, such as 401(k) plans (which are combined to reduce the sales charge for the entire pension or retirement plan and therefore are not used to reduce the sales charge for your individual accounts); - - Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; - - Investments in Class I, Class R2, Class R3, Class R4, Class R5, Class W or Class Y shares; - - Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and - - Charitable and irrevocable trust accounts. If you purchase fund shares through different financial intermediaries, and you want to include those assets toward a reduced sales charge, you must inform your financial intermediary in writing about the other accounts when placing your purchase order. Contact your financial intermediary to determine what information is required. - -------------------------------------------------------------------------------- S.9 Unless you provide your financial intermediary in writing with information about all of the accounts that may count toward a sales charge reduction, there can be no assurance that you will receive all of the reductions for which you may be eligible. You should request that your financial intermediary provide this information to the fund when placing your purchase order. For more information on ROA, please see the SAI. INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including any existing ROA) over a period of up to 13 months, you may be able to reduce the front-end sales charge(s) for investments in Class A shares by completing and filing an LOI. The required form of LOI may vary by financial intermediary. Existing ROA can be included in your LOI. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI. Five percent of the commitment amount will be placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining amount of the unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. Existing ROA Example. Shareholder currently has $60,000 ROA in the funds. Shareholder completes an LOI to invest $100,000 in the funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in the funds' Class A shares (any non-money market fund in the RiverSource Family of Funds) in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Notification Obligation. You must request the reduced sales charge when you buy shares. If you do not complete and file an LOI, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. You should request that your financial intermediary provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial intermediary or see the SAI. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - - current or retired Board members, officers or employees of the funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - current or retired Ameriprise Financial Services, Inc. financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - -------------------------------------------------------------------------------- S.10 - - registered representatives and other employees of affiliated or unaffiliated financial intermediaries having a selling agreement with the distributor, including their spouses, domestic partners, children, parents and their spouse's or domestic partner's parents. - - portfolio managers employed by subadvisers of the funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - partners and employees of outside legal counsel to the funds or the funds' directors or trustees who regularly provide advice and services to the funds, or to their directors or trustees. - - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another fund in the RiverSource Family of Funds; - through or under a wrap fee product or other investment product sponsored by a financial intermediary that charges an account management fee that has, or that clear trades through a financial intermediary that has, a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; or - through bank trust departments. - - separate accounts established and maintained by an insurance company which are exempt from registration under Section 3(c)(11). - - purchases made through "employee benefit plans" created under section 401(a), 401(k), 457 and 403(b) which: - have at least $1 million in plan assets at the time of investment; and - have a plan level or omnibus account that is maintained with the fund or its transfer agent; and - transact directly with the fund or its transfer agent through a third party administrator or third party recordkeeper. For more information regarding waivers of sales charge for Class A purchases, please see the SAI. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional classes of investors. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. - -------------------------------------------------------------------------------- S.11 Unless you provide your financial intermediary with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial intermediary provide this information to the fund when placing your purchase order. Because the current prospectus is available on the funds' website (for RiverSource funds) at riversource.com/funds or (for Seligman funds) at seligman.com free of charge, information regarding breakpoint discounts is not separately disclosed on the website. CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased without a sales charge where a commission was separately paid by the distributor to an authorized financial intermediary effecting the purchase, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - - to which no sales commission or transaction fee was paid to an authorized financial intermediary at the time of purchase. - - purchased through reinvestment of dividends and capital gain distributions. - - in the event of the shareholder's death. - - from a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. - - in an account that has been closed because it falls below the minimum account balance. - - that result from required minimum distributions taken from retirement accounts upon the shareholders attainment of age 70 1/2. - - that result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - - of RiverSource funds purchased prior to Dec. 1, 2008. - - initially purchased by an employee benefit plan that is not connected with a plan level termination. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional classes of investors. Policies relating to waiving the CDSC may be modified or withdrawn at any time. - -------------------------------------------------------------------------------- S.12 CLASS B AND CLASS C -- CDSC ALTERNATIVE The money market funds (except RiverSource Tax-Exempt Money Market Fund) offer Class B and Class C shares, but only to facilitate exchanges with other funds offering Class B and Class C shares, respectively. For example, if you own Class B or Class C shares of another fund, but want to hold your money in a money market fund, you may exchange into Class B or Class C shares of a money market fund. Funds that offer Class B and Class C shares have limitations on the amount you may invest in those share classes. If you are considering purchasing Class B or Class C shares of a fund, please see the prospectus for that fund for any effective purchase limitations. Although you may not purchase Class B and Class C shares of the money market funds directly, if you exchange into Class B or Class C shares of a money market fund from another fund, you will be subject to the rules governing CDSC set forth in this section. To minimize the amount of CDSC you may pay when you sell your shares, the fund assumes that shares acquired through reinvested dividends and capital gain distributions (which are not subject to CDSC) are sold first. Shares that have been in your account long enough so that they are not subject to a CDSC are sold next. After these shares are exhausted, shares will be sold in the order they were purchased (earliest to latest). FOR CLASS B, the CDSC is based on the sale amount and the number of years between purchase and sale. The following table shows how CDSC percentages on sales decline over time:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 3%** Fourth year 3% Fifth year 2% Sixth year 1% Seventh or eighth year 0%
* Because of rounding in the calculation, the portion of the CDSC retained by the distributor may vary and the actual CDSC you pay may be more or less than the CDSC calculated using these percentages. ** For shares purchased in a RiverSource fund on or prior to June 12, 2009, the CDSC percentage for the third year is 4%. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial intermediaries that sell Class B shares. A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class B shares. - -------------------------------------------------------------------------------- S.13 You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Class B shares purchased in a RiverSource fund prior to May 21, 2005 age on a calendar year basis. Class B shares purchases made in a RiverSource fund beginning May 21, 2005 age on a daily basis. For example, a purchase made on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year aging. However, a purchase made on Nov. 12, 2005 completed its first year on Nov. 11, 2006 under daily aging. Class B shares originally purchased in a RiverSource fund prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares originally purchased in a Seligman fund on or prior to June 12, 2009 will convert to Class A shares in the month prior to the ninth year of ownership. Class B shares purchased in a RiverSource fund beginning May 21, 2005 and Class B shares purchased in a Seligman fund beginning June 13, 2009 will convert to Class A shares one month after the completion of the eighth year of ownership. FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year after purchase. Although there is no front-end sales charge when you buy Class C shares, the distributor pays a total amount up to 1% (including sales commission and advance of service fees) to financial intermediaries that sell Class C shares. See "Buying and Selling Shares -- Distribution and Service Fees." A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class C shares. You may not make additional purchases of Class C shares if your ROA exceeds $999,999.99. For both Class B and Class C shares, the amount of any CDSC you pay will be based on the lower of the original purchase price of those shares or current net asset value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you do not have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 3 1/2 years, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 3% because the sale was made during the fourth year after the purchase. - -------------------------------------------------------------------------------- S.14 CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - - in the event of the shareholder's death. - - that result from required minimum distributions taken from retirement accounts upon the shareholders' attainment of age 70 1/2. - - sold under an approved substantially equal periodic payment arrangement. - - by certain other investors, including certain institutions as set forth in more detail in the SAI. For more information regarding waivers of the CDSC for Class B shares, please see the SAI. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional classes of investors. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares: - - in the event of the shareholder's death. - - to which no sales commission or transaction fee was paid to an authorized financial intermediary at the time of purchase. - - that result from required minimum distributions taken from retirement accounts upon the shareholders' attainment of age 70 1/2. - - initially purchased by an eligible employee benefit plan that are not connected with a plan level termination. - - by certain other investors, including certain institutions as set forth in more detail in the SAI. For more information regarding waivers of the CDSC for Class C shares, please see the SAI. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional classes of investors. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5, CLASS W AND CLASS Y -- NO SALES CHARGE. For each of Class I, Class R2, Class R3, Class R4, Class R5 and Class W there is no initial sales charge or CDSC. - -------------------------------------------------------------------------------- S.15 OPENING AN ACCOUNT Financial institutions are required by law to obtain certain personal information from each person who opens an account in order to verify the identity of the person. As a result, when you open an account you will be asked to provide your name, permanent street address, date of birth, and Social Security or Employer Identification number. You may also be asked for other identifying documents or information. If you do not provide this information, the fund or the financial intermediary through which you are investing in the fund may not be able to open an account for you. If the fund or the financial intermediary through which you are investing in the fund is unable to verify your identity, your account may be closed, or other steps may be taken, as deemed appropriate. When you buy shares, your order will be priced at the next NAV calculated after your order is accepted by the fund or an authorized financial intermediary. Any applicable sales charge will be added to the purchase price for Class A shares. You may establish and maintain your account with an authorized financial intermediary or directly with the fund. The fund may appoint servicing agents to accept purchase orders and to accept exchange (and sale) orders on its behalf. Accounts established with the fund will be supported by the fund's transfer agent. METHODS OF PURCHASING SHARES These methods of purchasing shares generally apply to Class A, Class B, and Class C shares. CLASS B SHARES OF RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND IS CURRENTLY CLOSED TO INVESTORS FOR NEW PURCHASES. CLASS B SHARES FOR RIVERSOURCE FLOATING RATE FUND, RIVERSOURCE INFLATION PROTECTED SECURITIES FUND, RIVERSOURCE INTERMEDIATE TAX-EXEMPT FUND, RIVERSOURCE LIMITED DURATION BOND FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND ARE CLOSED TO NEW INVESTORS AND NEW PURCHASES. EXISTING SHAREHOLDERS IN THESE FUNDS MAY CONTINUE TO OWN CLASS B SHARES AND MAKE EXCHANGES INTO AND OUT OF EXISTING ACCOUNTS WHERE CLASS B SHARES OF THESE FUNDS ARE MAINTAINED. ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INTERMEDIARY ALL REQUESTS The financial intermediary through which you buy shares may have different policies not described in this prospectus, including different minimum investment amounts and minimum account balances. - -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL You or the financial intermediary through which you buy shares may establish an account with the fund. To establish an account in this fashion, complete a fund account application - -------------------------------------------------------------------------------- S.16 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained (for RiverSource funds) at riversource.com/funds or (for Seligman funds) at seligman.com or may be requested by calling (800) 221-2450. Make your check payable to the fund. The fund does not accept cash, credit card convenience checks, money orders, traveler's checks, starter checks, third or fourth party checks, or other cash equivalents. Mail your check and completed application to: REGULAR MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL 30 DAN ROAD CANTON, MA 02021-2809 If you already have an account, include your name, account number, and the name of the fund and class of shares you wish to purchase along with your check. You can make scheduled investments in the fund by moving money from your checking account or savings account. See the Minimum Investment and Account Balance chart below for more information regarding scheduled investment plans. - -------------------------------------------------------------------------------- BY WIRE OR ACH Fund shares purchased in an account established and maintained with the fund may be paid for by federal funds wire. Before sending a wire, call (800) 221-2450 to notify the fund's transfer agent of the wire and to receive further instructions. If you are establishing an account with a wire purchase, you are required to send a signed account application to the address above. Please include the wire control number or your new account number on the application. Your bank or financial intermediary may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.17 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY EXCHANGE Call (800) 221-2450 or send signed written instructions to the address above. - -------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE
RIVERSOURCE RIVERSOURCE 120/20 DISCIPLINED CONTRARIAN SMALL CAP EQUITY FUND VALUE FUND THREADNEEDLE RIVERSOURCE FOR ALL FUNDS, GLOBAL EXTENDED FLOATING RATE CLASSES AND ALPHA FUND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO ABSOLUTE RETURN INFLATION THE RIGHT TAX QUALIFIED CURRENCY AND PROTECTED (NONQUALIFIED) ACCOUNTS INCOME FUND SECURITIES FUND CLASS W - --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $10,000 $5,000 $500 - --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 $100 None - --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $1,000 None $5,000 $2,500 $500
*If your fund account balance falls below the minimum account balance for any reason, including a market decline, you may be asked to increase it to the minimum account balance or establish a scheduled investment plan. If you do not do so within 30 days, your shares may be automatically redeemed and the proceeds mailed to you. ------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE -- SCHEDULED INVESTMENT PLANS
RIVERSOURCE RIVERSOURCE 120/20 DISCIPLINED CONTRARIAN SMALL CAP EQUITY FUND VALUE FUND THREADNEEDLE RIVERSOURCE FOR ALL FUNDS, GLOBAL EXTENDED FLOATING RATE CLASSES AND ALPHA FUND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO ABSOLUTE RETURN INFLATION THE RIGHT TAX QUALIFIED CURRENCY AND PROTECTED (NONQUALIFIED) ACCOUNTS INCOME FUND SECURITIES FUND CLASS W - --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100(a) $100(b) $10,000 $5,000 $500 - --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 $100 None - --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None(b) None $5,000 $2,500 $500
**If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. (a)Money Market Funds -- $2,000 (b)Money Market Funds -- $1,000 - -------------------------------------------------------------------------------- S.18 ------------------------------------------------------------------------------- These minimums may be waived for accounts that are managed by an investment professional, for accounts held in approved discretionary or non-discretionary wrap programs, for accounts that are a part of an employer-sponsored retirement plan, or for other account types if approved by the distributor. The fund reserves the right to modify its minimum account requirements at any time, with or without prior notice. Please contact your financial intermediary for information regarding wire or electronic funds transfer. IMPORTANT: Payments sent by electronic fund transfers (ACH), a bank authorization or check that are not guaranteed may take up to 14 days to clear. If you request a sale within 14 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial intermediary process your transaction. If you maintain your account directly with your financial intermediary, you must contact that financial intermediary to exchange or sell shares of the fund. If your account was established with the fund, there are a variety of methods you may use to exchange or sell shares of the fund. WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INTERMEDIARY ALL REQUESTS You can exchange or sell shares by having your financial intermediary process your transaction. The financial intermediary through which you purchased shares may have different policies not described in this prospectus, including different transaction limits, exchange policies and sale procedures. - -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL Mail your exchange or sale request to: REGULAR MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL 30 DAN ROAD CANTON, MA 02021-2809 ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.19 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Include in your letter: - your name - the name of the fund(s) - your account number - the class of shares to be exchanged or sold - your Social Security number or Employer Identification number - the dollar amount or number of shares you want to exchange or sell - specific instructions regarding delivery or exchange destination - signature(s) of registered account owner(s) - any special documents the transfer agent may require in order to process your order Corporate, trust or partnership accounts may need to send additional documents. Payment will be mailed to the address of record and made payable to the names listed on the account, unless your request specifies differently and is signed by all owners. A Medallion Signature Guarantee is required if: - Amount is over $50,000. - You want your check made payable to someone other than the registered account owner(s). - Your address of record has changed within the last 30 days. - You want the check mailed to an address other than the address of record. - You want the proceeds sent to a bank account not on file. - You are the beneficiary of the account and the account owner is deceased (additional documents may be required). A Medallion Signature Guarantee assures that a signature is genuine and not a forgery. The financial intermediary providing the Guarantee is financially liable for the transaction if the signature is a forgery. Eligible guarantors include commercial banks, trust companies, savings associations, and credit unions as defined by the Federal ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.20 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Deposit Insurance Act. Note: A guarantee from a notary public is not acceptable. NOTE: Any express mail delivery charges you pay will vary depending on domestic or international delivery instructions. - -------------------------------------------------------------------------------- BY TELEPHONE Call (800) 221-2450. Unless you elect not to have telephone exchange and sale privileges, they will automatically be available to you. Reasonable procedures will be used to confirm authenticity of telephone exchange or sale requests. Telephone privileges may be modified or discontinued at any time. Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate, qualified retirement accounts and trust accounts which the current trustee is not listed. You may request that these privileges NOT apply by writing to the address above. Payment will be mailed to the address of record and made payable to the names listed on the account. Telephone sale requests are limited to $50,000 per day. - -------------------------------------------------------------------------------- BY WIRE OR ACH You can wire money from your fund account to your bank account. Make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. Call (800) 221-2450 or send a letter of instruction, with a Medallion Signature Guarantee if required, to the address above. A service fee may be charged against your account for each wire sent. Minimum amount: by ACH: $100 by wire: $500 Your bank or financial intermediary may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- BY SCHEDULED You may elect to receive regular periodic payments through an PAYOUT PLAN automatic sale of shares. See the SAI for more information. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.21 CHECK REDEMPTION SERVICE Class A shares of the money market funds offer check writing privileges. If you have $2000 in a money market fund, you may request checks which may be drawn against your account. You can elect this service on your initial application, or, thereafter. Call (800) 221-2450 for the appropriate forms to establish this service. If you own Class A shares that were both in another fund at NAV because of the size of the purchase, and then exchanged into a money market fund, check redemptions may be subject to a CDSC. EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered fund in the RiverSource Family of Funds without a sales charge. For complete information on the fund you are exchanging into, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after your transaction request is received in good order. You may be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. IF YOU HOLD YOUR FUND SHARES IN AN ACCOUNT WITH AMERIPRISE FINANCIAL SERVICES, YOU MAY HAVE LIMITED EXCHANGEABILITY WITHIN THE RIVERSOURCE FAMILY OF FUNDS. MARKET TIMING SHORT-TERM TRADING AND OTHER SO-CALLED MARKET TIMING PRACTICES ARE FREQUENT TRADING PRACTICES BY CERTAIN SHAREHOLDERS INTENDED TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING THE FUND'S TRANSACTION COSTS. - -------------------------------------------------------------------------------- S.22 FOR A FUND ORGANIZED AS A FUND-OF-FUND, ITS ASSETS CONSIST PRIMARILY OF SHARES OF THE UNDERLYING FUNDS IN WHICH IT INVESTS. THE UNDERLYING FUNDS MAY BE MORE SUSCEPTIBLE TO THE RISKS OF MARKET TIMING. FUNDS THAT INVEST DIRECTLY IN SECURITIES THAT TRADE INFREQUENTLY MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF INEFFICIENCIES IN THE SECURITIES MARKETS. FUNDS AND THE UNDERLYING FUNDS THAT INVEST IN SECURITIES THAT TRADE ON OVERSEAS SECURITIES MARKETS MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF CHANGES IN THE VALUES OF SECURITIES BETWEEN THE CLOSE OF OVERSEAS MARKETS AND THE CLOSE OF U.S. MARKETS, WHICH IS GENERALLY THE TIME AT WHICH A FUND'S NAV IS CALCULATED. TO THE EXTENT THAT A FUND OR UNDERLYING FUND HAS SIGNIFICANT HOLDINGS OF SMALL CAP STOCKS, FLOATING RATE LOANS, HIGH YIELD BONDS, TAX-EXEMPT SECURITIES OR FOREIGN SECURITIES, THE RISKS OF MARKET TIMING MAY BE GREATER FOR THE FUND THAN FOR OTHER FUNDS. SEE "PRINCIPAL INVESTMENT STRATEGIES" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN WHICH YOUR FUND INVESTS. SEE "PRICING AND VALUING OF FUND SHARES" FOR A DISCUSSION OF THE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE FUNDS' BOARD HAS ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING THAT MAY BE HARMFUL TO THE FUNDS. EACH FUND SEEKS TO ENFORCE THIS POLICY THROUGH ITS SERVICE PROVIDERS AS FOLLOWS: - - The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging or other purchase and exchange transactions not believed to be inconsistent with the best interest of fund shareholders or the Board's policy. The fund uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares and where the shares are maintained. Under the fund's procedures, there is no set number of transactions in the fund that constitutes market timing. Even one purchase and subsequent sale by related accounts may be market timing. Generally, the fund seeks to restrict the exchange privilege of an investor who makes more than three exchanges into or out of the fund in any 90-day period. Accounts held by a retirement plan or a financial intermediary for the benefit of its participants or clients, which typically engage in daily transactions, are not subject to this limit, although the fund may seek the assistance of financial intermediaries in applying similar restrictions on their participants or clients. The fund's ability to monitor and discourage abusive trading practices in omnibus accounts is more limited. - - The fund may rely on the monitoring policy of a financial intermediary, for example, a retirement plan administrator or similar financial intermediary authorized to distribute the funds, if it determines the policy and procedures of such financial intermediaries are sufficient to protect the fund and its shareholders. - -------------------------------------------------------------------------------- S.23 - - If an investor's trading activity is determined to be market timing or otherwise harmful to existing shareholders, the fund reserves the right to modify or discontinue the investor's exchange privilege or reject the investor's purchases or exchanges, including purchases or exchanges accepted by a financial intermediary. The fund may treat accounts it believes to be under common control as a single account for these purposes, although it may not be able to identify all such accounts. - - Although the fund does not knowingly permit market timing, it cannot guarantee that it will be able to identify and restrict all short-term trading activity. The fund receives purchase and sale orders through financial intermediaries where market timing activity may not always be successfully detected. Other exchange policies: - - Exchanges must be made into the same class of shares of the share class being exchanged out of. - - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. - - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - - Once the fund receives your exchange request, you cannot cancel it after the market closes. - - Shares of the purchased fund may not be used on the same day for another exchange or sale. - - New investments in Class A shares of a money market fund may be exchanged for either Class A, Class B or Class C shares of any other publicly offered fund in the RiverSource Family of Funds. - - If you exchange shares from Class A shares of a money market fund to another fund in the RiverSource Family of Funds, any further exchanges must be between shares of the same class. For example, if you exchange from Class A shares of a money market fund into Class B shares of another fund in the RiverSource Family of Funds, you may not exchange from Class B shares of that fund back to Class A shares of a money market fund. Exchange rules for money market funds are illustrated in the following tables. - - Shares of Class W originally purchased, but no longer held in a discretionary managed account, may not be exchanged for Class W shares of another fund. You may continue to hold these shares in the fund. Changing your investment to a different fund will be treated as a sale and purchase, and you will be subject to applicable taxes on the sale and sales charges on the purchase of the new fund. - -------------------------------------------------------------------------------- S.24 - - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to.
TO OTHER FUNDS FROM A MONEY MARKET FUND ----------------------------- CLASS A CLASS B CLASS C - -------------------------------------------------------------------- Class A Yes Yes Yes Class B No Yes No Class C No No Yes
TO A MONEY MARKET FUND FROM OTHER FUNDS ----------------------------- CLASS A CLASS B CLASS C - -------------------------------------------------------------------- Class A Yes No No Class B No Yes No Class C No No Yes
If your initial investment was in a money market fund and you exchange into an equity or fixed income fund, you will pay an initial sales charge if you exchange into Class A and be subject to a CDSC if you exchange into Class B or Class C. If your initial investment was in Class A shares of an equity or fixed income fund and you exchange shares into a money market fund, you may exchange that amount to another fund, including dividends earned on that amount, without paying a sales charge. SELLING SHARES You may sell your shares at any time. The payment will be sent within seven days after your request is received in good order. When you sell shares, the amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received in good order, minus any applicable CDSC. REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of a fund in the RiverSource Family of Funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. For a Class A repurchase on shares that were originally charged a CDSC, the amount of the CDSC will be reinvested at the NAV on the date the repurchase is processed. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the - -------------------------------------------------------------------------------- S.25 same Class C account and fund you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. In order for you to take advantage of this repurchase waiver, you must notify your financial intermediary or the fund's transfer agent if your account is held at the fund within 90 days of the date your sale request was processed. Contact your financial intermediary for information on required documentation. The repurchase privilege may be modified or discontinued at any time and use of this option may have tax consequences. If you sold shares of a Seligman fund on or before February 3, 2009 and wish to repurchase shares, you have the option of taking advantage of the current repurchase policy (described above) within 90 days of the date your sale request was processed, or you may use all or part of your sale proceeds to purchase shares of the fund you sold or any other fund in the RiverSource Family of Funds without paying an initial sales charge or, if you paid a CDSC when you sold your shares, receiving a credit for the applicable CDSC, within 120 days of the date your sale request was processed. Contact your financial intermediary or, if you opened an account directly with the fund, the transfer agent, for more information on the required documentation to complete a repurchase transaction. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. PRICING AND VALUING OF FUND SHARES For classes of shares sold with an initial sales charge, the public offering or purchase price is the net asset value plus the sales charge. For funds or classes of shares sold without an initial sales charge, the public offering price is the NAV. Orders in good form are priced at the NAV next determined after you place your order. Good form or good order means that your instructions have been received in the form required by the fund. This may include, for example, providing the fund name and account number, the amount of the transaction and all required signatures. The NAV is the value of a single share of the fund. The NAV is determined by dividing the value of the fund's assets, minus any liabilities, by the number of shares outstanding. The NAV is calculated as of the close of business on the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that the NYSE is open. For a fund organized as a fund-of-funds, the assets will consist primarily of shares of the underlying funds, which are valued at their NAVs. Securities are valued primarily on the basis of market quotations and floating rate loans are valued primarily on the basis of indicative bids. Both - -------------------------------------------------------------------------------- S.26 market quotations and indicative bids are obtained from outside pricing services approved and monitored under procedures adopted by the Board. Certain short-term securities with maturities of 60 days or less are valued at amortized cost. When reliable market quotations or indicative bids are not readily available, investments are priced at fair value based on procedures adopted by the Board. These procedures are also used when the value of an investment held by a fund or underlying fund is materially affected by events that occur after the close of a securities market but prior to the time as of which the fund's or underlying fund's NAV is determined. Valuing investments at fair value involves reliance on judgment. The fair value of an investment is likely to differ from any available quoted or published price. To the extent that a fund or an underlying fund has significant holdings of small cap stocks, high yield bonds, floating rate loans, tax-exempt securities or foreign securities that may trade infrequently, fair valuation may be used more frequently than for other funds. The funds use an unaffiliated service provider to assist in determining fair values for foreign securities. Foreign investments are valued in U.S. dollars. Some of a fund's or an underlying fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the fund's or underlying fund's shares may change on days when shareholders will not be able to purchase or sell the fund's or underlying fund's shares. For money markets funds -- The fund's investments are valued at amortized cost, which approximates market value, as explained in the SAI. Although the fund cannot guarantee it will always be able to maintain a constant net asset value of $1 per share, it will use its best efforts to do so. DISTRIBUTIONS AND TAXES As a shareholder you are entitled to your share of your fund's net income and net gains. Each fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. - -------------------------------------------------------------------------------- S.27 DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS Your fund's net investment income is distributed to you as dividends. Dividends may be composed of qualified dividend income, which is eligible for preferential tax rates under current tax law, as well as other ordinary dividend income, which may include dividends which are non-qualified dividends, interest income and short-term capital gains. Because of the types of income earned by fixed income funds, it is unlikely the funds will distribute qualified dividend income. Generally, capital gains are realized when a security is sold for a higher price than was paid for it. Generally, capital losses are realized when a security is sold for a lower price than was paid for it. Typically, each realized capital gain or loss is long-term or short-term depending on the length of time the fund held the security. Realized capital gains and losses offset each other. The fund offsets any net realized capital gains by any available capital loss carryovers. Net short-term capital gains, if any, are included in net investment income and are taxable as ordinary income when distributed to the shareholder. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. If the fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to the shareholders to the extent of their basis in their shares. A return of capital will generally not be taxable; however, any amounts received in excess of basis are treated as capital gain. Forms 1099 sent to shareholders report any return of capital. Certain derivative instruments subject the fund to special tax rules, the effect of which may be to accelerate income to the fund, defer fund losses, cause adjustments in the holding periods of fund securities, convert capital gains into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund unless you request distributions in cash. The financial intermediary through which you purchased shares may have different policies. Distributions are reinvested at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. TAXES If you buy shares shortly before the record date of a distribution, you may pay taxes on money earned by the fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. - -------------------------------------------------------------------------------- S.28 For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. Generally, if you sell shares for less than their cost, the difference is a capital loss or if you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). You may not create a tax loss or reduce a tax gain, based on paying a sales charge, by exchanging shares before the 91st day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91st day after the day of purchase, you may not be able to include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For more information, see the SAI. REITs often do not provide complete tax information until after the calendar year-end; generally mid to late January and continuing through early February. Consequently, if your fund has significant investments in REITs, you may not receive your Form 1099-DIV until February. Other RiverSource funds tax statements are generally mailed in January. FOR TAXABLE FUNDS. Distributions related to shares not held in IRAs or other retirement accounts are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. Shares held in an IRA or qualified retirement account are generally subject to different tax rules. Taking a distribution from your IRA or qualified retirement plan may subject you to federal taxes, withholding, penalties and reporting requirements. Please consult your tax advisor. Income received by a fund may be subject to foreign tax and withholding. Tax conventions between certain countries and the U.S. may reduce or eliminate these taxes. FOR TAX-EXEMPT FUNDS. Dividends distributed from interest earned on tax-exempt securities (exempt-interest dividends) are exempt from federal income taxes but may be subject to state and local taxes and potentially the alternative minimum tax. Dividends distributed from net capital gains, if any, and other income earned are not exempt from federal income taxes. Any taxable distributions are taxable in the year the fund declares them regardless of whether you take them in cash or reinvest them. - -------------------------------------------------------------------------------- S.29 Interest on certain private activity bonds is a preference item for purposes of the individual and corporate alternative minimum tax. To the extent the fund earns such income, it will flow through to its shareholders and may affect those shareholders who are subject to the alternative minimum tax. See the SAI for more information. Because interest on municipal bonds and notes is tax-exempt for federal income tax purposes, any interest on money you borrow that is used directly or indirectly to purchase fund shares is not deductible on your federal income tax return. You should consult a tax advisor regarding its deductibility for state and local income tax purposes. For a fund organized as a fund-of-funds, because most of the fund's investments are shares of underlying funds, the tax treatment of the fund's gains, losses, and distributions may differ from the tax treatment that would apply if either the fund invested directly in the types of securities held by the underlying funds or the fund shareholders invested directly in the underlying funds. As a result, fund shareholders may recognize higher amounts of capital gain distributions or ordinary income dividends than they otherwise would. IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to an investment in a fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial intermediary to determine the availability of the funds. The funds may only be purchased or sold directly or through financial intermediaries authorized by the distributor to offer the funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE RIVERSOURCE FAMILY OF FUNDS AND CERTAIN FINANCIAL INTERMEDIARIES THAT OFFER THE RIVERSOURCE FAMILY OF FUNDS MAY NOT OFFER ALL FUNDS ON ALL INVESTMENT PLATFORMS. If you set up an account at a financial intermediary that does not have, and is unable to obtain, a selling agreement with the distributor, you will not be able to transfer fund holdings to that account. In that event, you must either maintain your fund holdings with your current financial intermediary, find another financial intermediary with a selling agreement, or sell your shares, paying any applicable CDSC. Please be aware that transactions in taxable accounts are taxable events and may result in income tax liability. ADDITIONAL SERVICES AND COMPENSATION In addition to acting as the fund's investment manager, RiverSource Investments and its affiliates also receive compensation for providing other services to the funds. - -------------------------------------------------------------------------------- S.30 Administration Services. Ameriprise Financial, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides or compensates others to provide administrative services to the funds. These services include administrative, accounting, treasury, and other services. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Distribution and Shareholder Services. RiverSource Fund Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, (the distributor), provides underwriting and distribution services to the funds. Under the Distribution Agreement and related distribution and shareholder servicing plans, the distributor receives distribution and shareholder servicing fees. The distributor may retain a portion of these fees to support its distribution and shareholder servicing activity. The distributor reallows the remainder of these fees (or the full fee) to the financial intermediaries that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the funds' policy regarding directed brokerage. Transfer Agency Services. RiverSource Service Corporation, 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the transfer agent or RiverSource Service Corporation), provides or compensates others to provide transfer agency services to the funds. The funds pay the transfer agent a fee that varies by class, as set forth in the SAI, and reimburses the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." RiverSource Service Corporation pays a portion of these fees to financial intermediaries that provide sub-recordkeeping and other services to fund shareholders. The SAI provides additional information about the services provided and the fee schedules for the transfer agent agreements. - -------------------------------------------------------------------------------- S.31 Plan Administration Services. Under a Plan Administration Services Agreement, the fund pays for plan administration services, including services such as implementation and conversion services, account set-up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INTERMEDIARIES The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the fund) to financial intermediaries, in connection with agreements between the distributor and financial intermediaries pursuant to which these financial intermediaries sell fund shares and provide services to their clients who are shareholders of the fund. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors in the fund or fund shareholders for the purchase or ownership of fund shares of the fund, and these payments are not reflected in the fees and expenses of the fund, as they are not paid by the fund. In exchange for these payments, a financial intermediary may elevate the prominence or profile of the fund within the financial intermediary's organization, and may provide the distributor and its affiliates with preferred access to the financial intermediary's registered representatives or preferred access to the financial intermediary's customers. These arrangements are sometimes referred to as marketing and/or sales support payments, program and/or shareholder servicing payments, or revenue sharing payments. These arrangements create potential conflicts of interest between a financial intermediary's pecuniary interest and its duties to its customers, for example, if the financial intermediary receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial intermediary or its representatives may be incented to recommend or sell shares of the fund where it receives or anticipates receiving the higher payment instead of other investment options that may be more appropriate for the customer. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management, sales leaders and other employees may spend more of their time and resources promoting Ameriprise Financial and its subsidiary companies, including RiverSource Investments and the distributor, and the products they offer, including the fund. - -------------------------------------------------------------------------------- S.32 These payments are typically negotiated based on various factors including, but not limited to, the scope and quality of the services provided by the financial intermediary, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships, the profile the fund may obtain within the financial intermediary, and the access the distributor or other representatives of the fund may have within the financial intermediary for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial intermediary and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial intermediary and/or as a percentage of fund sales attributable to the financial intermediary. Certain financial intermediaries require flat fees instead of, or in addition to, these asset-based fees as compensation for including or maintaining a fund on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial intermediary charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial intermediary (e.g., initial platform set-up fees, ongoing maintenance or service fees, or asset or sales based fees). The amount of payments also varies by the type of sale. For instance, purchases of one fund may warrant a greater or lesser amount of payments than purchases of another fund. Additionally, sale and maintenance of shares on a stand alone basis may result in a greater or lesser amount of payments than the sale and maintenance of shares made through a plan, wrap or other fee-based program. Payments to affiliates may include payments as compensation to employees of RiverSource Investments who are licensed by the distributor in respect of certain sales and solicitation activity on behalf of the fund. These payments may be and often are significant. Additional information concerning the amount and calculation of these payments is available in the fund's SAI. Payments to affiliated broker-dealers are within the range of the payments the distributor pays to similarly-situated third party financial intermediaries and the payments such affiliated broker-dealers receive from third party fund sponsors related to the sale of their sponsored funds. However, because of the large amount of fund assets (from the RiverSource Family of Funds, in aggregate) currently held in customer accounts of the affiliated broker-dealers, the distributor and its affiliates, in the aggregate, pay significantly more in absolute dollars than other third-party fund sponsors pay to the affiliated broker-dealers for the sale and servicing of their sponsored funds. This level of payment creates potential conflicts of interest which the affiliated broker- dealers seek to mitigate by disclosure and implementation of internal controls, as well as the rules and regulations of applicable regulators. - -------------------------------------------------------------------------------- S.33 From time to time, to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payments to financial intermediaries or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial intermediaries and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial intermediary to the extent the cost of such services was less than the actual expense of the service. The financial intermediary through which you are purchasing or own shares of the fund has been authorized directly or indirectly by the distributor to sell the fund and/or to provide services to you as a shareholder of the fund. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial intermediary may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial intermediary. The SAI contains additional detail regarding payments made by the distributor to financial intermediaries. The payments described in this section are in addition to fees paid by the fund to the distributor under 12b-1 plans, which fees may be used to compensate financial intermediaries for the distribution of fund shares and the servicing of fund shareholders, or paid by the fund to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial intermediaries for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial intermediary to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the fund. Financial institutions may separately charge you additional fees. See "Buying and Selling Shares." - -------------------------------------------------------------------------------- S.34 ADDITIONAL MANAGEMENT INFORMATION AFFILIATED PRODUCTS. RiverSource Investments serves as investment manager to all funds in the RiverSource Family of Funds, including those that are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other funds (funds of funds) in the RiverSource Family of Funds (collectively referred to as underlying funds) and to discretionary managed accounts (collectively referred to as affiliated products) that invest exclusively in underlying funds. These affiliated products, individually or collectively, may own a significant percentage of the outstanding shares of the underlying funds, and RiverSource Investments seeks to balance potential conflicts between the affiliated products and the underlying funds in which they invest. The affiliated products investment in the underlying funds may also have the effect of creating economies of scale (including lower expense ratios) because the affiliated products may own substantial portions of the shares of underlying funds and, comparatively, a redemption of underlying fund shares by one or more affiliated products could cause the expense ratio of an underlying fund to increase as its fixed costs would be spread over a smaller asset base. Because of these large positions of the affiliated products, the underlying funds may experience relatively large purchases or redemptions. Although RiverSource Investments may seek to minimize the impact of these transactions, for example, by structuring them over a reasonable period of time or through other measures, underlying funds may experience increased expenses as they buy and sell securities to manage these transactions. When RiverSource Investments structures transactions over a reasonable period of time in order to manage the potential impact of the buy and sell decisions for the affiliated products, these affiliated products, including funds of funds, may pay more or less for shares of the underlying funds than if the transactions were executed in one transaction. In addition, RiverSource Investments has an economic conflict of interest in determining the allocation of the affiliated products' assets among the underlying funds as it earns different fees from the underlying funds. RiverSource Investments monitors expense levels of the funds and is committed to offering funds that are competitively priced. RiverSource Investments reports to the Board on the steps it has taken to manage any potential conflicts. See the SAI for information on the percent of the fund owned by affiliated products. - -------------------------------------------------------------------------------- S.35 CASH RESERVES. A fund may invest its daily cash balance in a money market fund selected by RiverSource Investments, including but not limited to RiverSource Short-Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of funds in the RiverSource Family of Funds and other institutional clients of RiverSource Investments. While Short-Term Cash Fund does not pay an advisory fee to RiverSource Investments, it does incur other expenses, and is expected to operate at a very low expense ratio. A fund will invest in Short-Term Cash Fund or any other money market fund selected by RiverSource Investments only to the extent it is consistent with the fund's investment objectives and policies. Short-Term Cash Fund is not insured or guaranteed by the FDIC or any other government agency. FUND HOLDINGS DISCLOSURE. The Board has adopted policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the securities owned by a fund. A description of these policies and procedures is included in the SAI. LEGAL PROCEEDINGS. 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 fund is 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 fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the fund. Information regarding certain pending and settled legal proceedings may be found in the fund's shareholder reports and in the SAI. Additionally, 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. - -------------------------------------------------------------------------------- S.36 Funds in the RiverSource Family of Funds -- which include funds offered under the RiverSource, Threadneedle and Seligman brands -- can be purchased from authorized financial intermediaries. Additional information about the fund and its investments is available in the fund's SAI, and annual and semiannual reports to shareholders. In the fund's annual report, you will find a discussion of market conditions and investment strategies that significantly affected the fund's performance during its most recent fiscal year. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI, the annual report, or the semiannual report, or to request other information about the fund, contact RiverSource Family of Funds or your financial intermediary. To make a shareholder inquiry, contact the financial intermediary through whom you purchased the fund. RiverSource Family of Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (800) 221-2450 RiverSource Family of Funds information available: (for RiverSource funds) at riversource.com/funds or (for Seligman funds) at seligman.com You may review and copy information about the fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202- 551-8090). Reports and other information about the fund are available on the EDGAR Database on the Commission's Internet site at www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, 100 F Street, N.E., Washington, D.C. 20549-1520. Investment Company Act File #811-4260 TICKER SYMBOL Class A: IFINX Class B: ISHOX Class C: AXFCX Class I: AGMIX Class R2: -- Class R4: IDFYX Class W: RSDWX
(RIVERSOURCE INVESTMENTS LOGO) S-6042-99 AF (7/09) Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND PROSPECTUS JULY 30, 2009 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND SEEKS TO PROVIDE SHAREHOLDERS WITH CURRENT INCOME AS ITS PRIMARY OBJECTIVE AND, AS ITS SECONDARY OBJECTIVE, PRESERVATION OF CAPITAL. Classes A, B, C, I and R4 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. YOU MAY QUALIFY FOR SALES CHARGE DISCOUNTS ON PURCHASES OF CLASS A SHARES. PLEASE NOTIFY YOUR FINANCIAL INTERMEDIARY IF YOU HAVE OTHER ACCOUNTS HOLDING SHARES OF FUNDS IN THE RIVERSOURCE FAMILY OF FUNDS TO DETERMINE WHETHER YOU QUALIFY FOR A SALES CHARGE DISCOUNT. SEE "BUYING AND SELLING SHARES" FOR MORE INFORMATION. NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE TABLE OF CONTENTS THE FUND.......................................... 3P Objective......................................... 3p Principal Investment Strategies................... 3p Principal Risks................................... 4p Past Performance.................................. 5p Fees and Expenses................................. 9p Other Investment Strategies and Risks............. 12p Fund Management and Compensation.................. 14p FINANCIAL HIGHLIGHTS.............................. 16P BUYING AND SELLING SHARES......................... S.1 Description of Share Classes...................... S.2 Investment Options -- Classes of Shares......... S.2 Sales Charges................................... S.7 Opening an Account.............................. S.16 Exchanging or Selling Shares...................... S.19 Exchanges....................................... S.22 Selling Shares.................................. S.25 PRICING AND VALUING OF FUND SHARES................ S.26 DISTRIBUTIONS AND TAXES........................... S.27 GENERAL INFORMATION............................... S.30
RIVERSOURCE FAMILY OF FUNDS The RiverSource Family of Funds includes a comprehensive array of funds from RiverSource Investments. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource family. RiverSource funds, RiverSource Partners funds, Seligman funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section of this prospectus. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource Family of Funds. RiverSource Variable Portfolio Funds and Seligman (Variable) Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated and unaffiliated insurance companies. - -------------------------------------------------------------------------------- 2P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS THE FUND OBJECTIVE RiverSource U.S. Government Mortgage Fund (the Fund) seeks to provide shareholders with current income as its primary objective and, as its secondary objective, preservation of capital. Because any investment involves risk, there is no assurance these objectives can be achieved. Only shareholders can change the Fund's objectives. PRINCIPAL INVESTMENT STRATEGIES The Fund's assets primarily are invested in mortgage-backed securities. Under normal market conditions, at least 80% of the Fund's net assets (including the amount of any borrowings for investment purposes) are invested in mortgage related securities that either are issued or guaranteed as to principal and interest by the U.S. government, its agencies, authorities or instrumentalities. This includes, but is not limited to Government National Mortgage Association (GNMA or Ginnie Mae) mortgage-backed bonds, which are backed by the full faith and credit of the United States; and Federal National Mortgage Association (FNMA or Fannie Mae) and Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) mortgage-backed bonds. FNMA and FHLMC are chartered or sponsored by Acts of Congress; however, their securities are neither issued nor guaranteed by the United States Treasury. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. In pursuit of the Fund's objectives, the Fund's investment manager (RiverSource Investments, LLC) chooses investments by reviewing: - - Relative value within the U.S. Government mortgage sector. - - The interest rate outlook. - - The yield curve. The yield curve is a graphic representation of the yields of bonds of the same quality but different maturities. A graph showing an upward trend with short- term rates lower than long-term rates is called a positive yield curve, while a downward trend is a negative or inverted yield curve. In evaluating whether to sell a security, the investment manager considers, among other factors, whether: - - The interest rate or economic outlook changes. - - The security is overvalued relative to alternative investments. - - A more attractive opportunity exists. - - The issuer or the security continues to meet the other standards described above. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 3P The investment manager may use derivatives such as futures, options, forward contracts and swaps, including credit default swaps, in an effort to produce incremental earnings, to hedge existing positions, to increase market exposure and investment flexibility, or to obtain or reduce credit exposure. PRINCIPAL RISKS Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objectives. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. CREDIT RISK. Credit risk is the risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the Fund purchases unrated securities, or if the rating of a security is reduced after purchase, the Fund will depend on the investment manager's analysis of credit risk more heavily than usual. DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including counterparty credit risk, leverage risk, hedging risk, correlation risk, and liquidity risk. Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. - -------------------------------------------------------------------------------- 4P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. INTEREST RATE RISK. Interest rate risk is the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates. MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. PREPAYMENT AND EXTENSION RISK. Prepayment and extension risk is the risk that a bond or other security might be called or otherwise converted, prepaid, or redeemed before maturity. This risk is primarily associated with asset-backed securities, including mortgage-backed securities. If a security is converted, prepaid, or redeemed before maturity, particularly during a time of declining interest rates, the investment manager may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the Fund. Conversely, as interest rates rise, the likelihood of prepayment decreases. The investment manager may be unable to capitalize on securities with higher interest rates because the Fund's investments are locked in at a lower rate for a longer period of time. PAST PERFORMANCE The following bar chart and table provide some illustration of the risks of investing in the Fund by showing, respectively: - - how the Fund's performance has varied for each full calendar year shown on the bar chart; and - - how the Fund's average annual total returns compare to recognized indexes shown on the table. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 5P Both the bar chart and the table assume that all distributions have been reinvested. The performance of different classes varies because of differences in sales charges and other fees and expenses. How the Fund has performed in the past (before and after taxes) does not indicate how the Fund will perform in the future. Performance reflects any fee waivers/expense caps in effect for the periods reported. In the absence of such fee waivers/expense caps, performance would have been lower. See "Fees and Expenses" for any current fee waivers/expense caps. Bar Chart. Class A share information is shown in the bar chart; the sales charge for Class A shares is not reflected in the bar chart. Table. The table shows total returns from hypothetical investments in Class A, Class B, Class C, Class I and Class R4 shares of the Fund. These returns are compared to the indexes shown for the same periods. For purposes of the performance calculation in the table we assumed: - - the maximum sales charge for Class A shares; - - sales at the end of the period and deduction of the applicable contingent deferred sales charge (CDSC) for Class B and Class C shares; - - no sales charge for Class I and Class R4 shares; and - - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. - -------------------------------------------------------------------------------- 6P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS AFTER-TAX RETURNS After-tax returns are shown only for Class A shares. After-tax returns for the other classes will vary. After-tax returns are calculated using the highest historical individual federal marginal income tax rate and do not reflect the impact of state and local taxes. Actual after-tax returns will depend on your tax situation and most likely will differ from the returns shown in the table. If you hold your shares in a tax-deferred account, such as a 401(k) plan or an IRA, the after-tax returns do not apply to you since you will not incur taxes until you begin to withdraw from your account. The return after taxes on distributions for a period may be the same as the return before taxes for the same period if there were no distributions or if the distributions were small. The return after taxes on distributions and sale of Fund shares for a period may be greater than the return before taxes for the same period if there was a tax loss realized on sale of Fund shares. The benefit of the tax loss (since it can be used to offset other gains) may result in a higher return. CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +3.04% +4.05% +2.22% +4.34% +5.04% -3.14% 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +3.30% (quarter ended Sept. 30, 2006) and the lowest return for a calendar quarter was -2.47% (quarter ended Dec. 31, 2008). The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The Fund's Class A year-to-date return at June 30, 2009 was +5.55%. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 7P AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2008)
SINCE INCEPTION SINCE (CLASSES A, INCEPTION 1 YEAR 5 YEARS B, C & R4) (CLASS I) RiverSource U.S. Government Mortgage Fund: Class A Return before taxes -7.72% +1.48% +2.51%(a) N/A Return after taxes on distributions -9.41% -0.06% +0.96%(a) N/A Return after taxes on distributions and sale of fund shares -5.00% +0.38% +1.24%(a) N/A Class B Return before taxes -8.47% +1.35% +2.47%(a) N/A Class C Return before taxes -4.98% +1.69% +2.47%(a) N/A Class I Return before taxes -2.74% N/A N/A +2.62%(b) Class R4 Return before taxes -1.05% +3.04% +3.72%(a) N/A Barclays Capital U.S. Mortgage- Backed Securities Index (reflects no deduction for fees, expenses or taxes) +8.34% +5.54% +5.51%(c) +5.43%(d) Lipper U.S. Mortgage Funds Index +1.84% +3.49% +3.89%(c) +3.32%(d)
(a) Inception date is Feb. 14, 2002. (b) Inception date is March 4, 2004. (c) Measurement period started Feb. 14, 2002. (d) Measurement period started March 4, 2004. The Barclays Capital U.S. Mortgage-Backed Securities Index, an unmanaged index, includes 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Federal National Mortgage Association (FNMA). The index reflects reinvestment of all distributions and changes in market prices. The Lipper U.S. Mortgage Funds Index includes the 10 largest U.S. mortgage funds tracked by Lipper Inc. The index's returns include net reinvested dividends. - -------------------------------------------------------------------------------- 8P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Annual fund operating expenses are based on expenses incurred during the Fund's most recently completed fiscal year, and are expressed as a percentage (expense ratio) of the Fund's average net assets during the period. The expense ratios have been adjusted to reflect current fee schedules but have not been adjusted to reflect the Fund's assets as of a different period or point in time, as asset levels will fluctuate. As of the date of this prospectus, the Fund's net assets are lower than the Fund's average net assets during the most recently completed fiscal year. In general, a fund's annual operating expenses will increase as the fund's assets decrease. Accordingly, the Fund's annual operating expenses, if adjusted based on net assets as of the date of this prospectus, would be higher than are expressed in the fee and expense table below. The commitment by the investment manager and its affiliates to waive fees and/or cap (reimburse) expenses limits the impact that any decrease in the Fund's assets will have on its total annual (net) operating expenses in the current fiscal year. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS A CLASS B CLASS C CLASS R4 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
- -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 9P ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C Management fees 0.48% 0.48% 0.48% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% Other expenses(c) 0.35% 0.36% 0.35% Total annual fund operating expenses 1.08% 1.84% 1.83% Fee waiver/expense reimbursement 0.19% 0.19% 0.18% Total annual (net) fund operating expenses(d) 0.89% 1.65% 1.65%
CLASS I CLASS R4 Management fees 0.48% 0.48% Distribution and/or service (12b-1) fees 0.00% 0.00% Other expenses(c) 0.13% 0.41% Total annual fund operating expenses 0.61% 0.89% Fee waiver/expense reimbursement 0.14% 0.12% Total annual (net) fund operating expenses(d) 0.47% 0.77%
(a) This charge may be reduced depending on the total value of your investments in the RiverSource Family of Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares purchased without an initial sales charge and sold within 18 months after purchase. See "Sales Charges." (c) Other expenses include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R4). Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will 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 by the Fund with respect to such investments will vary. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2010, 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), will not exceed 0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.47% for Class I and 0.77% for Class R4. - -------------------------------------------------------------------------------- 10P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS EXAMPLES These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. These examples also assume that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $562 $784 $1,026 $1,718 Class B $668(b) $861(b) $1,179(b) $1,948(c) Class C $268(b) $558 $ 975 $2,138 Class I $ 48 $181 $ 327 $ 752 Class R4 $ 79 $272 $ 482 $1,089
(a) Includes a 4.75% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares one month after the completion of the eighth year of ownership. You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $562 $784 $1,026 $1,718 Class B $168 $561 $ 979 $1,948(b) Class C $168 $558 $ 975 $2,138 Class I $ 48 $181 $ 327 $ 752 Class R4 $ 79 $272 $ 482 $1,089
(a) Includes a 4.75% sales charge. (b) Based on conversion of Class B shares to Class A shares one month after the completion of the eighth year of ownership. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 11P OTHER INVESTMENT STRATEGIES AND RISKS Other Investment Strategies. In addition to the principal investment strategies previously described, the Fund may utilize investment strategies that are not principal investment strategies, including investment in affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds (ETFs), also referred to as "acquired funds") ownership of which results in the Fund bearing its proportionate share of the acquired funds' fees and expenses and proportionate exposure to the risks associated with the acquired funds' underlying investments. ETFs are generally designed to replicate the price and yield of a specified market index. An ETF's share price may not track its specified market index and may trade below its net asset value resulting in a loss. ETFs generally use a "passive" investment strategy and will not attempt to take defensive positions in volatile or declining markets. An active secondary market in an ETF's shares may not develop or be maintained and may be halted or interrupted due to actions by its listing exchange, unusual market conditions or other reasons. There can be no assurance an ETF's shares will continue to be listed on an active exchange. For more information on strategies and holdings, and the risks of such strategies, including derivative instruments that the Fund may use, see the Fund's SAI and its annual and semiannual reports. Unusual Market Conditions. During unusual market conditions, the Fund may temporarily invest more of its assets in money market securities than during normal market conditions. Although investing in these securities would serve primarily to attempt to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, the portfolio managers may make frequent securities trades that could result in increased fees, expenses and taxes, and decreased performance. Instead of investing in money market securities directly, the Fund may invest in shares of an affiliated or unaffiliated money market fund. See "Cash Reserves" under the section "General Information" for more information. - -------------------------------------------------------------------------------- 12P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS Securities Transaction Commissions. Securities transactions involve the payment by the Fund of brokerage commissions to broker-dealers, on occasion as compensation for research or brokerage services (commonly referred to as "soft dollars"), as the portfolio managers buy and sell securities for the Fund in pursuit of its objective. A description of the policies governing the Fund's securities transactions and the dollar value of brokerage commissions paid by the Fund are set forth in the SAI. Funds that invest primarily in fixed income securities do not typically generate brokerage commissions that are used to pay for research or brokerage services. The brokerage commissions set forth in the SAI do not include implied commissions or mark-ups (implied commissions) paid by the Fund for principal transactions (transactions made directly with a dealer or other counterparty), including most fixed income securities (and certain other instruments, including derivatives). Brokerage commissions do not reflect other elements of transaction costs, including the extent to which the Fund's purchase and sale transactions may cause the market to move and change the market price for an investment. Although brokerage commissions and implied commissions are not reflected in the expense table under "Fees and Expenses," they are reflected in the total return of the Fund. Portfolio Turnover. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of brokerage commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. Capital gains and increased brokerage commissions or mark-ups paid to broker-dealers may adversely affect a fund's performance. The Fund's historical portfolio turnover rate, which measures how frequently the Fund buys and sells investments, is shown in the "Financial Highlights." Directed Brokerage. The Fund's Board of Directors (Board) has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the Fund as a factor in the selection of broker-dealers through which to execute securities transactions. Additional information regarding securities transactions can be found in the SAI. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 13P FUND MANAGEMENT AND COMPENSATION INVESTMENT MANAGER RiverSource Investments, LLC (the investment manager or RiverSource Investments), 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is the investment manager to the RiverSource Family of Funds (including the RiverSource funds, Threadneedle funds and Seligman funds), and is a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for the RiverSource Family of Funds, RiverSource Investments manages investments for itself and its affiliates. For institutional clients, RiverSource Investments and its affiliates provide investment management and related services, such as separate account asset management, and institutional trust and custody, as well as other investment products. For all of its clients, RiverSource Investments seeks to allocate investment opportunities in an equitable manner over time. See the SAI for more information. The RiverSource funds have received an order from the Securities and Exchange Commission that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or change the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. Before certain fixed income funds may rely on the order, holders of a majority of the fund's outstanding voting securities will need to approve operating the fund in this manner. There is no assurance shareholder approval will be received, and no changes will be made without shareholder approval until that time. For more information, see the SAI. RiverSource Investments or its affiliates may have other relationships, including significant financial relationships, with current or potential subadvisers or their affiliates, which may create a conflict of interest. In making recommendations to the Board to appoint or to change a subadviser, or to change the terms of a subadvisory agreement, RiverSource Investments does not consider any other relationship it or its affiliates may have with a subadviser, and RiverSource Investments discloses the nature of any material relationships it has with a subadviser to the Board. - -------------------------------------------------------------------------------- 14P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal year was 0.48% of the Fund's average daily net assets. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. Portfolio Manager(s). The portfolio managers responsible for the day-to-day management of the Fund are: Todd White, Portfolio Manager - - Managed the Fund since 2008. - - Sector leader of the liquid and structured assets sector team. - - Joined RiverSource Investments in 2008. - - Managing Director, Global Head of the Asset-Backed and Mortgage-Backed Securities businesses, and North American Head of the Interest Rate business, HSBC, 2004 to 2008; Managing Director and Head of Business for Mortgage Pass- Through and Options, Lehman Brothers, 2000 to 2004. - - Began investment career in 1986. - - BS, Indiana University. Jason J. Callan, Co-Portfolio Manager - - Co-managed the Fund since 2009. - - Sector manager on the liquid and structured assets sector team. - - Joined RiverSource Investments in 2007. - - Trader, Principal Investment Activities Group, GMAC ResCap, 2004 to 2007. - - Began investment career in 2004. - - MBA, University of Minnesota. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 15P FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL YEARS ENDED ON OR AFTER MAY 31, 2008 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. THE INFORMATION FOR THE PERIODS ENDED ON OR BEFORE MAY 31, 2007 HAS BEEN AUDITED BY OTHER AUDITORS. - -------------------------------------------------------------------------------- 16P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.92 $5.12 $5.03 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .21(b) .23(b) .22 .21 .19 Net gains (losses) (both realized and unrealized) (.18) (.02) .09 (.20) .10 - -------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .21 .31 .01 .29 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.22) (.23) (.20) (.20) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.25) (.22) (.23) (.21) (.20) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.92 $5.12 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $79 $95 $111 $126 $159 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.08% 1.09% 1.17% 1.19% 1.10% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .89% .89% .89% .89% .95% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.51% 4.56% 4.45% 4.08% 3.67% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return(h) .79% 4.31% 6.30% .12% 5.78% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 17P CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.93 $5.12 $5.04 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18(b) .19(b) .19 .17 .15 Net gains (losses) (both realized and unrealized) (.18) (.01) .07 (.19) .09 - -------------------------------------------------------------------------------------------------------------- Total from investment operations -- .18 .26 (.02) .24 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.19) (.19) (.16) (.16) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.22) (.19) (.19) (.17) (.16) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.93 $5.12 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $24 $34 $44 $64 $98 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.84% 1.86% 1.94% 1.95% 1.86% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.69% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.75% 3.79% 3.70% 3.31% 2.90% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return(h) .03% 3.53% 5.30% (.42%) 4.78% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 18P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.93 $5.12 $5.04 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18(b) .19(b) .19 .17 .15 Net gains (losses) (both realized and unrealized) (.18) (.01) .07 (.19) .09 - -------------------------------------------------------------------------------------------------------------- Total from investment operations -- .18 .26 (.02) .24 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.19) (.19) (.16) (.16) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.22) (.19) (.19) (.17) (.16) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.93 $5.12 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $4 $5 $7 $11 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.83% 1.85% 1.94% 1.95% 1.85% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.70% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.76% 3.80% 3.70% 3.31% 2.90% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return(h) .03% 3.53% 5.30% (.43%) 4.79% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 19P CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.92 $5.11 $5.03 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(b) .25(b) .24 .22 .20 Net gains (losses) (both realized and unrealized) (.18) (.02) .08 (.19) .09 - -------------------------------------------------------------------------------------------------------------- Total from investment operations .05 .23 .32 .03 .29 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.23) (.24) (.24) (.21) (.21) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.27) (.24) (.24) (.22) (.21) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.92 $5.11 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $222 $222 $207 $6 $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .61% .63% .63% .73% .66% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .48% .48% .54% .54% .62% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.93% 4.97% 4.90% 4.99% 3.99% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return 1.21% 4.74% 6.68% .59% 5.92% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. - -------------------------------------------------------------------------------- 20P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.92 $5.11 $5.03 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(b) .23(b) .23 .21 .20 Net gains (losses) (both realized and unrealized) (.10) (.01) .08 (.19) .08 - -------------------------------------------------------------------------------------------------------------- Total from investment operations .13 .22 .31 .02 .28 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.31) (.23) (.23) (.20) (.20) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.35) (.23) (.23) (.21) (.20) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.92 $5.11 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $42 $40 $35 $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .89% .93% .99% 1.04% .94% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .70% .75% .71% .71% .77% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.38% 4.69% 4.63% 4.40% 3.99% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return 2.82% 4.46% 6.51% .49% 5.75% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 PROSPECTUS 21P RIVERSOURCE FAMILY OF FUNDS THE RIVERSOURCE FAMILY OF FUNDS (EACH INDIVIDUALLY A "FUND" AND, COLLECTIVELY, THE "FUNDS") INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, "SELIGMAN" FUNDS AND "THREADNEEDLE" FUNDS. (THE RIVERSOURCE FUNDS, RIVERSOURCE PARTNERS FUNDS AND THREADNEEDLE FUNDS MAY BE COLLECTIVELY REFERRED TO AS THE "RIVERSOURCE FUNDS".) THE FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD") AND THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THE SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL FUNDS IN THE RIVERSOURCE FAMILY OF FUNDS OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." BUYING AND SELLING SHARES The funds are available directly and through broker-dealers, banks and other financial intermediaries or institutions (financial intermediaries), and through certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial intermediaries. NOT ALL FINANCIAL INTERMEDIARIES OFFER THE FUNDS. FINANCIAL INTERMEDIARIES THAT OFFER THE FUNDS MAY CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. Additionally, recordkeeping, transaction processing and payments of distributions relating to your account may be performed by the financial intermediaries through which your shares of the fund are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial intermediary through which you purchased or at which you maintain your shares of the fund to make changes to your account or to give instructions concerning your account, or to obtain information about your account. The fund and its service providers, including the distributor and the transfer agent, are not responsible for the failure of one of these financial intermediaries to carry out its obligations to its customers. - -------------------------------------------------------------------------------- S.1 S-6400-9 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The funds offer different classes of shares. There are differences among the fees and expenses for each share class. See the "Fees and Expenses" table for more information. Not everyone is eligible to buy every share class. After determining which share classes you are eligible to buy, decide which share class best suits your needs. Your financial advisor can help you with this decision. The following table shows the key features of each share class. Not all funds offer all classes of shares. INVESTMENT OPTIONS SUMMARY
Contingent Distribution Plan Initial Deferred Sales and/or Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Services Fee - ----------------------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No.(c) Yes. No. all investors. time of purchase. 0.25%(g) Lower or no sales charge for larger investments. - ----------------------------------------------------------------------------------------------------------------------------- Class B(d)(e)(f) Available to No. Entire Maximum 5% CDSC Yes. No. all investors. purchase price is during the first 1.00%(g) invested in shares year decreasing to of the fund. 0% after six years. - ----------------------------------------------------------------------------------------------------------------------------- Class C(f) Available to No. Entire 1% CDSC may apply Yes. No. all investors. purchase price is if you sell shares 1.00%(g) invested in shares within one year of the fund. after purchase. - ----------------------------------------------------------------------------------------------------------------------------- Class I Limited to No. No. No. No. qualifying institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to No. No. Yes. Yes. qualifying 0.50% 0.25% institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to No. No. Yes. Yes. qualifying 0.25% 0.25% institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to No. No. No. Yes. qualifying 0.25% institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to No. No. No. No. qualifying institutional investors. - ----------------------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25%(g) discretionary managed accounts. - -----------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- S.2 INVESTMENT OPTIONS SUMMARY (CONTINUED)
Contingent Distribution Plan Initial Deferred Sales and/or Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Services Fee - ----------------------------------------------------------------------------------------------------------------------------- Class Y Limited to No. No. No. Yes. qualifying 0.15% institutional investors. - -----------------------------------------------------------------------------------------------------------------------------
(a) See "Buying and Selling Shares, Determining which class of shares to purchase" for more information on availability of share classes and eligible investors. See "Buying and Selling Shares, Opening an Account" for information on minimum investment and account balance requirements. (b) For each of Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, each fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, that allows it to pay distribution and shareholder servicing-related expenses for the sale of shares and the servicing of shareholders. This plan has been reviewed and approved by the Board. Because these fees are paid out of fund assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of distribution (sales) or servicing charges. (c) A 1% CDSC may be assessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. For all funds except money market funds. (d) Class B shares automatically convert to Class A shares. See "Buying and Selling Shares, Sales Charges, Class B and Class C -- CDSC alternative" for more information on the timing of conversion of Class B shares to Class A shares. Timing of conversion will vary depending on the date of your original purchase of the Class B shares. (e) Class B shares of RiverSource Absolute Return Currency and Income Fund are only available for exchanges from Class B shares of another fund in the RiverSource Family of Funds. Class B shares of each of RiverSource Floating Rate Fund, RiverSource Inflation Protected Securities Fund, RiverSource Intermediate Tax-Exempt Fund, RiverSource Limited Duration Bond Fund and RiverSource Short Duration U.S. Government Fund are closed to new investors and new purchases. (Existing shareholders in these funds may continue to own Class B shares and make exchanges into and out of existing accounts where Class B shares of these funds are maintained.) (f) The money market funds may offer Class B and Class C shares, but only to facilitate exchanges with other funds offering Class B and Class C shares, respectively. (g) For RiverSource Cash Management Fund and RiverSource Tax-Exempt Money Market Fund, Class A is 0.10%. For RiverSource Cash Management Fund, Class B is 0.85%, Class C is 0.75% and Class W is 0.10%. DISTRIBUTION AND SERVICE FEES The distribution and shareholder servicing fees for Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, are subject to the requirements of Rule 12b-1 under the Investment Company Act of 1940, as amended, and are used to reimburse the distributor for certain expenses it incurs in connection with distributing the fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and/or shareholder servicing fees to financial intermediaries that sell shares of the fund or provide services to fund shareholders, up to 0.50% of the average daily net assets of Class R2 shares sold and held through them and up to 0.25%* of the average daily net assets of Class A, Class B, Class C, Class R3 and Class W shares sold and held through them. For Class A, Class B, Class R2, Class R3 and Class W shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor pays these fees in advance for the first 12 months. Financial intermediaries also receive distribution - -------------------------------------------------------------------------------- S.3 fees up to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay 12 months after purchase. For Class B shares, and, for the first 12 months following the sale of Class C shares, the fund's distributor retains the distribution fee of up to 0.75% in order to finance the payment of sales commissions to financial intermediaries, and to pay for other distribution related expenses. Financial intermediaries may compensate their financial advisors with the shareholder servicing and distribution fees paid to them by the distributor. IF YOU MAINTAIN SHARES OF THE FUND DIRECTLY WITH THE FUND, WITHOUT WORKING DIRECTLY WITH A FINANCIAL INTERMEDIARY OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES MAY BE RETAINED BY THE DISTRIBUTOR AS REIMBURSEMENT FOR INCURRING CERTAIN DISTRIBUTION AND SHAREHOLDER SERVICING RELATED EXPENSES. * For RiverSource Cash Management Fund, financial intermediaries receive fees up to 0.10% of the average daily net assets of Class A, Class B and Class W shares sold and held through them. PLAN ADMINISTRATION FEE Class R2, Class R3, Class R4 and Class Y shares pay an annual plan administration services fee for the provision of various administrative, recordkeeping, communication and educational services. The fee for Class R2, Class R3 and Class R4 shares is equal on an annual basis to 0.25% of average daily net assets attributable to the respective class. The fee for Class Y shares is equal on an annual basis to 0.15% of average daily net assets attributable to the class. DETERMINING WHICH CLASS OF SHARES TO PURCHASE Each of the fund's classes represent an interest in the same portfolio of investments. However, as set forth above, each class has its own sales charge schedule, and its ongoing distribution and shareholder service fees may differ from other classes. When deciding which class of shares to buy, you should consider, among other things: - - The amount you plan to invest. - - How long you intend to remain invested in the fund or another fund in the RiverSource Family of Funds. - - Whether you may be eligible for reduced or no sales charges when you buy or sell shares. Your authorized financial intermediary or financial advisor will be able to help you decide which class of shares best meets your needs. - -------------------------------------------------------------------------------- S.4 CLASS A, CLASS B AND CLASS C SHARES* Class B shares of RiverSource Absolute Return Currency and Income Fund are not currently available for new purchases. However, if you own Class B shares of another fund in the RiverSource Family of Funds, you may exchange into Class B shares of RiverSource Absolute Return Currency and Income Fund, if you meet the minimum investment and account balance requirements set forth in "Opening an Account," subject to the limitations set forth in this section. New purchases of Class B shares will not be permitted if your rights of accumulation are $50,000 or higher, and new purchases of Class C shares will not be permitted if your rights of accumulation are $1,000,000 or higher. See "Sales Charges, Initial Sales Charge -- Rights of Accumulation" for information on rights of accumulation. Class B shares have a higher annual distribution fee than Class A shares and a contingent deferred sales charge (CDSC) for six years. Class B shares convert to Class A shares. Class B shares purchased through reinvested dividends and distributions will convert to Class A shares in the same proportion as the other Class B shares. See "Class B and Class C -- CDSC alternative" for information on timing of Class B share conversion to Class A shares. Class C shares have a higher annual distribution fee than Class A shares and a CDSC for one year. Class C shares have no sales charge if you hold the shares for longer than one year. Unlike Class B shares, Class C shares do not convert to Class A shares. As a result, you will pay a distribution fee for as long as you hold Class C shares. If you choose a share class with a CDSC (Class B or Class C), you should consider the length of time you intend to hold your shares. To help you determine which investment is best for you, consult your financial intermediary or financial advisor. * For money market funds, new investments must be made in Class A shares of the fund. The money market funds offer Class B and Class C shares only to facilitate exchanges between classes of these shares in other funds. CLASS I SHARES. The following eligible investors may purchase Class I shares: - - Any fund distributed by the distributor, if the fund seeks to achieve its investment objective by investing primarily in shares of funds in the RiverSource Family of Funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial intermediary. - -------------------------------------------------------------------------------- S.5 CLASS R AND CLASS Y SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4, Class R5 and Class Y shares: - - Qualified employee benefit plans. - - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code. - - Non-qualified deferred compensation plans whose participants are included in a qualified employee benefit plan described above. - - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. - - Health Savings Accounts created pursuant to public law 108-173. Additionally, if approved by the distributor, the following eligible institutional investors may purchase Class R5 shares: - - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all funds in the RiverSource Family of Funds). - - Bank trust departments. Class R and Class Y shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SARSEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial intermediary. CLASS W SHARES. The following eligible investors may purchase Class W shares: - - Investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs. Class W shares may be purchased, sold or exchanged only through the distributor or an authorized financial intermediary. Shares originally purchased in a discretionary managed account may continue to be held in Class W outside of a discretionary managed account, but no additional Class W purchases may be made and no exchanges to Class W shares of another fund may be made outside of a discretionary managed account. IN ADDITION, FOR CLASS I, CLASS R, CLASS W AND CLASS Y SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INTERMEDIARIES TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. Please consult your financial advisor for assistance in selecting the appropriate class of shares. For more information, see the SAI. - -------------------------------------------------------------------------------- S.6 SALES CHARGES FOR FUNDS OTHER THAN MONEY MARKET FUNDS CLASS A -- INITIAL SALES CHARGE ALTERNATIVE: Your purchase price for Class A shares is generally the net asset value (NAV) plus a front-end sales charge. The distributor receives the sales charge and re- allows a portion of the sales charge to the financial intermediary through which you purchased the shares. The distributor retains the balance of the sales charge. The distributor retains the full sales charge you pay when you purchase shares of the fund directly from the fund (not through an authorized financial intermediary). Sales charges vary depending on the amount of your purchase. INITIAL SALES CHARGE(A) FOR CLASS A SHARES For equity funds and funds-of-funds (equity)*
Maximum reallowance AS A % OF As a % of as a % of TOTAL MARKET VALUE PURCHASE PRICE(b) net amount invested purchase price - ----------------------------------------------------------------------------------- Up to $49,999 5.75% 6.10% 5.00% $50,000--$99,999 4.75 4.99 4.00 $100,000--$249,999 3.50 3.63 3.00 $250,000--$499,999 2.50 2.56 2.15 $500,000--$999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00(c),(d)
For fixed income funds except those listed below and funds-of-funds (fixed income)*
Maximum reallowance AS A % OF As a % of as a % of TOTAL MARKET VALUE PURCHASE PRICE(b) net amount invested purchase price - ----------------------------------------------------------------------------------- Up to $49,999 4.75% 4.99% 4.00% $50,000--$99,999 4.25 4.44 3.50 $100,000--$249,999 3.50 3.63 3.00 $250,000--$499,999 2.50 2.56 2.15 $500,000--$999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00(c),(d)
- -------------------------------------------------------------------------------- S.7 For RiverSource Absolute Return Currency and Income Fund, RiverSource Floating Rate Fund, RiverSource Inflation Protected Securities Fund, RiverSource Intermediate Tax-Exempt Fund, RiverSource Limited Duration Bond Fund and RiverSource Short Duration U.S. Government Fund
Maximum reallowance AS A % OF As a % of as a % of TOTAL MARKET VALUE PURCHASE PRICE(b) net amount invested purchase price - ----------------------------------------------------------------------------------- Up to $49,999 3.00% 3.09% 2.50% $50,000--$99,999 3.00 3.09 2.50 $100,000--$249,999 2.50 2.56 2.15 $250,000--$499,999 2.00 2.04 1.75 $500,000--$999,999 1.50 1.52 1.25 $1,000,000 or more 0.00 0.00 0.00(c),(d)
* "Funds-of-funds (equity)" includes -- RiverSource Portfolio Builder Aggressive Fund, RiverSource Portfolio Builder Moderate Aggressive Fund, RiverSource Portfolio Builder Moderate Fund, RiverSource Portfolio Builder Total Equity Fund, Seligman Asset Allocation Aggressive Growth Fund, Seligman Asset Allocation Balanced Fund, Seligman Asset Allocation Growth Fund, Seligman Asset Allocation Moderate Growth Fund, Seligman TargETFund 2045, Seligman TargETFund 2035, Seligman TargETFund 2025, Seligman TargETFund 2015 and Seligman TargETFund Core. "Funds-of-funds (fixed income)" includes -- RiverSource Income Builder Basic Income Fund, RiverSource Income Builder Enhanced Income Fund, RiverSource Income Builder Moderate Income Fund, RiverSource Portfolio Builder Conservative Fund and RiverSource Portfolio Builder Moderate Conservative Fund. (a) Because of rounding in the calculation of the offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. (b) Purchase price includes the sales charge. (c) Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial intermediary the following out of its own resources: a sales commission of up to 1.00% for a sale of $1,000,000 to $3,999,999; a sales commission up to 0.50% for a sale of $4,000,000 to $49,999,999; and a sales commission up to 0.25% for a sale of $50,000,000 or more. (d) For certain eligible employee benefit plans defined under section 401(a), 401(k), 457 and 403(b) which meet eligibility rules for the waiver of applicable sales charges, the distributor may pay the following out of its own resources: a sales commission of 1.00% for a sale of $1 to $3,999,999 received in eligible employee benefit plans; a sales commission up to 0.50% for a sale of $4,000,000 to $49,999,999; and a sales commission up to 0.25% for a sale of $50,000,000 or more. See "Initial Sales Charge -- Waivers of the sales charge for Class A shares" for employee benefit plan eligibility rules. There is no initial sales charge on reinvested dividends or capital gain distributions. INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA). You may be able to reduce the sales charge on Class A shares, based on the combined market value of accounts in your ROA group. Your ROA group includes the current market values of the following investments which are eligible to be added together for purposes of determining the sales charge on your next purchase: - - Your current investment in a fund; and - -------------------------------------------------------------------------------- S.8 - - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other funds in the RiverSource Family of Funds, provided your investment was subject to a sales charge. Your household consists of you, your spouse or domestic partner and your unmarried children under age 21, all of whom share a mailing address. The following accounts are eligible to be included in your ROA group in order to determine the sales charge on your purchase: - - Individual or joint accounts; - - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested in Class A, Class B or Class C shares that were subject to a sales charge; - - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; - - Revocable trust accounts for which you or a member of your household, individually, is the beneficial owner/grantor; - - Accounts held in the name of your, your spouse's, or your domestic partner's sole proprietorship or single owner limited liability company or S corporation; and - - Qualified retirement plan assets, provided that you are the sole owner of the business sponsoring the plan, are the sole participant (other than a spouse) in the plan, and have no intention of adding participants to the plan. The following accounts are NOT eligible to be included in your ROA group in order to determine the sales charge on your purchase: - - Accounts of pension and retirement plans with multiple participants, such as 401(k) plans (which are combined to reduce the sales charge for the entire pension or retirement plan and therefore are not used to reduce the sales charge for your individual accounts); - - Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; - - Investments in Class I, Class R2, Class R3, Class R4, Class R5, Class W or Class Y shares; - - Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and - - Charitable and irrevocable trust accounts. If you purchase fund shares through different financial intermediaries, and you want to include those assets toward a reduced sales charge, you must inform your financial intermediary in writing about the other accounts when placing your purchase order. Contact your financial intermediary to determine what information is required. - -------------------------------------------------------------------------------- S.9 Unless you provide your financial intermediary in writing with information about all of the accounts that may count toward a sales charge reduction, there can be no assurance that you will receive all of the reductions for which you may be eligible. You should request that your financial intermediary provide this information to the fund when placing your purchase order. For more information on ROA, please see the SAI. INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including any existing ROA) over a period of up to 13 months, you may be able to reduce the front-end sales charge(s) for investments in Class A shares by completing and filing an LOI. The required form of LOI may vary by financial intermediary. Existing ROA can be included in your LOI. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI. Five percent of the commitment amount will be placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining amount of the unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. Existing ROA Example. Shareholder currently has $60,000 ROA in the funds. Shareholder completes an LOI to invest $100,000 in the funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in the funds' Class A shares (any non-money market fund in the RiverSource Family of Funds) in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Notification Obligation. You must request the reduced sales charge when you buy shares. If you do not complete and file an LOI, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. You should request that your financial intermediary provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial intermediary or see the SAI. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - - current or retired Board members, officers or employees of the funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - current or retired Ameriprise Financial Services, Inc. financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - -------------------------------------------------------------------------------- S.10 - - registered representatives and other employees of affiliated or unaffiliated financial intermediaries having a selling agreement with the distributor, including their spouses, domestic partners, children, parents and their spouse's or domestic partner's parents. - - portfolio managers employed by subadvisers of the funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - partners and employees of outside legal counsel to the funds or the funds' directors or trustees who regularly provide advice and services to the funds, or to their directors or trustees. - - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another fund in the RiverSource Family of Funds; - through or under a wrap fee product or other investment product sponsored by a financial intermediary that charges an account management fee that has, or that clear trades through a financial intermediary that has, a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; or - through bank trust departments. - - separate accounts established and maintained by an insurance company which are exempt from registration under Section 3(c)(11). - - purchases made through "employee benefit plans" created under section 401(a), 401(k), 457 and 403(b) which: - have at least $1 million in plan assets at the time of investment; and - have a plan level or omnibus account that is maintained with the fund or its transfer agent; and - transact directly with the fund or its transfer agent through a third party administrator or third party recordkeeper. For more information regarding waivers of sales charge for Class A purchases, please see the SAI. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional classes of investors. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. - -------------------------------------------------------------------------------- S.11 Unless you provide your financial intermediary with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial intermediary provide this information to the fund when placing your purchase order. Because the current prospectus is available on the funds' website (for RiverSource funds) at riversource.com/funds or (for Seligman funds) at seligman.com free of charge, information regarding breakpoint discounts is not separately disclosed on the website. CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased without a sales charge where a commission was separately paid by the distributor to an authorized financial intermediary effecting the purchase, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - - to which no sales commission or transaction fee was paid to an authorized financial intermediary at the time of purchase. - - purchased through reinvestment of dividends and capital gain distributions. - - in the event of the shareholder's death. - - from a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. - - in an account that has been closed because it falls below the minimum account balance. - - that result from required minimum distributions taken from retirement accounts upon the shareholders attainment of age 70 1/2. - - that result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - - of RiverSource funds purchased prior to Dec. 1, 2008. - - initially purchased by an employee benefit plan that is not connected with a plan level termination. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional classes of investors. Policies relating to waiving the CDSC may be modified or withdrawn at any time. - -------------------------------------------------------------------------------- S.12 CLASS B AND CLASS C -- CDSC ALTERNATIVE The money market funds (except RiverSource Tax-Exempt Money Market Fund) offer Class B and Class C shares, but only to facilitate exchanges with other funds offering Class B and Class C shares, respectively. For example, if you own Class B or Class C shares of another fund, but want to hold your money in a money market fund, you may exchange into Class B or Class C shares of a money market fund. Funds that offer Class B and Class C shares have limitations on the amount you may invest in those share classes. If you are considering purchasing Class B or Class C shares of a fund, please see the prospectus for that fund for any effective purchase limitations. Although you may not purchase Class B and Class C shares of the money market funds directly, if you exchange into Class B or Class C shares of a money market fund from another fund, you will be subject to the rules governing CDSC set forth in this section. To minimize the amount of CDSC you may pay when you sell your shares, the fund assumes that shares acquired through reinvested dividends and capital gain distributions (which are not subject to CDSC) are sold first. Shares that have been in your account long enough so that they are not subject to a CDSC are sold next. After these shares are exhausted, shares will be sold in the order they were purchased (earliest to latest). FOR CLASS B, the CDSC is based on the sale amount and the number of years between purchase and sale. The following table shows how CDSC percentages on sales decline over time:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 3%** Fourth year 3% Fifth year 2% Sixth year 1% Seventh or eighth year 0%
* Because of rounding in the calculation, the portion of the CDSC retained by the distributor may vary and the actual CDSC you pay may be more or less than the CDSC calculated using these percentages. ** For shares purchased in a RiverSource fund on or prior to June 12, 2009, the CDSC percentage for the third year is 4%. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial intermediaries that sell Class B shares. A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class B shares. - -------------------------------------------------------------------------------- S.13 You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Class B shares purchased in a RiverSource fund prior to May 21, 2005 age on a calendar year basis. Class B shares purchases made in a RiverSource fund beginning May 21, 2005 age on a daily basis. For example, a purchase made on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year aging. However, a purchase made on Nov. 12, 2005 completed its first year on Nov. 11, 2006 under daily aging. Class B shares originally purchased in a RiverSource fund prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares originally purchased in a Seligman fund on or prior to June 12, 2009 will convert to Class A shares in the month prior to the ninth year of ownership. Class B shares purchased in a RiverSource fund beginning May 21, 2005 and Class B shares purchased in a Seligman fund beginning June 13, 2009 will convert to Class A shares one month after the completion of the eighth year of ownership. FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year after purchase. Although there is no front-end sales charge when you buy Class C shares, the distributor pays a total amount up to 1% (including sales commission and advance of service fees) to financial intermediaries that sell Class C shares. See "Buying and Selling Shares -- Distribution and Service Fees." A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class C shares. You may not make additional purchases of Class C shares if your ROA exceeds $999,999.99. For both Class B and Class C shares, the amount of any CDSC you pay will be based on the lower of the original purchase price of those shares or current net asset value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you do not have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 3 1/2 years, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 3% because the sale was made during the fourth year after the purchase. - -------------------------------------------------------------------------------- S.14 CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - - in the event of the shareholder's death. - - that result from required minimum distributions taken from retirement accounts upon the shareholders' attainment of age 70 1/2. - - sold under an approved substantially equal periodic payment arrangement. - - by certain other investors, including certain institutions as set forth in more detail in the SAI. For more information regarding waivers of the CDSC for Class B shares, please see the SAI. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional classes of investors. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares: - - in the event of the shareholder's death. - - to which no sales commission or transaction fee was paid to an authorized financial intermediary at the time of purchase. - - that result from required minimum distributions taken from retirement accounts upon the shareholders' attainment of age 70 1/2. - - initially purchased by an eligible employee benefit plan that are not connected with a plan level termination. - - by certain other investors, including certain institutions as set forth in more detail in the SAI. For more information regarding waivers of the CDSC for Class C shares, please see the SAI. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional classes of investors. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5, CLASS W AND CLASS Y -- NO SALES CHARGE. For each of Class I, Class R2, Class R3, Class R4, Class R5 and Class W there is no initial sales charge or CDSC. - -------------------------------------------------------------------------------- S.15 OPENING AN ACCOUNT Financial institutions are required by law to obtain certain personal information from each person who opens an account in order to verify the identity of the person. As a result, when you open an account you will be asked to provide your name, permanent street address, date of birth, and Social Security or Employer Identification number. You may also be asked for other identifying documents or information. If you do not provide this information, the fund or the financial intermediary through which you are investing in the fund may not be able to open an account for you. If the fund or the financial intermediary through which you are investing in the fund is unable to verify your identity, your account may be closed, or other steps may be taken, as deemed appropriate. When you buy shares, your order will be priced at the next NAV calculated after your order is accepted by the fund or an authorized financial intermediary. Any applicable sales charge will be added to the purchase price for Class A shares. You may establish and maintain your account with an authorized financial intermediary or directly with the fund. The fund may appoint servicing agents to accept purchase orders and to accept exchange (and sale) orders on its behalf. Accounts established with the fund will be supported by the fund's transfer agent. METHODS OF PURCHASING SHARES These methods of purchasing shares generally apply to Class A, Class B, and Class C shares. CLASS B SHARES OF RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND IS CURRENTLY CLOSED TO INVESTORS FOR NEW PURCHASES. CLASS B SHARES FOR RIVERSOURCE FLOATING RATE FUND, RIVERSOURCE INFLATION PROTECTED SECURITIES FUND, RIVERSOURCE INTERMEDIATE TAX-EXEMPT FUND, RIVERSOURCE LIMITED DURATION BOND FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND ARE CLOSED TO NEW INVESTORS AND NEW PURCHASES. EXISTING SHAREHOLDERS IN THESE FUNDS MAY CONTINUE TO OWN CLASS B SHARES AND MAKE EXCHANGES INTO AND OUT OF EXISTING ACCOUNTS WHERE CLASS B SHARES OF THESE FUNDS ARE MAINTAINED. ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INTERMEDIARY ALL REQUESTS The financial intermediary through which you buy shares may have different policies not described in this prospectus, including different minimum investment amounts and minimum account balances. - -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL You or the financial intermediary through which you buy shares may establish an account with the fund. To establish an account in this fashion, complete a fund account application - -------------------------------------------------------------------------------- S.16 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained (for RiverSource funds) at riversource.com/funds or (for Seligman funds) at seligman.com or may be requested by calling (800) 221-2450. Make your check payable to the fund. The fund does not accept cash, credit card convenience checks, money orders, traveler's checks, starter checks, third or fourth party checks, or other cash equivalents. Mail your check and completed application to: REGULAR MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL 30 DAN ROAD CANTON, MA 02021-2809 If you already have an account, include your name, account number, and the name of the fund and class of shares you wish to purchase along with your check. You can make scheduled investments in the fund by moving money from your checking account or savings account. See the Minimum Investment and Account Balance chart below for more information regarding scheduled investment plans. - -------------------------------------------------------------------------------- BY WIRE OR ACH Fund shares purchased in an account established and maintained with the fund may be paid for by federal funds wire. Before sending a wire, call (800) 221-2450 to notify the fund's transfer agent of the wire and to receive further instructions. If you are establishing an account with a wire purchase, you are required to send a signed account application to the address above. Please include the wire control number or your new account number on the application. Your bank or financial intermediary may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.17 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY EXCHANGE Call (800) 221-2450 or send signed written instructions to the address above. - -------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE
RIVERSOURCE RIVERSOURCE 120/20 DISCIPLINED CONTRARIAN SMALL CAP EQUITY FUND VALUE FUND THREADNEEDLE RIVERSOURCE FOR ALL FUNDS, GLOBAL EXTENDED FLOATING RATE CLASSES AND ALPHA FUND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO ABSOLUTE RETURN INFLATION THE RIGHT TAX QUALIFIED CURRENCY AND PROTECTED (NONQUALIFIED) ACCOUNTS INCOME FUND SECURITIES FUND CLASS W - --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $10,000 $5,000 $500 - --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 $100 None - --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $1,000 None $5,000 $2,500 $500
*If your fund account balance falls below the minimum account balance for any reason, including a market decline, you may be asked to increase it to the minimum account balance or establish a scheduled investment plan. If you do not do so within 30 days, your shares may be automatically redeemed and the proceeds mailed to you. ------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE -- SCHEDULED INVESTMENT PLANS
RIVERSOURCE RIVERSOURCE 120/20 DISCIPLINED CONTRARIAN SMALL CAP EQUITY FUND VALUE FUND THREADNEEDLE RIVERSOURCE FOR ALL FUNDS, GLOBAL EXTENDED FLOATING RATE CLASSES AND ALPHA FUND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO ABSOLUTE RETURN INFLATION THE RIGHT TAX QUALIFIED CURRENCY AND PROTECTED (NONQUALIFIED) ACCOUNTS INCOME FUND SECURITIES FUND CLASS W - --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100(a) $100(b) $10,000 $5,000 $500 - --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 $100 None - --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None(b) None $5,000 $2,500 $500
**If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. (a)Money Market Funds -- $2,000 (b)Money Market Funds -- $1,000 - -------------------------------------------------------------------------------- S.18 ------------------------------------------------------------------------------- These minimums may be waived for accounts that are managed by an investment professional, for accounts held in approved discretionary or non-discretionary wrap programs, for accounts that are a part of an employer-sponsored retirement plan, or for other account types if approved by the distributor. The fund reserves the right to modify its minimum account requirements at any time, with or without prior notice. Please contact your financial intermediary for information regarding wire or electronic funds transfer. IMPORTANT: Payments sent by electronic fund transfers (ACH), a bank authorization or check that are not guaranteed may take up to 14 days to clear. If you request a sale within 14 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial intermediary process your transaction. If you maintain your account directly with your financial intermediary, you must contact that financial intermediary to exchange or sell shares of the fund. If your account was established with the fund, there are a variety of methods you may use to exchange or sell shares of the fund. WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INTERMEDIARY ALL REQUESTS You can exchange or sell shares by having your financial intermediary process your transaction. The financial intermediary through which you purchased shares may have different policies not described in this prospectus, including different transaction limits, exchange policies and sale procedures. - -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL Mail your exchange or sale request to: REGULAR MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL 30 DAN ROAD CANTON, MA 02021-2809 ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.19 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Include in your letter: - your name - the name of the fund(s) - your account number - the class of shares to be exchanged or sold - your Social Security number or Employer Identification number - the dollar amount or number of shares you want to exchange or sell - specific instructions regarding delivery or exchange destination - signature(s) of registered account owner(s) - any special documents the transfer agent may require in order to process your order Corporate, trust or partnership accounts may need to send additional documents. Payment will be mailed to the address of record and made payable to the names listed on the account, unless your request specifies differently and is signed by all owners. A Medallion Signature Guarantee is required if: - Amount is over $50,000. - You want your check made payable to someone other than the registered account owner(s). - Your address of record has changed within the last 30 days. - You want the check mailed to an address other than the address of record. - You want the proceeds sent to a bank account not on file. - You are the beneficiary of the account and the account owner is deceased (additional documents may be required). A Medallion Signature Guarantee assures that a signature is genuine and not a forgery. The financial intermediary providing the Guarantee is financially liable for the transaction if the signature is a forgery. Eligible guarantors include commercial banks, trust companies, savings associations, and credit unions as defined by the Federal ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.20 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Deposit Insurance Act. Note: A guarantee from a notary public is not acceptable. NOTE: Any express mail delivery charges you pay will vary depending on domestic or international delivery instructions. - -------------------------------------------------------------------------------- BY TELEPHONE Call (800) 221-2450. Unless you elect not to have telephone exchange and sale privileges, they will automatically be available to you. Reasonable procedures will be used to confirm authenticity of telephone exchange or sale requests. Telephone privileges may be modified or discontinued at any time. Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate, qualified retirement accounts and trust accounts which the current trustee is not listed. You may request that these privileges NOT apply by writing to the address above. Payment will be mailed to the address of record and made payable to the names listed on the account. Telephone sale requests are limited to $50,000 per day. - -------------------------------------------------------------------------------- BY WIRE OR ACH You can wire money from your fund account to your bank account. Make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. Call (800) 221-2450 or send a letter of instruction, with a Medallion Signature Guarantee if required, to the address above. A service fee may be charged against your account for each wire sent. Minimum amount: by ACH: $100 by wire: $500 Your bank or financial intermediary may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- BY SCHEDULED You may elect to receive regular periodic payments through an PAYOUT PLAN automatic sale of shares. See the SAI for more information. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.21 CHECK REDEMPTION SERVICE Class A shares of the money market funds offer check writing privileges. If you have $2000 in a money market fund, you may request checks which may be drawn against your account. You can elect this service on your initial application, or, thereafter. Call (800) 221-2450 for the appropriate forms to establish this service. If you own Class A shares that were both in another fund at NAV because of the size of the purchase, and then exchanged into a money market fund, check redemptions may be subject to a CDSC. EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered fund in the RiverSource Family of Funds without a sales charge. For complete information on the fund you are exchanging into, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after your transaction request is received in good order. You may be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. IF YOU HOLD YOUR FUND SHARES IN AN ACCOUNT WITH AMERIPRISE FINANCIAL SERVICES, YOU MAY HAVE LIMITED EXCHANGEABILITY WITHIN THE RIVERSOURCE FAMILY OF FUNDS. MARKET TIMING SHORT-TERM TRADING AND OTHER SO-CALLED MARKET TIMING PRACTICES ARE FREQUENT TRADING PRACTICES BY CERTAIN SHAREHOLDERS INTENDED TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING THE FUND'S TRANSACTION COSTS. - -------------------------------------------------------------------------------- S.22 FOR A FUND ORGANIZED AS A FUND-OF-FUND, ITS ASSETS CONSIST PRIMARILY OF SHARES OF THE UNDERLYING FUNDS IN WHICH IT INVESTS. THE UNDERLYING FUNDS MAY BE MORE SUSCEPTIBLE TO THE RISKS OF MARKET TIMING. FUNDS THAT INVEST DIRECTLY IN SECURITIES THAT TRADE INFREQUENTLY MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF INEFFICIENCIES IN THE SECURITIES MARKETS. FUNDS AND THE UNDERLYING FUNDS THAT INVEST IN SECURITIES THAT TRADE ON OVERSEAS SECURITIES MARKETS MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF CHANGES IN THE VALUES OF SECURITIES BETWEEN THE CLOSE OF OVERSEAS MARKETS AND THE CLOSE OF U.S. MARKETS, WHICH IS GENERALLY THE TIME AT WHICH A FUND'S NAV IS CALCULATED. TO THE EXTENT THAT A FUND OR UNDERLYING FUND HAS SIGNIFICANT HOLDINGS OF SMALL CAP STOCKS, FLOATING RATE LOANS, HIGH YIELD BONDS, TAX-EXEMPT SECURITIES OR FOREIGN SECURITIES, THE RISKS OF MARKET TIMING MAY BE GREATER FOR THE FUND THAN FOR OTHER FUNDS. SEE "PRINCIPAL INVESTMENT STRATEGIES" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN WHICH YOUR FUND INVESTS. SEE "PRICING AND VALUING OF FUND SHARES" FOR A DISCUSSION OF THE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE FUNDS' BOARD HAS ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING THAT MAY BE HARMFUL TO THE FUNDS. EACH FUND SEEKS TO ENFORCE THIS POLICY THROUGH ITS SERVICE PROVIDERS AS FOLLOWS: - - The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging or other purchase and exchange transactions not believed to be inconsistent with the best interest of fund shareholders or the Board's policy. The fund uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares and where the shares are maintained. Under the fund's procedures, there is no set number of transactions in the fund that constitutes market timing. Even one purchase and subsequent sale by related accounts may be market timing. Generally, the fund seeks to restrict the exchange privilege of an investor who makes more than three exchanges into or out of the fund in any 90-day period. Accounts held by a retirement plan or a financial intermediary for the benefit of its participants or clients, which typically engage in daily transactions, are not subject to this limit, although the fund may seek the assistance of financial intermediaries in applying similar restrictions on their participants or clients. The fund's ability to monitor and discourage abusive trading practices in omnibus accounts is more limited. - - The fund may rely on the monitoring policy of a financial intermediary, for example, a retirement plan administrator or similar financial intermediary authorized to distribute the funds, if it determines the policy and procedures of such financial intermediaries are sufficient to protect the fund and its shareholders. - -------------------------------------------------------------------------------- S.23 - - If an investor's trading activity is determined to be market timing or otherwise harmful to existing shareholders, the fund reserves the right to modify or discontinue the investor's exchange privilege or reject the investor's purchases or exchanges, including purchases or exchanges accepted by a financial intermediary. The fund may treat accounts it believes to be under common control as a single account for these purposes, although it may not be able to identify all such accounts. - - Although the fund does not knowingly permit market timing, it cannot guarantee that it will be able to identify and restrict all short-term trading activity. The fund receives purchase and sale orders through financial intermediaries where market timing activity may not always be successfully detected. Other exchange policies: - - Exchanges must be made into the same class of shares of the share class being exchanged out of. - - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. - - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - - Once the fund receives your exchange request, you cannot cancel it after the market closes. - - Shares of the purchased fund may not be used on the same day for another exchange or sale. - - New investments in Class A shares of a money market fund may be exchanged for either Class A, Class B or Class C shares of any other publicly offered fund in the RiverSource Family of Funds. - - If you exchange shares from Class A shares of a money market fund to another fund in the RiverSource Family of Funds, any further exchanges must be between shares of the same class. For example, if you exchange from Class A shares of a money market fund into Class B shares of another fund in the RiverSource Family of Funds, you may not exchange from Class B shares of that fund back to Class A shares of a money market fund. Exchange rules for money market funds are illustrated in the following tables. - - Shares of Class W originally purchased, but no longer held in a discretionary managed account, may not be exchanged for Class W shares of another fund. You may continue to hold these shares in the fund. Changing your investment to a different fund will be treated as a sale and purchase, and you will be subject to applicable taxes on the sale and sales charges on the purchase of the new fund. - -------------------------------------------------------------------------------- S.24 - - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to.
TO OTHER FUNDS FROM A MONEY MARKET FUND ----------------------------- CLASS A CLASS B CLASS C - -------------------------------------------------------------------- Class A Yes Yes Yes Class B No Yes No Class C No No Yes
TO A MONEY MARKET FUND FROM OTHER FUNDS ----------------------------- CLASS A CLASS B CLASS C - -------------------------------------------------------------------- Class A Yes No No Class B No Yes No Class C No No Yes
If your initial investment was in a money market fund and you exchange into an equity or fixed income fund, you will pay an initial sales charge if you exchange into Class A and be subject to a CDSC if you exchange into Class B or Class C. If your initial investment was in Class A shares of an equity or fixed income fund and you exchange shares into a money market fund, you may exchange that amount to another fund, including dividends earned on that amount, without paying a sales charge. SELLING SHARES You may sell your shares at any time. The payment will be sent within seven days after your request is received in good order. When you sell shares, the amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received in good order, minus any applicable CDSC. REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of a fund in the RiverSource Family of Funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. For a Class A repurchase on shares that were originally charged a CDSC, the amount of the CDSC will be reinvested at the NAV on the date the repurchase is processed. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the - -------------------------------------------------------------------------------- S.25 same Class C account and fund you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. In order for you to take advantage of this repurchase waiver, you must notify your financial intermediary or the fund's transfer agent if your account is held at the fund within 90 days of the date your sale request was processed. Contact your financial intermediary for information on required documentation. The repurchase privilege may be modified or discontinued at any time and use of this option may have tax consequences. If you sold shares of a Seligman fund on or before February 3, 2009 and wish to repurchase shares, you have the option of taking advantage of the current repurchase policy (described above) within 90 days of the date your sale request was processed, or you may use all or part of your sale proceeds to purchase shares of the fund you sold or any other fund in the RiverSource Family of Funds without paying an initial sales charge or, if you paid a CDSC when you sold your shares, receiving a credit for the applicable CDSC, within 120 days of the date your sale request was processed. Contact your financial intermediary or, if you opened an account directly with the fund, the transfer agent, for more information on the required documentation to complete a repurchase transaction. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. PRICING AND VALUING OF FUND SHARES For classes of shares sold with an initial sales charge, the public offering or purchase price is the net asset value plus the sales charge. For funds or classes of shares sold without an initial sales charge, the public offering price is the NAV. Orders in good form are priced at the NAV next determined after you place your order. Good form or good order means that your instructions have been received in the form required by the fund. This may include, for example, providing the fund name and account number, the amount of the transaction and all required signatures. The NAV is the value of a single share of the fund. The NAV is determined by dividing the value of the fund's assets, minus any liabilities, by the number of shares outstanding. The NAV is calculated as of the close of business on the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that the NYSE is open. For a fund organized as a fund-of-funds, the assets will consist primarily of shares of the underlying funds, which are valued at their NAVs. Securities are valued primarily on the basis of market quotations and floating rate loans are valued primarily on the basis of indicative bids. Both - -------------------------------------------------------------------------------- S.26 market quotations and indicative bids are obtained from outside pricing services approved and monitored under procedures adopted by the Board. Certain short-term securities with maturities of 60 days or less are valued at amortized cost. When reliable market quotations or indicative bids are not readily available, investments are priced at fair value based on procedures adopted by the Board. These procedures are also used when the value of an investment held by a fund or underlying fund is materially affected by events that occur after the close of a securities market but prior to the time as of which the fund's or underlying fund's NAV is determined. Valuing investments at fair value involves reliance on judgment. The fair value of an investment is likely to differ from any available quoted or published price. To the extent that a fund or an underlying fund has significant holdings of small cap stocks, high yield bonds, floating rate loans, tax-exempt securities or foreign securities that may trade infrequently, fair valuation may be used more frequently than for other funds. The funds use an unaffiliated service provider to assist in determining fair values for foreign securities. Foreign investments are valued in U.S. dollars. Some of a fund's or an underlying fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the fund's or underlying fund's shares may change on days when shareholders will not be able to purchase or sell the fund's or underlying fund's shares. For money markets funds -- The fund's investments are valued at amortized cost, which approximates market value, as explained in the SAI. Although the fund cannot guarantee it will always be able to maintain a constant net asset value of $1 per share, it will use its best efforts to do so. DISTRIBUTIONS AND TAXES As a shareholder you are entitled to your share of your fund's net income and net gains. Each fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. - -------------------------------------------------------------------------------- S.27 DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS Your fund's net investment income is distributed to you as dividends. Dividends may be composed of qualified dividend income, which is eligible for preferential tax rates under current tax law, as well as other ordinary dividend income, which may include dividends which are non-qualified dividends, interest income and short-term capital gains. Because of the types of income earned by fixed income funds, it is unlikely the funds will distribute qualified dividend income. Generally, capital gains are realized when a security is sold for a higher price than was paid for it. Generally, capital losses are realized when a security is sold for a lower price than was paid for it. Typically, each realized capital gain or loss is long-term or short-term depending on the length of time the fund held the security. Realized capital gains and losses offset each other. The fund offsets any net realized capital gains by any available capital loss carryovers. Net short-term capital gains, if any, are included in net investment income and are taxable as ordinary income when distributed to the shareholder. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. If the fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to the shareholders to the extent of their basis in their shares. A return of capital will generally not be taxable; however, any amounts received in excess of basis are treated as capital gain. Forms 1099 sent to shareholders report any return of capital. Certain derivative instruments subject the fund to special tax rules, the effect of which may be to accelerate income to the fund, defer fund losses, cause adjustments in the holding periods of fund securities, convert capital gains into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund unless you request distributions in cash. The financial intermediary through which you purchased shares may have different policies. Distributions are reinvested at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. TAXES If you buy shares shortly before the record date of a distribution, you may pay taxes on money earned by the fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. - -------------------------------------------------------------------------------- S.28 For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. Generally, if you sell shares for less than their cost, the difference is a capital loss or if you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). You may not create a tax loss or reduce a tax gain, based on paying a sales charge, by exchanging shares before the 91st day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91st day after the day of purchase, you may not be able to include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For more information, see the SAI. REITs often do not provide complete tax information until after the calendar year-end; generally mid to late January and continuing through early February. Consequently, if your fund has significant investments in REITs, you may not receive your Form 1099-DIV until February. Other RiverSource funds tax statements are generally mailed in January. FOR TAXABLE FUNDS. Distributions related to shares not held in IRAs or other retirement accounts are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. Shares held in an IRA or qualified retirement account are generally subject to different tax rules. Taking a distribution from your IRA or qualified retirement plan may subject you to federal taxes, withholding, penalties and reporting requirements. Please consult your tax advisor. Income received by a fund may be subject to foreign tax and withholding. Tax conventions between certain countries and the U.S. may reduce or eliminate these taxes. FOR TAX-EXEMPT FUNDS. Dividends distributed from interest earned on tax-exempt securities (exempt-interest dividends) are exempt from federal income taxes but may be subject to state and local taxes and potentially the alternative minimum tax. Dividends distributed from net capital gains, if any, and other income earned are not exempt from federal income taxes. Any taxable distributions are taxable in the year the fund declares them regardless of whether you take them in cash or reinvest them. - -------------------------------------------------------------------------------- S.29 Interest on certain private activity bonds is a preference item for purposes of the individual and corporate alternative minimum tax. To the extent the fund earns such income, it will flow through to its shareholders and may affect those shareholders who are subject to the alternative minimum tax. See the SAI for more information. Because interest on municipal bonds and notes is tax-exempt for federal income tax purposes, any interest on money you borrow that is used directly or indirectly to purchase fund shares is not deductible on your federal income tax return. You should consult a tax advisor regarding its deductibility for state and local income tax purposes. For a fund organized as a fund-of-funds, because most of the fund's investments are shares of underlying funds, the tax treatment of the fund's gains, losses, and distributions may differ from the tax treatment that would apply if either the fund invested directly in the types of securities held by the underlying funds or the fund shareholders invested directly in the underlying funds. As a result, fund shareholders may recognize higher amounts of capital gain distributions or ordinary income dividends than they otherwise would. IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to an investment in a fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial intermediary to determine the availability of the funds. The funds may only be purchased or sold directly or through financial intermediaries authorized by the distributor to offer the funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE RIVERSOURCE FAMILY OF FUNDS AND CERTAIN FINANCIAL INTERMEDIARIES THAT OFFER THE RIVERSOURCE FAMILY OF FUNDS MAY NOT OFFER ALL FUNDS ON ALL INVESTMENT PLATFORMS. If you set up an account at a financial intermediary that does not have, and is unable to obtain, a selling agreement with the distributor, you will not be able to transfer fund holdings to that account. In that event, you must either maintain your fund holdings with your current financial intermediary, find another financial intermediary with a selling agreement, or sell your shares, paying any applicable CDSC. Please be aware that transactions in taxable accounts are taxable events and may result in income tax liability. ADDITIONAL SERVICES AND COMPENSATION In addition to acting as the fund's investment manager, RiverSource Investments and its affiliates also receive compensation for providing other services to the funds. - -------------------------------------------------------------------------------- S.30 Administration Services. Ameriprise Financial, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides or compensates others to provide administrative services to the funds. These services include administrative, accounting, treasury, and other services. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Distribution and Shareholder Services. RiverSource Fund Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, (the distributor), provides underwriting and distribution services to the funds. Under the Distribution Agreement and related distribution and shareholder servicing plans, the distributor receives distribution and shareholder servicing fees. The distributor may retain a portion of these fees to support its distribution and shareholder servicing activity. The distributor reallows the remainder of these fees (or the full fee) to the financial intermediaries that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the funds' policy regarding directed brokerage. Transfer Agency Services. RiverSource Service Corporation, 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the transfer agent or RiverSource Service Corporation), provides or compensates others to provide transfer agency services to the funds. The funds pay the transfer agent a fee that varies by class, as set forth in the SAI, and reimburses the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." RiverSource Service Corporation pays a portion of these fees to financial intermediaries that provide sub-recordkeeping and other services to fund shareholders. The SAI provides additional information about the services provided and the fee schedules for the transfer agent agreements. - -------------------------------------------------------------------------------- S.31 Plan Administration Services. Under a Plan Administration Services Agreement, the fund pays for plan administration services, including services such as implementation and conversion services, account set-up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INTERMEDIARIES The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the fund) to financial intermediaries, in connection with agreements between the distributor and financial intermediaries pursuant to which these financial intermediaries sell fund shares and provide services to their clients who are shareholders of the fund. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors in the fund or fund shareholders for the purchase or ownership of fund shares of the fund, and these payments are not reflected in the fees and expenses of the fund, as they are not paid by the fund. In exchange for these payments, a financial intermediary may elevate the prominence or profile of the fund within the financial intermediary's organization, and may provide the distributor and its affiliates with preferred access to the financial intermediary's registered representatives or preferred access to the financial intermediary's customers. These arrangements are sometimes referred to as marketing and/or sales support payments, program and/or shareholder servicing payments, or revenue sharing payments. These arrangements create potential conflicts of interest between a financial intermediary's pecuniary interest and its duties to its customers, for example, if the financial intermediary receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial intermediary or its representatives may be incented to recommend or sell shares of the fund where it receives or anticipates receiving the higher payment instead of other investment options that may be more appropriate for the customer. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management, sales leaders and other employees may spend more of their time and resources promoting Ameriprise Financial and its subsidiary companies, including RiverSource Investments and the distributor, and the products they offer, including the fund. - -------------------------------------------------------------------------------- S.32 These payments are typically negotiated based on various factors including, but not limited to, the scope and quality of the services provided by the financial intermediary, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships, the profile the fund may obtain within the financial intermediary, and the access the distributor or other representatives of the fund may have within the financial intermediary for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial intermediary and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial intermediary and/or as a percentage of fund sales attributable to the financial intermediary. Certain financial intermediaries require flat fees instead of, or in addition to, these asset-based fees as compensation for including or maintaining a fund on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial intermediary charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial intermediary (e.g., initial platform set-up fees, ongoing maintenance or service fees, or asset or sales based fees). The amount of payments also varies by the type of sale. For instance, purchases of one fund may warrant a greater or lesser amount of payments than purchases of another fund. Additionally, sale and maintenance of shares on a stand alone basis may result in a greater or lesser amount of payments than the sale and maintenance of shares made through a plan, wrap or other fee-based program. Payments to affiliates may include payments as compensation to employees of RiverSource Investments who are licensed by the distributor in respect of certain sales and solicitation activity on behalf of the fund. These payments may be and often are significant. Additional information concerning the amount and calculation of these payments is available in the fund's SAI. Payments to affiliated broker-dealers are within the range of the payments the distributor pays to similarly-situated third party financial intermediaries and the payments such affiliated broker-dealers receive from third party fund sponsors related to the sale of their sponsored funds. However, because of the large amount of fund assets (from the RiverSource Family of Funds, in aggregate) currently held in customer accounts of the affiliated broker-dealers, the distributor and its affiliates, in the aggregate, pay significantly more in absolute dollars than other third-party fund sponsors pay to the affiliated broker-dealers for the sale and servicing of their sponsored funds. This level of payment creates potential conflicts of interest which the affiliated broker- dealers seek to mitigate by disclosure and implementation of internal controls, as well as the rules and regulations of applicable regulators. - -------------------------------------------------------------------------------- S.33 From time to time, to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payments to financial intermediaries or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial intermediaries and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial intermediary to the extent the cost of such services was less than the actual expense of the service. The financial intermediary through which you are purchasing or own shares of the fund has been authorized directly or indirectly by the distributor to sell the fund and/or to provide services to you as a shareholder of the fund. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial intermediary may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial intermediary. The SAI contains additional detail regarding payments made by the distributor to financial intermediaries. The payments described in this section are in addition to fees paid by the fund to the distributor under 12b-1 plans, which fees may be used to compensate financial intermediaries for the distribution of fund shares and the servicing of fund shareholders, or paid by the fund to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial intermediaries for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial intermediary to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the fund. Financial institutions may separately charge you additional fees. See "Buying and Selling Shares." - -------------------------------------------------------------------------------- S.34 ADDITIONAL MANAGEMENT INFORMATION AFFILIATED PRODUCTS. RiverSource Investments serves as investment manager to all funds in the RiverSource Family of Funds, including those that are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other funds (funds of funds) in the RiverSource Family of Funds (collectively referred to as underlying funds) and to discretionary managed accounts (collectively referred to as affiliated products) that invest exclusively in underlying funds. These affiliated products, individually or collectively, may own a significant percentage of the outstanding shares of the underlying funds, and RiverSource Investments seeks to balance potential conflicts between the affiliated products and the underlying funds in which they invest. The affiliated products investment in the underlying funds may also have the effect of creating economies of scale (including lower expense ratios) because the affiliated products may own substantial portions of the shares of underlying funds and, comparatively, a redemption of underlying fund shares by one or more affiliated products could cause the expense ratio of an underlying fund to increase as its fixed costs would be spread over a smaller asset base. Because of these large positions of the affiliated products, the underlying funds may experience relatively large purchases or redemptions. Although RiverSource Investments may seek to minimize the impact of these transactions, for example, by structuring them over a reasonable period of time or through other measures, underlying funds may experience increased expenses as they buy and sell securities to manage these transactions. When RiverSource Investments structures transactions over a reasonable period of time in order to manage the potential impact of the buy and sell decisions for the affiliated products, these affiliated products, including funds of funds, may pay more or less for shares of the underlying funds than if the transactions were executed in one transaction. In addition, RiverSource Investments has an economic conflict of interest in determining the allocation of the affiliated products' assets among the underlying funds as it earns different fees from the underlying funds. RiverSource Investments monitors expense levels of the funds and is committed to offering funds that are competitively priced. RiverSource Investments reports to the Board on the steps it has taken to manage any potential conflicts. See the SAI for information on the percent of the fund owned by affiliated products. - -------------------------------------------------------------------------------- S.35 CASH RESERVES. A fund may invest its daily cash balance in a money market fund selected by RiverSource Investments, including but not limited to RiverSource Short-Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of funds in the RiverSource Family of Funds and other institutional clients of RiverSource Investments. While Short-Term Cash Fund does not pay an advisory fee to RiverSource Investments, it does incur other expenses, and is expected to operate at a very low expense ratio. A fund will invest in Short-Term Cash Fund or any other money market fund selected by RiverSource Investments only to the extent it is consistent with the fund's investment objectives and policies. Short-Term Cash Fund is not insured or guaranteed by the FDIC or any other government agency. FUND HOLDINGS DISCLOSURE. The Board has adopted policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the securities owned by a fund. A description of these policies and procedures is included in the SAI. LEGAL PROCEEDINGS. 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 fund is 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 fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the fund. Information regarding certain pending and settled legal proceedings may be found in the fund's shareholder reports and in the SAI. Additionally, 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. - -------------------------------------------------------------------------------- S.36 Funds in the RiverSource Family of Funds -- which include funds offered under the RiverSource, Threadneedle and Seligman brands -- can be purchased from authorized financial intermediaries. Additional information about the fund and its investments is available in the fund's SAI, and annual and semiannual reports to shareholders. In the fund's annual report, you will find a discussion of market conditions and investment strategies that significantly affected the fund's performance during its most recent fiscal year. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI, the annual report, or the semiannual report, or to request other information about the fund, contact RiverSource Family of Funds or your financial intermediary. To make a shareholder inquiry, contact the financial intermediary through whom you purchased the fund. RiverSource Family of Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (800) 221-2450 RiverSource Family of Funds information available: (for RiverSource funds) at riversource.com/funds or (for Seligman funds) at seligman.com You may review and copy information about the fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202- 551-8090). Reports and other information about the fund are available on the EDGAR Database on the Commission's Internet site at www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, 100 F Street, N.E., Washington, D.C. 20549-1520. Investment Company Act File #811-4260 TICKER SYMBOL Class A: AUGAX Class B: AUGBX Class R4: RSGYX Class C: AUGCX Class I: RVGIX
(RIVERSOURCE INVESTMENTS LOGO) S-6245-99 L (7/09) STATEMENT OF ADDITIONAL INFORMATION JULY 30, 2009 RIVERSOURCE BOND SERIES, INC. RiverSource Floating Rate Fund RiverSource Income Opportunities Fund RiverSource Inflation Protected Securities Fund RiverSource Limited Duration Bond Fund RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RiverSource California Tax-Exempt Fund RIVERSOURCE DIMENSIONS SERIES, INC. RiverSource Disciplined Small and Mid Cap Equity Fund RiverSource Disciplined Small Cap Value Fund RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RiverSource Diversified Bond Fund RIVERSOURCE EQUITY SERIES, INC. RiverSource Mid Cap Growth Fund RIVERSOURCE GLOBAL SERIES, INC. RiverSource Absolute Return Currency and Income Fund RiverSource Emerging Markets Bond Fund RiverSource Global Bond Fund RiverSource Global Technology Fund Threadneedle Emerging Markets Fund Threadneedle Global Equity Fund Threadneedle Global Equity Income Fund Threadneedle Global Extended Alpha Fund RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RiverSource Short Duration U.S. Government Fund RiverSource U.S. Government Mortgage Fund RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RiverSource High Yield Bond Fund RIVERSOURCE INCOME SERIES, INC. RiverSource Income Builder Basic Income Fund RiverSource Income Builder Enhanced Income Fund RiverSource Income Builder Moderate Income Fund RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RiverSource Partners International Select Growth Fund RiverSource Partners International Select Value Fund RiverSource Partners International Small Cap Fund RIVERSOURCE INTERNATIONAL SERIES, INC. RiverSource Disciplined International Equity Fund Threadneedle European Equity Fund Threadneedle International Opportunity Fund RIVERSOURCE INVESTMENT SERIES, INC. RiverSource Balanced Fund RiverSource Disciplined Large Cap Growth Fund RiverSource Disciplined Large Cap Value Fund RiverSource Diversified Equity Income Fund RiverSource Mid Cap Value Fund RIVERSOURCE LARGE CAP SERIES, INC. RiverSource Disciplined Equity Fund RiverSource Growth Fund RiverSource Large Cap Equity Fund RiverSource Large Cap Value Fund RIVERSOURCE MANAGERS SERIES, INC. RiverSource Partners Aggressive Growth Fund RiverSource Partners Fundamental Value Fund RiverSource Partners Select Value Fund RiverSource Partners Small Cap Equity Fund RiverSource Partners Small Cap Value Fund RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RiverSource Portfolio Builder Aggressive Fund RiverSource Portfolio Builder Conservative Fund RiverSource Portfolio Builder Moderate Aggressive Fund RiverSource Portfolio Builder Moderate Conservative Fund RiverSource Portfolio Builder Moderate Fund RiverSource Portfolio Builder Total Equity Fund RiverSource S&P 500 Index Fund RiverSource Small Company Index Fund RIVERSOURCE MONEY MARKET SERIES, INC. RiverSource Cash Management Fund RIVERSOURCE SECTOR SERIES, INC. RiverSource Dividend Opportunity Fund RiverSource Real Estate Fund RIVERSOURCE SELECTED SERIES, INC. RiverSource Precious Metals and Mining Fund RIVERSOURCE SERIES TRUST RiverSource 120/20 Contrarian Equity Fund RiverSource Recovery and Infrastructure Fund RiverSource Retirement Plus 2010 Fund RiverSource Retirement Plus 2015 Fund RiverSource Retirement Plus 2020 Fund RiverSource Retirement Plus 2025 Fund RiverSource Retirement Plus 2030 Fund RiverSource Retirement Plus 2035 Fund RiverSource Retirement Plus 2040 Fund RiverSource Retirement Plus 2045 Fund RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST RiverSource Minnesota Tax-Exempt Fund RiverSource New York Tax-Exempt Fund RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RiverSource Strategic Allocation Fund RiverSource Strategic Income Allocation Fund RIVERSOURCE STRATEGY SERIES, INC. RiverSource Equity Value Fund RiverSource Partners Small Cap Growth Fund RiverSource Small Cap Advantage Fund RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RiverSource Tax-Exempt High Income Fund RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC. RiverSource Tax-Exempt Money Market Fund RIVERSOURCE TAX-EXEMPT SERIES, INC. RiverSource Intermediate Tax-Exempt Fund RiverSource Tax-Exempt Bond Fund
This is the Statement of Additional Information ("SAI") for each of the funds listed on the previous page. This SAI is not a prospectus. It should be read together with the appropriate current fund prospectus, the date of which can be found in Table 1 of this SAI. Each fund's financial statements for its most recent fiscal period are contained in the fund's Annual or Semiannual Report to shareholders. The Independent Registered Public Accounting Firm's Report and the Financial Statements, including Notes to the Financial Statements and the Schedule of Investments in Securities and any applicable Schedule of Affiliated Funds, contained in the Annual Report, are incorporated in this SAI by reference. No other portion of the Annual Report is incorporated by reference. For a free copy of a fund prospectus, annual or semiannual report, contact your financial intermediary or write to the RiverSource Family of Funds, 734 Ameriprise Financial Center, Minneapolis, MN 55474, call 1(800) 221-2450 or visit riversource.com/funds. Each fund is governed by a Board of Directors/Trustees (the "Board") that meets regularly to review a wide variety of matters affecting the funds. Detailed information about fund governance, the funds' investment manager, RiverSource Investments, LLC (the "investment manager" or "RiverSource Investments"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), and other aspects of fund management can be found by referencing the Table of Contents below, or the List of Tables on the following page. TABLE OF CONTENTS Fundamental and Nonfundamental Investment Policies.............................. p. 6 Investment Strategies and Types of Investments.................................. p. 11 Information Regarding Risks and Investment Strategies........................... p. 13 Securities Transactions......................................................... p. 37 Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager.... p. 51 Valuing Fund Shares............................................................. p. 55 Portfolio Holdings Disclosure................................................... p. 66 Proxy Voting.................................................................... p. 67 Investing in a Fund............................................................. p. 70 Selling Shares.................................................................. p. 75 Pay-out Plans................................................................... p. 76 Capital Loss Carryover.......................................................... p. 77 Taxes........................................................................... p. 80 Service Providers............................................................... p. 86 Investment Management Services................................................ p. 86 Administrative Services....................................................... p. 140 Transfer Agency Services...................................................... p. 144 Plan Administration Services.................................................. p. 145 Distribution Services......................................................... p. 145 Plan and Agreement of Distribution............................................ p. 148 Payments to Financial Intermediaries.......................................... p. 153 Custodian Services............................................................ p. 154 Board Services Corporation.................................................... p. 155 Organizational Information...................................................... p. 155 Board Members and Officers...................................................... p. 160 Control Persons and Principal Holders of Securities............................. p. 180 Information Regarding Pending and Settled Legal Proceedings..................... p. 196 Independent Registered Public Accounting Firm................................... p. 197 Appendix A: Description of Ratings.............................................. p. A-1 Appendix B: State Risk Factors.................................................. p. B-1 Appendix C: Additional Information about the S&P 500 Index...................... p. C-1 Appendix D: Seligman Funds...................................................... p. D-1
Statement of Additional Information - July 30, 2009 Page 2 LIST OF TABLES 1. Fund Fiscal Year Ends, Prospectus Date and Investment Categories........... p. 4 2. Fundamental Policies....................................................... p. 7 3. Investment Strategies and Types of Investments............................. p. 11 4. Total Brokerage Commissions................................................ p. 39 5. Brokerage Directed for Research and Turnover Rates......................... p. 42 6. Securities of Regular Brokers or Dealers................................... p. 45 7. Brokerage Commissions Paid to Investment Manager or Affiliates............. p. 51 8. Valuing Fund Shares........................................................ p. 55 9. Class A Initial Sales Charge............................................... p. 70 10. Public Offering Price...................................................... p. 71 11. Capital Loss Carryover..................................................... p. 77 12. Corporate Deduction and Qualified Dividend Income.......................... p. 83 13. Investment Management Services Agreement Fee Schedule...................... p. 86 14. PIA Indexes................................................................ p. 95 15A. Performance Incentive Adjustment Calculation............................... p. 96 15B. Performance Incentive Adjustment Calculation............................... p. 98 16. Management Fees and Nonadvisory Expenses................................... p. 99 17. Subadvisers and Subadvisory Agreement Fee Schedules........................ p. 102 18. Subadvisory Fees........................................................... p. 105 19. Portfolio Managers......................................................... p. 107 20. Administrative Services Agreement Fee Schedule............................. p. 140 21. Administrative Fees........................................................ p. 142 22. Sales Charges Paid to Distributor.......................................... p. 145 23. 12b-1 Fees................................................................. p. 149 24. Unreimbursed Distribution Expenses......................................... p. 152 25. Fund History Table......................................................... p. 156 26. Board Members.............................................................. p. 160 27. Fund Officers.............................................................. p. 161 28. Committee Meetings......................................................... p. 163 29. Board Member Holdings...................................................... p. 164 29A. Board Member Holdings -- as of Quarter End................................. p. 169 30. Board Member Compensation -- All Funds..................................... p. 176 31. Board Member Compensation -- Individual Funds.............................. p. 177 32. Control Persons and Principal Holders of Securities........................ p. 180
RIVERSOURCE FAMILY OF FUNDS The RiverSource Family of Funds includes a comprehensive array of funds from RiverSource Investments. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource family. RiverSource funds, RiverSource Partners funds, Seligman funds and Threadneedle funds share the same Board of Directors/Trustees, and the same policies and procedures including those set forth in the service section of each funds' prospectus. Please reference Appendix D for a complete list of Seligman funds. Statement of Additional Information - July 30, 2009 Page 3 TABLE 1. FUND FISCAL YEAR ENDS, PROSPECTUS DATE AND INVESTMENT CATEGORIES
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY - --------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity April 30 June 29, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income October 31 Dec. 30, 2008 Taxable fixed income* - --------------------------------------------------------------------------------------------------------------- Balanced September 30 Nov. 28, 2008 Balanced - --------------------------------------------------------------------------------------------------------------- California Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Cash Management July 31 Sept. 29, 2008 Taxable money market - --------------------------------------------------------------------------------------------------------------- Disciplined Equity July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined International Equity October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth September 30 Nov. 28, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value September 30 Nov. 28, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Diversified Bond August 31 Oct. 30, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Diversified Equity Income September 30 Nov. 28, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Dividend Opportunity June 30 Aug. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Emerging Markets Bond October 31 Dec. 30, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Equity Value March 31 May 29, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Floating Rate July 31 Sept. 29, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Global Bond October 31 Dec. 30, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Global Technology October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Growth July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- High Yield Bond May 31 July 30, 2009 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Basic Income January 31*** April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income January 31*** April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income January 31*** April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Opportunities July 31 Sept. 29, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Inflation Protected Securities July 31 Sept. 29, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt November 30 Jan. 29, 2009 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Large Cap Equity July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Large Cap Value July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Limited Duration Bond July 31 Sept. 29, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Mid Cap Growth November 30 Jan. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Mid Cap Value September 30 Nov. 28, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- New York Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth May 31 July 30, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Partners Fundamental Value May 31 July 30, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Partners International Select Growth October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners International Select Value October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners International Small Cap October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners Select Value May 31 July 30, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity May 31 July 30, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth March 31 May 29, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Partners Small Cap Value May 31 July 30, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive January 31 April 1, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative January 31 April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate January 31 April 1, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive January 31 April 1, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative January 31 April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity January 31 April 1, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Precious Metals and Mining March 31 May 29, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Real Estate June 30 Aug. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure April 30 June 29, 2009 Equity - ---------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 4
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 April 30 June 29, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 April 30 June 29, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 April 30 June 29, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 April 30 June 29, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 April 30 June 29, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 April 30 June 29, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 April 30 June 29, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 April 30 June 29, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- S&P 500 Index January 31 April 1, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government May 31 July 30, 2009 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Small Cap Advantage March 31 May 29, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Small Company Index January 31 April 1, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Strategic Allocation September 30 Nov. 28, 2008 Balanced - --------------------------------------------------------------------------------------------------------------- Strategic Income Allocation September 30 Nov. 28, 2008 Taxable fixed income* - --------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond November 30 Jan. 29, 2009 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income November 30 Jan. 29, 2009 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market December 31 Feb. 27, 2009 Tax-exempt money market - --------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle European Equity October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income Fund October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha Fund October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage May 31 July 30, 2009 Taxable fixed income - ---------------------------------------------------------------------------------------------------------------
* The taxable fixed income fund investment category includes Absolute Return Currency and Income Fund, which is an alternative investment strategy. Although Strategic Income Allocation Fund is a taxable fixed income fund, it may invest up to 10% of its portfolio in equity securities. ** The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended June 30. *** The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 to Jan. 31, 2008. For years prior to 2008, the fiscal period ended May 31. Statement of Additional Information - July 30, 2009 Page 5 FUNDAMENTAL AND NONFUNDAMENTAL INVESTMENT POLICIES Fundamental investment policies adopted by a fund cannot be changed without the approval of a majority of the outstanding voting securities of the fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Nonfundamental investment policies may be changed by the Board at any time. Notwithstanding any of a fund's other investment policies, each fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies, and restrictions as the fund for the purpose of having those assets managed as part of a combined pool. FUNDS-OF-FUNDS Funds-of-funds invest in a combination of underlying funds. These underlying funds have their own investment policies that may be more or less restrictive than the policies of the funds-of-funds. The policies of the underlying funds may permit funds-of-funds to engage in investment strategies indirectly that would otherwise be prohibited under the investment restrictions of the funds-of- funds. FUNDAMENTAL POLICIES Fundamental policies are policies that can be changed only with shareholder approval. FOR EACH FUND, THE FUND WILL NOT: - Act as an underwriter (sell securities for others). However, under the securities laws, the fund may be deemed to be an underwriter when it purchases securities directly from the issuer and later resells them. - Lend securities or participate in an interfund lending program if the total of all such loans would exceed 33 1/3% of the fund's total assets except this fundamental investment policy shall not prohibit the fund from purchasing money market securities, loans, loan participation or other debt securities, or from entering into repurchase agreements. For funds- of-funds - equity, under current Board policy, the fund has no current intention to lend to a material extent. - Borrow money, except for temporary purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings) immediately after the borrowings. For funds-of-funds - equity, under current Board policy, the fund has no current intention to borrow to a material extent. - Issue senior securities, except as permitted under the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. ADDITIONALLY FOR CASH MANAGEMENT, THE FUND WILL NOT: - Buy on margin or sell short or deal in options to buy or sell securities. - Purchase common stocks, preferred stocks, warrants, other equity securities, corporate bonds or debentures, state bonds, municipal bonds, or industrial revenue bonds. ADDITIONALLY FOR TAX-EXEMPT MONEY MARKET, THE FUND WILL NOT: - Buy on margin or sell short. ADDITIONALLY FOR DISCIPLINED LARGE CAP VALUE, INCOME BUILDER FUNDS, PORTFOLIO BUILDER FUNDS, RETIREMENT PLUS FUNDS, THREADNEEDLE GLOBAL EQUITY INCOME AND THREADNEEDLE GLOBAL EXTENDED ALPHA, THE FUNDS WILL NOT: - Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief. Statement of Additional Information - July 30, 2009 Page 6 In addition to the policies described above and any fundamental policy described in the prospectus, the chart below shows fund-specific policies that may be changed only with shareholder approval. The chart indicates whether or not the fund has a policy on a particular topic. A dash indicates that the fund does not have a policy on a particular topic. The specific policy is stated in the paragraphs that follow the table. TABLE 2. FUNDAMENTAL POLICIES The fund will not:
C D E BUY MORE INVEST MORE CONCENTRATE A B THAN THAN IN F BUY OR SELL BUY OR SELL 10% OF AN 5% IN AN ANY ONE INVEST LESS FUND REAL ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80% - -------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity A1 B5 C1 D1 E8 -- - -------------------------------------------------------------------------------------------------------------- Absolute Return Currency and A1 B1 -- -- E7 -- Income - -------------------------------------------------------------------------------------------------------------- Balanced A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- California Tax-Exempt A1 B1 -- -- -- F1 - -------------------------------------------------------------------------------------------------------------- Cash Management A3 A3 C1 D1 -- -- - -------------------------------------------------------------------------------------------------------------- Disciplined Equity A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Disciplined International Equity A1 B4 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value A1 B3 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap A1 B4 C1 D1 E1 -- Equity - -------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value A1 B4 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Diversified Bond A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Diversified Equity Income A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Dividend Opportunity A1 B1 C1 D1 -- -- - -------------------------------------------------------------------------------------------------------------- Emerging Markets Bond A1 B4 -- -- E5 -- - -------------------------------------------------------------------------------------------------------------- Equity Value A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Floating Rate A1 B4 C1 D1 E6 -- - -------------------------------------------------------------------------------------------------------------- Global Bond A1 B1 C1 -- E1 -- - -------------------------------------------------------------------------------------------------------------- Global Technology A1 B1 -- -- -- -- - -------------------------------------------------------------------------------------------------------------- Growth A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- High Yield Bond A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Income Builder Basic Income* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Income Opportunities A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Inflation Protected Securities A1 B1 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt A1 B1 C1 D1 -- F3(i) - -------------------------------------------------------------------------------------------------------------- Large Cap Equity A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Large Cap Value A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Limited Duration Bond A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Mid Cap Growth A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Mid Cap Value A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt A1 B1 -- -- -- F1 - -------------------------------------------------------------------------------------------------------------- New York Tax-Exempt A1 B1 -- -- -- F1 - -------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners Fundamental Value A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners International Select A1 B3 C1 D1 E1 -- Growth - -------------------------------------------------------------------------------------------------------------- Partners International Select A1 B3 C1 D1 E1 -- Value - -------------------------------------------------------------------------------------------------------------- Partners International Small Cap A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners Select Value A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity A1 B3 C1 D1 E1 -- - --------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 7
C D E BUY MORE INVEST MORE CONCENTRATE A B THAN THAN IN F BUY OR SELL BUY OR SELL 10% OF AN 5% IN AN ANY ONE INVEST LESS FUND REAL ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80% - -------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners Small Cap Value A1 B3 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive* A1 B1 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative* A1 B1 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate* A1 B1 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate A1 B1 -- -- E2 -- Aggressive* - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate A1 B1 -- -- E2 -- Conservative* - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity* A1 B1 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Precious Metals and Mining A1 B1(ii) -- -- E3 -- - -------------------------------------------------------------------------------------------------------------- Real Estate A1 B1 -- -- -- -- - -------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure A1 B4 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2010* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2015* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2020* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2025* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2030* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2035* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2040* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2045* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- S&P 500 Index A1 B1 -- -- E4 -- - -------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Small Cap Advantage A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Small Company Index A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Strategic Allocation A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Strategic Income Allocation A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond A1 B1 C1 D1 -- F3(iii) - -------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income A1 B1 C1 D1 -- F2 - -------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market A2 B2 C1 D1 -- F3 - -------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Threadneedle European Equity A1 B1 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity A1 B3 -- -- E1 -- Income - -------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended A1 B3 -- -- E1 -- Alpha - -------------------------------------------------------------------------------------------------------------- Threadneedle International A1 B1 C1 D1 E1 -- Opportunity - -------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage A1 B1 C1 D1 E1 -- - --------------------------------------------------------------------------------------------------------------
* The fund invests in a combination of underlying funds. These underlying funds have adopted their own investment policies that may be more or less restrictive than those of the fund. The policies of the underlying funds may permit a fund to engage in investment strategies indirectly that would otherwise be prohibited under the fund's investment restrictions. (i) For purposes of this policy, the fund will not include any investments subject to the alternative minimum tax. (ii) Additionally, the fund may purchase gold, silver, or other precious metals, strategic metals or other metals occurring naturally with such metals. (iii) The fund does not intend to purchase bonds or other debt securities the interest from which is subject to the alternative minimum tax. A. BUY OR SELL REAL ESTATE A1 - The fund will not buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. Statement of Additional Information - July 30, 2009 Page 8 A2 - The fund will not invest in real estate, but the fund can invest in municipal bonds and notes secured by real estate or interest therein. For purposes of this policy, real estate includes real estate limited partnerships. A3 - The fund will not buy or sell real estate, commodities or commodity contracts. For purposes of this policy, real estate includes real estate limited partnerships. B. BUY OR SELL PHYSICAL COMMODITIES B1 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B2 - The fund will not invest in commodities or commodity contracts. B3 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options, futures contracts and foreign currency or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B4 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options, futures contracts and foreign currency or from entering into forward currency contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B5 - The fund will not buy or sell commodities, except that the fund may to the extent consistent with its investment objective(s), invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This restriction does not apply to foreign currency transactions including without limitation forward currency contracts. C. BUY MORE THAN 10% OF AN ISSUER C1 - The fund will not purchase more than 10% of the outstanding voting securities of an issuer, except that up to 25% of the fund's assets may be invested without regard to this 10% limitation. For tax-exempt funds, for purposes of this policy, the terms of a municipal security determine the issuer. D. INVEST MORE THAN 5% IN AN ISSUER D1 - The fund will not invest more than 5% of its total assets in securities of any company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or other investment companies, and except that up to 25% of the fund's total assets may be invested without regard to this 5% limitation. For tax-exempt funds, for purposes of this policy, the terms of a municipal security determine the issuer. E. CONCENTRATE E1 - The fund will not concentrate in any one industry. According to the present interpretation by the Securities and Exchange Commission (SEC), this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. E2 - The fund will not concentrate in any one industry. According to the present interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. The fund itself does not intend to concentrate, however, the aggregation of holdings of the underlying funds may result in the fund indirectly investing more than 25% of its assets in a particular industry. The fund does not control the investments of the underlying funds and any indirect concentration will occur only as a result of the fund following its investment objectives by investing in the underlying funds. E3 - The fund will not invest less than 25% of its total assets in the precious metals industry, based on current market value at the time of purchase, unless market conditions temporarily require a defensive investment strategy. E4 - The fund will not concentrate in any one industry unless that industry represents more than 25% of the index tracked by the fund. For all other industries, in accordance with the current interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. E5 - While the fund may invest 25% or more of its total assets in the securities of foreign governmental and corporate entities located in the same country, it will not invest 25% or more of its total assets in any single foreign governmental issuer. Statement of Additional Information - July 30, 2009 Page 9 E6 - The fund will not concentrate in any one industry. According to the present interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. For purposes of this restriction, loans will be considered investments in the industry of the underlying borrower, rather than that of the seller of the loan. E7 - The fund will not concentrate in any one industry, provided however, that this restriction shall not apply to securities or obligations issued or guaranteed by the U.S. Government, banks or bank holding companies or finance companies. For all other industries, this means that up to 25% of the fund's total assets, based on current market value at the time of purchase, can be invested in any one industry. E8 - The fund will not purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. For purposes of applying the limitation set forth in the concentration policy, above, the funds will generally use the industry classifications provided by the Global Industry Classification System. F. INVEST LESS THAN 80% F1 - The fund will not under normal market conditions, invest less than 80% of its net assets in municipal obligations that are generally exempt from federal income tax as well as respective state and local income tax. F2 - The fund will not under normal market conditions, invest less than 80% of its net assets in bonds and notes issued by or on behalf of state and local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax and is not subject to the alternative minimum tax. F3 - The fund will not under normal market conditions, invest less than 80% of its net assets in bonds and other debt securities issued by or on behalf of state or local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax. NONFUNDAMENTAL POLICIES Nonfundamental policies are policies that can be changed by the Board without shareholder approval. The following nonfundamental policies are in addition to those described in the prospectus. FOR FUNDS OTHER THAN MONEY MARKET FUNDS: - No more than 15% of the fund's net assets will be held in securities and other instruments that are illiquid. FOR MONEY MARKET FUNDS: - No more than 10% of the fund's net assets will be held in securities and other instruments that are illiquid. ADDITIONALLY, REGARDING LIMITING INVESTMENTS IN FOREIGN SECURITIES: FOR 120/20 CONTRARIAN EQUITY, BALANCED, DISCIPLINED EQUITY, DISCIPLINED LARGE CAP GROWTH, DISCIPLINED LARGE CAP VALUE DISCIPLINED SMALL AND MID CAP EQUITY, DISCIPLINED SMALL CAP VALUE, DIVERSIFIED BOND, DIVERSIFIED EQUITY INCOME, DIVIDEND OPPORTUNITY, EQUITY VALUE, FLOATING RATE, GROWTH, HIGH YIELD BOND, INCOME OPPORTUNITIES, INFLATION PROTECTED SECURITIES, LARGE CAP EQUITY, LARGE CAP VALUE, LIMITED DURATION BOND, MID CAP GROWTH, MID CAP VALUE, PARTNERS AGGRESSIVE GROWTH, PARTNERS FUNDAMENTAL VALUE, PARTNERS SELECT VALUE, PARTNERS SMALL CAP EQUITY, PARTNERS SMALL CAP GROWTH, PARTNERS SMALL CAP VALUE, REAL ESTATE, RECOVERY AND INFRASTRUCTURE AND SMALL CAP ADVANTAGE: - Up to 25% of the fund's net assets may be invested in foreign investments. FOR PRECIOUS METALS AND MINING: - Under normal market conditions, the fund intends to invest at least 50% of its total assets in foreign investments. FOR SHORT DURATION U.S. GOVERNMENT AND U.S. GOVERNMENT MORTGAGE: - Up to 20% of the fund's net assets may be invested in foreign investments. FOR STRATEGIC ALLOCATION: - The fund may invest its total assets, up to 50%, in foreign investments. Statement of Additional Information - July 30, 2009 Page 10 INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS This table shows many of the various investment strategies and investments the funds are allowed to engage in and purchase. It is intended to show the breadth of investments that the investment manager or subadviser (individually and collectively, the "investment manager") may make on behalf of a fund. For a description of principal risks for an individual fund, please see the applicable prospectus for that fund. Notwithstanding a fund's ability to utilize these strategies and techniques, the investment manager is not obligated to use them at any particular time. For example, even though the investment manager is authorized to adopt temporary defensive positions and is authorized to attempt to hedge against certain types of risk, these practices are left to the investment manager's sole discretion. Fund-of-funds invest in a combination of underlying funds, although they may invest directly in stocks, bonds and other securities. These underlying funds have their own investment strategies and types of investments they are allowed to engage in and purchase. Fund-of-funds currently only invest in underlying funds, which may invest directly in securities and engage in investment strategies, indicated in the table below. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS: A black circle indicates that the investment strategy or type of investment generally is authorized for a category of funds. Exceptions are noted in the footnotes to the table. See Table 1 for fund categories. TABLE 3. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
FUNDS-OF-FUNDS - TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT STATE EQUITY AND FIXED MONEY MONEY FIXED TAX-EXEMPT INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME FIXED INCOME - --------------------------------------------------------------------------------------------------------------------------------- Agency and government securities o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Borrowing o o o o o -- o o - --------------------------------------------------------------------------------------------------------------------------------- Cash/money market instruments o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Collateralized bond obligations o o A o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Commercial paper o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Common stock o o o o B -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Convertible securities o o o o C -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Corporate bonds o o o o D -- o o - --------------------------------------------------------------------------------------------------------------------------------- Debt obligations o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Depositary receipts o o o o -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Derivative instruments (including options and futures) o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Exchange-traded funds o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Floating rate loans o -- o o -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Foreign currency transactions o o o o -- -- o -- - --------------------------------------------------------------------------------------------------------------------------------- Foreign securities o o o o o -- o o - --------------------------------------------------------------------------------------------------------------------------------- Funding agreements o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- High yield debt securities (junk bonds) o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Illiquid and restricted securities o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Indexed securities o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Inflation protected securities o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Inverse floaters o E o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Investment companies o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Lending of portfolio securities o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Loan participations o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Mortgage- and asset-backed securities o o F o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Mortgage dollar rolls o G o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Municipal obligations o o o o -- o o o - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 11
FUNDS-OF-FUNDS - TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT STATE EQUITY AND FIXED MONEY MONEY FIXED TAX-EXEMPT INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME FIXED INCOME - --------------------------------------------------------------------------------------------------------------------------------- Pay-in-kind securities o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Preferred stock o o o o H -- -- o H o - --------------------------------------------------------------------------------------------------------------------------------- Real estate investment trusts o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Repurchase agreements o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Reverse repurchase agreements o o o o o -- o o - --------------------------------------------------------------------------------------------------------------------------------- Short sales I I o I -- -- I I - --------------------------------------------------------------------------------------------------------------------------------- Sovereign debt o o o o o -- o o - --------------------------------------------------------------------------------------------------------------------------------- Structured investments o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Swap agreements o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Variable- or floating-rate securities o o o o o o o o - --------------------------------------------------------------------------------------------------------------------------------- Warrants o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- When-issued securities and forward commitments o o o o -- -- o o - --------------------------------------------------------------------------------------------------------------------------------- Zero-coupon and step-coupon securities o o o o o o o o - ---------------------------------------------------------------------------------------------------------------------------------
A. The following funds are not authorized to invest in collateralized bond obligations: Partners International Select Growth, Partners International Select Value, Partners International Small Cap, Partners Select Value, Partners Small Cap Equity, Partners Small Cap Growth, Partners Small Cap Value, and Small Cap Advantage. B. The following funds are not authorized to invest in common stock: Short Duration U.S. Government, U.S. Government Mortgage. C. The following funds are not authorized to invest in convertible securities: Short Duration U.S. Government, U.S. Government Mortgage. D. While the fund is prohibited from investing in corporate bonds, it may invest in securities classified as corporate bonds if they meet the requirements of Rule 2a-7 of the 1940 Act. E. The following funds are authorized to invest in inverse floaters: Real Estate. F. The following funds are not authorized to invest in mortgage- and asset- backed securities: Partners Small Cap Growth, S&P 500 Index, Small Cap Advantage, Small Company Index. G. The following funds are authorized to invest in mortgage dollar rolls: Real Estate. H. The following funds are not authorized to invest in preferred stock: Tax- Exempt High Income, Intermediate Tax-Exempt, Tax-Exempt Bond, Short Duration U.S. Government, U.S. Government Mortgage. I. The funds are not prohibited from engaging in short sales, however, each fund will seek Board approval prior to utilizing short sales as an active part of its investment strategy. Statement of Additional Information - July 30, 2009 Page 12 INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES RISKS The following is a summary of common risk characteristics. Following this summary is a description of certain investments and investment strategies and the risks most commonly associated with them (including certain risks not described below and, in some cases, a more comprehensive discussion of how the risks apply to a particular investment or investment strategy). A mutual fund's risk profile is largely defined by the fund's primary securities and investment strategies. However, most mutual funds are allowed to use certain other strategies and investments that may have different risk characteristics. Accordingly, one or more of the following types of risk may be associated with a fund at any time (for a description of principal risks for an individual fund, please see that fund's prospectus): ACTIVE MANAGEMENT RISK. For a fund that is actively managed, its performance will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the fund's investment objective. Due to its active management, a fund could underperform other mutual funds with similar investment objectives. AFFILIATED FUND RISK. For funds-of-funds, the risk that the investment manager may have potential conflicts of interest in selecting underlying funds because the fees paid to it by some underlying funds are higher than the fees paid by other underlying funds. However, the investment manager is a fiduciary to the funds and is legally obligated to act in their best interests when selecting underlying funds, without taking fees into consideration. ALLOCATION RISK. For funds-of-funds, the risk that the investment manager's evaluations regarding asset classes or underlying funds may be incorrect. There is no guarantee that the underlying funds will achieve their investment objectives. There is also a risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the asset class. BORROWING RISK. To the extent the fund borrows money for investment purposes, which is commonly referred to as "leveraging," the fund's exposure to fluctuations in the prices of its assets will be increased as compared to the fund's exposure if the fund did not borrow. The fund's borrowing activities will exaggerate any increase or decrease in the net asset value of the fund. In addition, the interest which the fund pays on borrowed money, together with any additional costs of maintaining a borrowing facility, are additional costs borne by the fund and could reduce or eliminate any net investment profits. Unless profits on assets acquired with borrowed funds exceed the costs of borrowing, the use of borrowing will diminish the investment performance of the fund compared with what it would have been without borrowing. When the fund borrows money it must comply with certain asset coverage requirements, which at times may require the fund to dispose of some of its holdings, even though it may be disadvantageous to do so at the time. CREDIT RISK. Credit risk is the risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the fund purchases unrated securities, or if the rating of a security is reduced after purchase, the fund will depend on the investment manager's analysis of credit risk more heavily than usual. CONFIDENTIAL INFORMATION ACCESS RISK. For funds investing in floating rate loans, the investment manager normally will seek to avoid the receipt of material, non-public information (Confidential Information) about the issuers of floating rate loans being considered for acquisition by the fund, or held in the fund. In many instances, issuers of floating rate loans offer to furnish Confidential Information to prospective purchasers or holders of the issuer's floating rate loans to help potential investors assess the value of the loan. The investment manager's decision not to receive Confidential Information from these issuers may disadvantage the fund as compared to other floating rate loan investors, and may adversely affect the price the fund pays for the loans it purchases, or the price at which the fund sells the loans. Further, in situations when holders of floating rate loans are asked, for example, to grant consents, waivers or amendments, the investment manager's ability to assess the desirability of such consents, waivers or amendments may be compromised. For these and other reasons, it is possible that the investment manager's decision under normal circumstances not to receive Confidential Information could adversely affect the fund's performance. COUNTERPARTY RISK. Counterparty risk is the risk that a counterparty to a financial instrument entered into by the fund or held by a special purpose or structured vehicle becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties. The fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The fund may obtain only limited recovery or may obtain no recovery in such circumstances. The fund will typically enter into financial instrument transactions with counterparties whose credit rating is investment grade, or, if unrated, determined to be of comparable quality by the investment manager. Statement of Additional Information - July 30, 2009 Page 13 DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial loss for the Fund. In addition to the potential for increased losses, the use of derivative instruments may lead to increased volatility within a fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including correlation risk, counterparty credit risk, hedging risk, leverage risk, and liquidity risk. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. There is no guarantee that a hedging strategy will eliminate the risk which the hedging strategy is intended to offset, which may lead to losses within a fund. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Derivative instruments which are not traded on an exchange, including, but not limited to, forward contracts, swaps, and over-the-counter options may have liquidity risk. Certain derivatives have the potential for unlimited losses regardless of the size of the initial investment. DIVERSIFICATION RISK. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. Because each investment has a greater effect on the fund's performance, the fund may be more exposed to the risks of loss and volatility than a fund that invests more broadly. For funds-of-funds, although most of the underlying funds are diversified funds, because the fund invests in a limited number of underlying funds, it is considered a non-diversified fund. EXCHANGE-TRADED FUND (ETF) RISK. An ETF's share price may not track its specified market index and may trade below its net asset value, resulting in a loss. ETFs generally use a "passive" investment strategy and will not attempt to take defensive positions in volatile or declining markets. An active secondary market in an ETF's shares may not develop or be maintained and may be halted or interrupted due to actions by its listing exchange, unusual market conditions or other reasons. There can be no assurance an ETF's shares will continue to be listed on an active exchange. In addition, shareholders bear both their proportionate share of the Fund's expenses and similar expenses incurred through ownership of the ETF. FOREIGN/EMERGING MARKETS RISK. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rates between local currency and the U.S. dollar. Whenever the fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents Statement of Additional Information - July 30, 2009 Page 14 to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social, and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. GEOGRAPHIC CONCENTRATION RISK. The fund may be particularly susceptible to economic, political or regulatory events affecting companies and countries within the specific geographic region in which the fund focuses its investments. Currency devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in countries that have already experienced such devaluations. As a result, the fund may be more volatile than a more geographically diversified fund. For state-specific funds. Because state-specific tax-exempt funds invest primarily in the municipal securities issued by the state and political sub- divisions of the state, each fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax- exempt investments will be significantly greater than that of a more geographically diversified fund, which may result in greater losses and volatility. See Appendix B for details. The value of municipal securities owned by a fund also may be adversely affected by future changes in federal or state income tax laws. In addition, because of the relatively small number of issuers of tax-exempt securities, the fund may invest a higher percentage of its assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the fund and other accounts managed by the investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. HIGHLY LEVERAGED TRANSACTIONS RISK. Certain corporate loans and corporate debt securities involve refinancings, recapitalizations, mergers and acquisitions, and other financings for general corporate purposes. These investments also may include senior obligations of a borrower issued in connection with a restructuring pursuant to Chapter 11 of the U.S. Bankruptcy Code (commonly known as "debtor-in-possession" financings), provided that such senior obligations are determined by the fund's investment manager upon its credit analysis to be a suitable investment by the fund. In such highly leveraged transactions, the borrower assumes large amounts of debt in order to have the financial resources to attempt to achieve its business objectives. Such business objectives may include but are not limited to: management's taking over control of a company (leveraged buy-out); reorganizing the assets and liabilities of a company (leveraged recapitalization); or acquiring another company. Loans or securities that are part of highly leveraged transactions involve a greater risk (including default and bankruptcy) than other investments. IMPAIRMENT OF COLLATERAL RISK. The value of collateral, if any, securing a floating rate loan can decline, and may be insufficient to meet the borrower's obligations or difficult to liquidate. In addition, the fund's access to collateral may be limited by bankruptcy or other insolvency laws. Further, certain floating rate loans may not be fully collateralized and may decline in value. INDEXING RISK. For funds that are managed to an index, the fund's performance will rise and fall as the performance of the index rises and falls. INFLATION PROTECTED SECURITIES RISK. Inflation-protected debt securities tend to react to change in real interest rates. Real interest rates can be described as nominal interest rates minus the expected impact of inflation. In general, the price of an inflation-protected debt security falls when real interest rates rise, and rises when real interest rates fall. Interest payments on inflation- protected debt securities will vary as the principal and/or interest is adjusted for inflation and may be more volatile than interest paid on ordinary bonds. In periods of deflation, the fund may have no income at all. Income earned by a shareholder depends on the amount of principal invested and that principal will not grow with inflation unless the investor reinvests the portion of fund distributions that comes from inflation adjustments. INITIAL PUBLIC OFFERING (IPO) RISK. IPOs are subject to many of the same risks as investing in companies with smaller market capitalizations. To the extent a fund determines to invest in IPOs it may not be able to invest to the extent desired, because, for example, only a small portion (if any) of the securities being offered in an IPO may be made available. The investment performance of a fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the fund is able to do so. In addition, as a fund increases in size, the impact of IPOs on the fund's performance will generally decrease. IPOs will frequently be sold within 12 months of purchase. This may result in increased short-term capital gains, which will be taxable to shareholders as ordinary income. Statement of Additional Information - July 30, 2009 Page 15 INTEREST RATE RISK. The securities in the portfolio are subject to the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates. ISSUER RISK. An issuer, or the value of its stocks or bonds, may perform poorly. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures, or other factors. LEVERAGE RISK. Leverage occurs when the fund increases its assets available for investment using borrowings, short sales, derivatives, or similar instruments or techniques. Due to the fact that short sales involve borrowing securities and then selling them, the fund's short sales effectively leverage the fund's assets. The use of leverage may make any change in the fund's net asset value ("NAV") even greater and thus result in increased volatility of returns. The fund's assets that are used as collateral to secure the short sales may decrease in value while the short positions are outstanding, which may force the fund to use its other assets to increase the collateral. Leverage can also create an interest expense that may lower the fund's overall returns. Lastly, there is no guarantee that a leveraging strategy will be successful. LIQUIDITY RISK. The risk associated from a lack of marketability of securities which may make it difficult or impossible to sell at desirable prices in order to minimize loss. The Fund may have to lower the selling price, sell other investments, or forego another, more appealing investment opportunity. MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. This risk is generally greater for small and mid-sized companies, which tend to be more vulnerable to adverse developments. In addition, focus on a particular style, for example, investment in growth or value securities, may cause the Fund to underperform other mutual funds if that style falls out of favor with the market. PREPAYMENT AND EXTENSION RISK. The risk that a bond or other security might be called, or otherwise converted, prepaid, or redeemed, before maturity. This risk is primarily associated with asset-backed securities, including mortgage backed securities. If a security is converted, prepaid, or redeemed, before maturity, particularly during a time of declining interest rates, the portfolio managers may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the fund. Conversely, as interest rates rise, the likelihood of prepayment decreases. The portfolio managers may be unable to capitalize on securities with higher interest rates because the Fund's investments are locked in at a lower rate for a longer period of time. QUANTITATIVE MODEL RISK. Securities selected using quantitative methods may perform differently from the market as a whole as a result of the factors used in the quantitative method, the weight placed on each factor, and changes in the factors' historical trends. The quantitative methodology employed by the investment manager has been extensively tested using historical securities market data, but has only recently begun to be used to manage open-end mutual funds. There can be no assurance that the methodology will enable the fund to achieve its objective. REINVESTMENT RISK. The risk that an investor will not be able to reinvest income or principal at the same rate it currently is earning. SECTOR RISK. Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price. The more a fund diversifies, the more it spreads risk and potentially reduces the risks of loss and volatility. SHORT SALES RISK. The fund may make short sales, which involves selling a security the fund does not own in anticipation that the security's price will decline. The fund must borrow those securities to make delivery to the buyer. The fund may not always be able to borrow a security it wants to sell short. The fund will suffer a loss if it sells a security short and the value of the security rises rather than falls. It is possible that the fund's long positions will decline in value at the same time that the value of its short positions increase, thereby increasing potential losses to the fund. Short sales expose the fund to the risk that it will be required to buy the security sold short (also known as "covering" the short position) at a time when the security has appreciated in value, thus resulting in a loss to the fund. The fund may also be required to close out a short position at a time when it might not otherwise choose, for example, if the lender of the security calls it back, which may have the effect of reducing or eliminating potential gain, or cause the fund to realize a loss. Short positions introduce more risk to the fund than long positions (purchases) because the maximum sustainable loss on a security purchased (held long) is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of the shorted security. Therefore, in theory, securities sold short have unlimited risk. Additionally, the fund's use of short sales in effect "leverages" the fund, as the fund intends to use the cash proceeds from short sales to invest in additional long positions. This leverage effect potentially exposes the fund to greater risks due to unanticipated market movements, which may magnify losses and increase the volatility of returns. See Leverage Risk and Market Risk. Statement of Additional Information - July 30, 2009 Page 16 SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management experience, financial resources, product diversification, experience, and competitive strengths of larger companies. Additionally, in many instances the securities of small and medium companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less and may be more volatile than is typical of larger companies. TAX RISK. As a regulated investment company, a fund must derive at least 90% of its gross income for each taxable year from sources treated as "qualifying income" under the Internal Revenue Code of 1986, as amended. The Fund currently intends to take positions in forward currency contracts with notional value up to the Fund's total net assets. Although foreign currency gains currently constitute "qualifying income" the Treasury Department has the authority to issue regulations excluding from the definition of "qualifying incomes" a fund's foreign currency gains not "directly related" to its "principal business" of investing in stocks or securities (or options and futures with respect thereto). Such regulations might treat gains from some of the Fund's foreign currency- denominated positions as not "qualifying income" and there is a remote possibility that such regulations might be applied retroactively, in which case, the Fund might not qualify as a regulated investment company for one or more years. In the event the Treasury Department issues such regulations, the Fund's Board of Directors may authorize a significant change in investment strategy or Fund liquidation. TRACKING ERROR RISK. For funds that are managed to an index, the fund may not track the index perfectly because differences between the index and the fund's portfolio can cause differences in performance. The investment manager purchases securities and other instruments in an attempt to replicate the performance of the index. However, the tools that the investment manager uses to replicate the index are not perfect and the fund's performance is affected by factors such as the size of the fund's portfolio, transaction costs, management fees and expenses, brokerage commissions and fees, the extent and timing of cash flows in and out of the fund and changes in the index. In addition, the returns from a specific type of security (for example, mid-cap stocks) may trail returns from other asset classes or the overall market. Each type of security will go through cycles of doing better or worse than stocks or bonds in general. These periods may last for several years. UNDERLYING FUND SELECTION RISK. For funds-of-funds, the risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the investment category. INVESTMENT STRATEGIES The following information supplements the discussion of each fund's investment objectives, policies, and strategies that are described in the prospectus and in this SAI. The following describes strategies that many mutual funds use and types of securities that they purchase. Please refer to the table titled Investment Strategies and Types of Investments to see which are applicable to various categories of funds. AGENCY AND GOVERNMENT SECURITIES The U.S. government and its agencies issue many different types of securities. U.S. Treasury bonds, notes, and bills and securities, including mortgage pass through certificates of the Government National Mortgage Association (GNMA), are guaranteed by the U.S. government. Other U.S. government securities are issued or guaranteed by federal agencies or government-sponsored enterprises but are not guaranteed by the U.S. government. This may increase the credit risk associated with these investments. Government- sponsored entities issuing securities include privately owned, publicly chartered entities created to reduce borrowing costs for certain sectors of the economy, such as farmers, homeowners, and students. They include the Federal Farm Credit Bank System, Farm Credit Financial Assistance Corporation, Federal Home Loan Bank, Federal Home Loan Mortgage Corporation(*) (FHLMC), Federal National Mortgage Association(*) (FNMA), Student Loan Marketing Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored entities may issue discount notes (with maturities ranging from overnight to 360 days) and bonds. Agency and government securities are subject to the same concerns as other debt obligations. (See also Debt Obligations and Mortgage- and Asset- Backed Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with agency and government securities include: Inflation Risk, Interest Rate Risk, Prepayment and Extension Risk, and Reinvestment Risk. * On Sept. 7, 2008, the Federal Housing Finance Agency (FHFA), an agency of the U.S. government, placed the FHLMC and FNMA into conservatorship, a statutory process with the objective of returning the entities to normal business operations. FHFA will act as the conservator to operate the enterprises until they are stabilized. Statement of Additional Information - July 30, 2009 Page 17 BORROWING If the fund borrows money, its share price may be subject to greater fluctuation until the borrowing is paid off. If the fund makes additional investments while borrowings are outstanding, this may be considered a form of leverage. Under the 1940 Act, the fund is required to maintain continuous asset coverage of 300% with respect to such borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if such liquidations of the fund's holdings may be disadvantageous from an investment standpoint. Leveraging by means of borrowing may exaggerate the effect of any increase or decrease in the value of portfolio securities or the fund's NAV, and money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances) which may or may not exceed the income received from the securities purchased with borrowed funds. Although one or more of the other risks described in this SAI may apply, the largest risks associated with borrowing include: Inflation Risk. CASH/MONEY MARKET INSTRUMENTS Cash-equivalent investments include short-term U.S. and Canadian government securities and negotiable certificates of deposit, non-negotiable fixed-time deposits, bankers' acceptances, and letters of credit of banks or savings and loan associations having capital, surplus, and undivided profits (as of the date of its most recently published annual financial statements) in excess of $100 million (or the equivalent in the instance of a foreign branch of a U.S. bank) at the date of investment. A fund also may purchase short-term notes and obligations of U.S. and foreign banks and corporations and may use repurchase agreements with broker-dealers registered under the Securities Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.) These types of instruments generally offer low rates of return and subject a fund to certain costs and expenses. See Appendix A for a discussion of securities ratings. Bankers' acceptances are marketable short-term credit instruments used to finance the import, export, transfer or storage of goods. They are termed "accepted" when a bank guarantees their payment at maturity. Bank certificates of deposit are certificates issued against funds deposited in a bank (including eligible foreign branches of U.S. banks), are for a definite period of time, earn a specified rate of return and are normally negotiable. A 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 Family of Funds and other institutional clients of RiverSource Investments. Although one or more of the other risks described in this SAI may apply, the largest risks associated with cash/money market instruments include: Credit Risk and Inflation Risk. COLLATERALIZED BOND OBLIGATIONS Collateralized bond obligations (CBOs) are investment grade bonds backed by a pool of bonds, which may include junk bonds. CBOs are similar in concept to collateralized mortgage obligations (CMOs), but differ in that CBOs represent different degrees of credit quality rather than different maturities. (See also Mortgage- and Asset-Backed Securities.) Underwriters of CBOs package a large and diversified pool of high-risk, high-yield junk bonds, which is then separated into "tiers." Typically, the first tier represents the higher quality collateral and pays the lowest interest rate; the second tier is backed by riskier bonds and pays a higher rate; the third tier represents the lowest credit quality and instead of receiving a fixed interest rate receives the residual interest payments -- money that is left over after the higher tiers have been paid. CBOs, like CMOs, are substantially overcollateralized and this, plus the diversification of the pool backing them, may earn certain of the tiers investment-grade bond ratings. Holders of third-tier CBOs stand to earn high yields or less money depending on the rate of defaults in the collateral pool. (See also High-Yield Debt Securities (Junk Bonds).) Although one or more of the other risks described in this SAI may apply, the largest risks associated with CBOs include: Credit Risk, Interest Rate Risk and Prepayment and Extension Risk. COMMERCIAL PAPER Commercial paper is a short-term debt obligation with a maturity ranging from 2 to 270 days issued by banks, corporations, and other borrowers. It is sold to investors with temporary idle cash as a way to increase returns on a short-term basis. These instruments are generally unsecured, which increases the credit risk associated with this type of investment. (See also Debt Obligations and Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with commercial paper include: Credit Risk and Liquidity Risk. Statement of Additional Information - July 30, 2009 Page 18 COMMON STOCK Common stock represents units of ownership in a corporation. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. The price of common stock is generally determined by corporate earnings, type of products or services offered, projected growth rates, experience of management, liquidity, and general market conditions for the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with common stock include: Issuer Risk, Market Risk, and Small and Mid-Sized Company Risk. CONVERTIBLE SECURITIES Convertible securities are bonds, debentures, notes, preferred stocks, or other securities that may be converted into common, preferred or other securities of the same or a different issuer within a particular period of time at a specified price. Some convertible securities, such as preferred equity-redemption cumulative stock (PERCs), have mandatory conversion features. Others are voluntary. A convertible security entitles the holder to receive interest normally paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted, or exchanged. Convertible securities have unique investment characteristics in that they generally (i) have higher yields than common stocks but lower yields than comparable non-convertible securities, (ii) are less subject to fluctuation in value than the underlying stock since they have fixed income characteristics, and (iii) provide the potential for capital appreciation if the market price of the underlying common stock increases. The value of a convertible security is a function of its "investment value" (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with convertible securities include: Interest Rate Risk, Issuer Risk, Market Risk, Prepayment and Extension Risk, and Reinvestment Risk. CORPORATE BONDS Corporate bonds are debt obligations issued by private corporations, as distinct from bonds issued by a government agency or a municipality. Corporate bonds typically have four distinguishing features: (1) they are taxable; (2) they have a par value of $1,000; (3) they have a term maturity, which means they come due all at once; and (4) many are traded on major exchanges. Corporate bonds are subject to the same concerns as other debt obligations. (See also Debt Obligations and High-Yield Debt Securities (Junk Bonds).) Corporate bonds may be either secured or unsecured. Unsecured corporate bonds are generally referred to as "debentures." See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with corporate bonds include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk. DEBT OBLIGATIONS Many different types of debt obligations exist (for example, bills, bonds, or notes). Issuers of debt obligations have a contractual obligation to pay interest at a fixed, variable or floating rate on specified dates and to repay principal on a specified maturity date. Certain debt obligations (usually intermediate- and long-term bonds) have provisions that allow the issuer to redeem or "call" a bond before its maturity. Issuers are most likely to call these securities during periods of falling interest rates. When this happens, an investor may have to replace these securities with lower yielding securities, which could result in a lower return. The market value of debt obligations is affected primarily by changes in prevailing interest rates and the issuers perceived ability to repay the debt. The market value of a debt obligation generally reacts inversely to interest rate changes. When prevailing interest rates decline, the price usually rises, and when prevailing interest rates rise, the price usually declines. Statement of Additional Information - July 30, 2009 Page 19 In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. As noted, the values of debt obligations also may be affected by changes in the credit rating or financial condition of their issuers. Generally, the lower the quality rating of a security, the higher the degree of risk as to the payment of interest and return of principal. To compensate investors for taking on such increased risk, those issuers deemed to be less creditworthy generally must offer their investors higher interest rates than do issuers with better credit ratings. (See also Agency and Government Securities, Corporate Bonds, and High- Yield Debt Securities (Junk Bonds).) Generally, debt obligations that are investment grade are those that have been rated in one of the top four credit quality categories by two out of the three independent rating agencies. In the event that a debt obligation has been rated by only two agencies, the most conservative, or lower, rating must be in one of the top four credit quality categories in order for the security to be considered investment grade. If only one agency has rated the debt obligation, that rating must be in one of the top four credit quality categories for the security to be considered investment grade. See Appendix A for a discussion of securities ratings. All ratings limitations are applied at the time of purchase. Subsequent to purchase, a debt security may cease to be rated or its rating may be reduced below the minimum required for purchase by a fund. Neither event will require the sale of such a security, but it will be a factor in considering whether to continue to hold the security. To the extent that ratings change as a result of changes in a rating agency or its rating system, a fund will attempt to use comparable ratings as standards for selecting investments. Although one or more of the other risks described in this SAI may apply, the largest risks associated with debt obligations include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk. DEPOSITARY RECEIPTS Some foreign securities are traded in the form of American Depositary Receipts (ADRs). ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities of foreign issuers. European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts typically issued by foreign banks or trust companies, evidencing ownership of underlying securities issued by either a foreign or U.S. issuer. Generally, depositary receipts in registered form are designed for use in the U.S. and depositary receipts in bearer form are designed for use in securities markets outside the U.S. Depositary receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary receipts involve the risks of other investments in foreign securities. In addition, ADR holders may not have all the legal rights of shareholders and may experience difficulty in receiving shareholder communications. (See also Common Stock and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with depositary receipts include: Foreign/Emerging Markets Risk, Issuer Risk, and Market Risk. DERIVATIVE INSTRUMENTS Derivative instruments are commonly defined to include securities or contracts whose values depend, in whole or in part, on (or "derive" from) the value of one or more other assets, such as securities, currencies, or commodities. A derivative instrument generally consists of, is based upon, or exhibits characteristics similar to options or forward contracts. Such instruments may be used to maintain cash reserves while remaining fully invested, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns. Derivative instruments are characterized by requiring little or no initial payment. Their value changes daily based on a security, a currency, a group of securities or currencies, or an index. A small change in the value of the underlying security, currency, or index can cause a sizable percentage gain or loss in the price of the derivative instrument. Options and forward contracts are considered to be the basic "building blocks" of derivatives. For example, forward- based derivatives include forward contracts, swap contracts, and exchange-traded futures. Forward-based derivatives are sometimes referred to generically as "futures contracts." Option-based derivatives include privately negotiated, over-the-counter (OTC) options (including caps, floors, collars, and options on futures) and exchange- traded options on futures. Diverse types of derivatives may be created by combining options or futures in different ways, and by applying these structures to a wide range of underlying assets. Options. An option is a contract. A person who buys a call option for a security has the right to buy the security at a set price for the length of the contract. A person who sells a call option is called a writer. The writer of a call option agrees for the length of the contract to sell the security at the set price when the buyer wants to exercise the option, no matter what the market price of the security is at that time. A person who buys a put option has the right to sell a security at a set price for the length of the contract. A person who writes a put option agrees to buy the security at the set price if the purchaser wants Statement of Additional Information - July 30, 2009 Page 20 to exercise the option during the length of the contract, no matter what the market price of the security is at that time. An option is covered if the writer owns the security (in the case of a call) or sets aside the cash or securities of equivalent value (in the case of a put) that would be required upon exercise. The price paid by the buyer for an option is called a premium. In addition to the premium, the buyer generally pays a broker a commission. The writer receives a premium, less another commission, at the time the option is written. The premium received by the writer is retained whether or not the option is exercised. A writer of a call option may have to sell the security for a below- market price if the market price rises above the exercise price. A writer of a put option may have to pay an above-market price for the security if its market price decreases below the exercise price. When an option is purchased, the buyer pays a premium and a commission. It then pays a second commission on the purchase or sale of the underlying security when the option is exercised. For record keeping and tax purposes, the price obtained on the sale of the underlying security is the combination of the exercise price, the premium, and both commissions. One of the risks an investor assumes when it buys an option is the loss of the premium. To be beneficial to the investor, the price of the underlying security must change within the time set by the option contract. Furthermore, the change must be sufficient to cover the premium paid, the commissions paid both in the acquisition of the option and in a closing transaction or in the exercise of the option and sale (in the case of a call) or purchase (in the case of a put) of the underlying security. Even then, the price change in the underlying security does not ensure a profit since prices in the option market may not reflect such a change. Options on many securities are listed on options exchanges. If a fund writes listed options, it will follow the rules of the options exchange. Options are valued at the close of the New York Stock Exchange. An option listed on a national exchange, Chicago Board Options Exchange, or NASDAQ will be valued at the last quoted sales price or, if such a price is not readily available, at the mean of the last bid and ask prices. Options on certain securities are not actively traded on any exchange, but may be entered into directly with a dealer. These options may be more difficult to close. If an investor is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the call written by the investor expires or is exercised. Futures Contracts. A futures contract is a sales contract between a buyer (holding the "long" position) and a seller (holding the "short" position) for an asset with delivery deferred until a future date. The buyer agrees to pay a fixed price at the agreed future date and the seller agrees to deliver the asset. The seller hopes that the market price on the delivery date is less than the agreed upon price, while the buyer hopes for the contrary. Many futures contracts trade in a manner similar to the way a stock trades on a stock exchange and the commodity exchanges. Generally, a futures contract is terminated by entering into an offsetting transaction. An offsetting transaction is effected by an investor taking an opposite position. At the time a futures contract is made, a good faith deposit called initial margin is set up. Daily thereafter, the futures contract is valued and the payment of variation margin is required so that each day a buyer would pay out cash in an amount equal to any decline in the contract's value or receive cash equal to any increase. At the time a futures contract is closed out, a nominal commission is paid, which is generally lower than the commission on a comparable transaction in the cash market. Futures contracts may be based on various securities, securities indexes (such as the S&P 500 Index), foreign currencies and other financial instruments and indexes. A fund may engage in futures and related options transactions to produce incremental earnings, to hedge existing positions, and to increase flexibility. The fund intends to comply with Rule 4.5 of the Commodity Futures Trading Commission (CFTC), under which a mutual fund is exempt from the definition of a "commodity pool operator." The fund, therefore, is not subject to registration or regulation as a pool operator, meaning that the fund may invest in futures contracts without registering with the CFTC. Options on Futures Contracts. Options on futures contracts give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date (some futures are settled in cash), an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Further, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily. One of the risks in buying an option on a futures contract is the loss of the premium paid for the option. The risk involved in writing options on futures contracts an investor owns, or on securities held in its portfolio, is that there could be an increase in the market value of these contracts or securities. If that occurred, the option would be exercised and the asset sold at a Statement of Additional Information - July 30, 2009 Page 21 lower price than the cash market price. To some extent, the risk of not realizing a gain could be reduced by entering into a closing transaction. An investor could enter into a closing transaction by purchasing an option with the same terms as the one previously sold. The cost to close the option and terminate the investor's obligation, however, might still result in a loss. Further, the investor might not be able to close the option because of insufficient activity in the options market. Purchasing options also limits the use of monies that might otherwise be available for long-term investments. Options on Indexes. Options on indexes are securities traded on national securities exchanges. An option on an index is similar to an option on a futures contract except all settlements are in cash. A fund exercising a put, for example, would receive the difference between the exercise price and the current index level. Options may also be traded with respect to other types of indexes, such as options on indexes of commodities futures. Currency Options. Options on currencies are contracts that give the buyer the right, but not the obligation, to buy (call options) or sell (put options) a specified amount of a currency at a predetermined price (strike rate) on or before the option matures (expiry date). Conversely, the seller has the obligation to buy or sell a currency option upon exercise of the option by the purchaser. Currency options are traded either on a national securities exchange or over-the-counter. Tax and Accounting Treatment. As permitted under federal income tax laws and to the extent a fund is allowed to invest in futures contracts, a fund would intend to identify futures contracts as part of a mixed straddle and not mark them to market, that is, not treat them as having been sold at the end of the year at market value. If a fund is using short futures contracts for hedging purposes, the fund may be required to defer recognizing losses incurred on short futures contracts and on underlying securities. Any losses incurred on securities that are part of a straddle may be deferred to the extent there is unrealized appreciation on the offsetting position until the offsetting position is sold. Federal income tax treatment of gains or losses from transactions in options, options on futures contracts and indexes will depend on whether the option is a section 1256 contract. If the option is a non-equity option, a fund would either make a 1256(d) election and treat the option as a mixed straddle or mark to market the option at fiscal year end and treat the gain/loss as 40% short-term and 60% long-term. The Internal Revenue Service (IRS) has ruled publicly that an exchange-traded call option is a security for purposes of the 50%-of-assets test and that its issuer is the issuer of the underlying security, not the writer of the option, for purposes of the diversification requirements. Accounting for futures contracts will be according to generally accepted accounting principles. Initial margin deposits will be recognized as assets due from a broker (a fund's agent in acquiring the futures position). During the period the futures contract is open, changes in value of the contract will be recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments will be made or received depending upon whether gains or losses are incurred. All contracts and options will be valued at the last- quoted sales price on their primary exchange. Other Risks of Derivatives. The primary risk of derivatives is the same as the risk of the underlying asset, namely that the value of the underlying asset may go up or down. Adverse movements in the value of an underlying asset can expose an investor to losses. Derivative instruments may include elements of leverage and, accordingly, the fluctuation of the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the investment manager's ability to predict movements of the securities, currencies, and commodity markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed. Another risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivative instruments is generally less than for privately-negotiated or OTC derivative instruments, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance. For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, an investor will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transaction and possibly other losses. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged for any change in the price of the underlying asset. With an imperfect hedge, the values of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option, or selling a futures contract) increased by less than the decline in value of the hedged investment, the hedge would not be perfectly correlated. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. Statement of Additional Information - July 30, 2009 Page 22 Derivatives also are subject to the risk that they cannot be sold, closed out, or replaced quickly at or very close to their fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange- traded derivatives since they often can only be closed out with the other party to the transaction. Another risk is caused by the legal unenforcibility of a party's obligations under the derivative. A counterparty that has lost money in a derivative transaction may try to avoid payment by exploiting various legal uncertainties about certain derivative products. (See also Foreign Currency Transactions.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with derivative instruments include: Derivatives Risk and Liquidity Risk. EXCHANGE-TRADED FUNDS Exchange-traded funds (ETFs) represent shares of ownership in mutual funds, unit investment trusts or depositary receipts. ETFs hold portfolios of securities that are designed to replicate, as closely as possible before expenses, the price and yield of a specified market index. The performance results of ETFs will not replicate exactly the performance of the pertinent index due to transaction and other expenses, including fees to service providers, borne by ETFs. ETF shares are sold and redeemed at net asset value only in large blocks called creation units and redemption units, respectively. ETF shares also may be purchased and sold in secondary market trading on national securities exchanges, which allows investors to purchase and sell ETF shares at their market price throughout the day. Although one or more of the other risks described in this SAI may apply, investments in ETFs involve the same risks associated with a direct investment in the types of securities included in the indices the ETFs are designed to replicate, including Market Risk. ETFs generally use a "passive" investment strategy and will not attempt to take defensive positions in volatile or declining markets. Shares of an ETF may trade at a market price that is less than their net asset value and an active trading market in such shares may not develop or continue and may be halted or interrupted due to actions by its listing exchange, unusual market conditions or other reasons. There can be no assurance an ETF's shares will continue to be listed on an active exchange. Finally, there can be no assurance that the portfolio of securities purchased by an ETF to replicate a particular index will replicate such index. FLOATING RATE LOANS Most floating rate loans are acquired directly from the agent bank or from another holder of the loan by assignment. Most such loans are secured, and most impose restrictive covenants which must be met by the borrower. These loans are typically made by a syndicate of banks and institutional investors, represented by an agent bank which has negotiated and structured the loan and which is responsible generally for collecting interest, principal, and other amounts from the borrower on its own behalf and on behalf of the other lending institutions in the syndicate, and for enforcing its and their other rights against the borrower. Each of the lending institutions, including the agent bank, lends to the borrower a portion of the total amount of the loan, and retains the corresponding interest in the loan. Floating rate loans may include delayed draw term loans and prefunded or synthetic letters of credit. A fund's ability to receive payments of principal and interest and other amounts in connection with loans held by it will depend primarily on the financial condition of the borrower. The failure by the fund to receive scheduled interest or principal payments on a loan would adversely affect the income of the fund and would likely reduce the value of its assets, which would be reflected in a reduction in the fund's net asset value. Banks and other lending institutions generally perform a credit analysis of the borrower before originating a loan or purchasing an assignment in a loan. In selecting the loans in which the fund will invest, however, the investment manager will not rely on that credit analysis of the agent bank, but will perform its own investment analysis of the borrowers. The investment manager's analysis may include consideration of the borrower's financial strength and managerial experience, debt coverage, additional borrowing requirements or debt maturity schedules, changing financial conditions, and responsiveness to changes in business conditions and interest rates. The majority of loans the fund will invest in will be rated by one or more of the nationally recognized rating agencies. Investments in loans may be of any quality, including "distressed" loans, and will be subject to the fund's credit quality policy. Loans may be structured in different forms, including assignments and participations. In an assignment, a fund purchases an assignment of a portion of a lender's interest in a loan. In this case, the fund may be required generally to rely upon the assigning bank to demand payment and enforce its rights against the borrower, but would otherwise be entitled to all of such bank's rights in the loan. The borrower of a loan may, either at its own election or pursuant to terms of the loan documentation, prepay amounts of the loan from time to time. There is no assurance that a fund will be able to reinvest the proceeds of any loan prepayment at the same interest rate or on the same terms as those of the original loan. Statement of Additional Information - July 30, 2009 Page 23 Corporate loans in which a fund may purchase a loan assignment are made generally to finance internal growth, mergers, acquisitions, recapitalizations, stock repurchases, leveraged buy-outs, dividend payments to sponsors and other corporate activities. Under current market conditions, most of the corporate loans purchased by the fund will represent loans made to highly leveraged corporate borrowers. The highly leveraged capital structure of the borrowers in such transactions may make such loans especially vulnerable to adverse changes in economic or market conditions. The fund may hold investments in loans for a very short period of time when opportunities to resell the investments that the investment manager believes are attractive arise. Certain of the loans acquired by a fund may involve revolving credit facilities under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the fund would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan assignment. To the extent that the fund is committed to make additional loans under such an assignment, it will at all times designate cash or securities in an amount sufficient to meet such commitments. Notwithstanding its intention in certain situations to not receive material, non-public information with respect to its management of investments in floating rate loans, the investment manager may from time to time come into possession of material, non-public information about the issuers of loans that may be held in a fund's portfolio. Possession of such information may in some instances occur despite the investment manager's efforts to avoid such possession, but in other instances the investment manager may choose to receive such information (for example, in connection with participation in a creditors' committee with respect to a financially distressed issuer). As, and to the extent, required by applicable law, the investment manager's ability to trade in these loans for the account of the fund could potentially be limited by its possession of such information. Such limitations on the investment manager's ability to trade could have an adverse effect on the fund by, for example, preventing the fund from selling a loan that is experiencing a material decline in value. In some instances, these trading restrictions could continue in effect for a substantial period of time. In some instances, other accounts managed by the investment manager may hold other securities issued by borrowers whose floating rate loans may be held in a fund's portfolio. These other securities may include, for example, debt securities that are subordinate to the floating rate loans held in the fund's portfolio, convertible debt or common or preferred equity securities. In certain circumstances, such as if the credit quality of the issuer deteriorates, the interests of holders of these other securities may conflict with the interests of the holders of the issuer's floating rate loans. In such cases, the investment manager may owe conflicting fiduciary duties to the fund and other client accounts. The investment manager will endeavor to carry out its obligations to all of its clients to the fullest extent possible, recognizing that in some cases certain clients may achieve a lower economic return, as a result of these conflicting client interests, than if the investment manager's client accounts collectively held only a single category of the issuer's securities. Although one or more of the other risks described in this SAI may apply, the largest risks associated with floating rate loans include: Credit Risk and Prepayment and Extension Risk. FOREIGN CURRENCY TRANSACTIONS Investments in foreign countries usually involve currencies of foreign countries. In addition, a fund may hold cash and cash equivalent investments in foreign currencies. As a result, the value of a fund's assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency exchange rates and exchange control regulations. Also, a fund may incur costs in connection with conversions between various currencies. Currency exchange rates may fluctuate significantly over short periods of time causing a fund's NAV (Net Asset Value) to fluctuate. Currency exchange rates are generally determined by the forces of supply and demand in the foreign exchange markets, actual or anticipated changes in interest rates, and other complex factors. Currency exchange rates also can be affected by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments. Spot Rates and Derivative Instruments. A fund may conduct its foreign currency exchange transactions either at the spot (cash) rate prevailing in the foreign currency exchange market or by entering into forward currency exchange contracts (forward contracts). (See also Derivative Instruments.) These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such derivative instruments, a fund could be disadvantaged by having to deal in the odd lot market for the underlying foreign currencies at prices that are less favorable than for round lots. A fund may enter into forward contracts for a variety of reasons, but primarily it will enter into such contracts for risk management (hedging) or for investment purposes. A fund may enter into forward contracts to settle a security transaction or handle dividend and interest collection. When a fund enters into a contract for the purchase or sale of a security denominated in a foreign currency or has been notified of a Statement of Additional Information - July 30, 2009 Page 24 dividend or interest payment, it may desire to lock in the price of the security or the amount of the payment, usually in U.S. dollars, although it could desire to lock in the price of the security in another currency. By entering into a forward contract, a fund would be able to protect itself against a possible loss resulting from an adverse change in the relationship between different currencies from the date the security is purchased or sold to the date on which payment is made or received or when the dividend or interest is actually received. A fund may enter into forward contracts when management of the fund believes the currency of a particular foreign country may decline in value relative to another currency. When selling currencies forward in this fashion, a fund may seek to hedge the value of foreign securities it holds against an adverse move in exchange rates. The precise matching of forward contract amounts and the value of securities involved generally will not be possible since the future value of securities in foreign currencies more than likely will change between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movements is extremely difficult and successful execution of a short-term hedging strategy is highly uncertain. Unless specifically permitted, a fund would not enter into such forward contracts or maintain a net exposure to such contracts when consummating the contracts would obligate it to deliver an amount of foreign currency in excess of the value of its securities or other assets denominated in that currency. This method of protecting the value of the fund's securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange that can be achieved at some point in time. Although forward contracts tend to minimize the risk of loss due to a decline in value of hedged currency, they tend to limit any potential gain that might result should the value of such currency increase. A fund may also enter into forward contracts when its management believes the currency of a particular country will increase in value relative to another currency. A fund may buy currencies forward to gain exposure to a currency without incurring the additional costs of purchasing securities denominated in that currency. Absolute Return Currency and Income Fund is designed to invest in a combination of forward currency contracts and U.S. dollar-denominated market instruments in an attempt to obtain an investment result that is substantially the same as a direct investment in a foreign currency-denominated instrument. For example, the combination of U.S. dollar-denominated instruments with long forward currency exchange contracts creates a position economically equivalent to a position in the foreign currency, in anticipation of an increase in the value of the foreign currency against the U.S. dollar. Conversely, the combination of U.S. dollar- denominated instruments with short forward currency exchange contracts is economically equivalent to borrowing the foreign currency for delivery at a specified date in the future, in anticipation of a decrease in the value of the foreign currency against the U.S. dollar. This strategy may also be employed by other funds. Unanticipated changes in the currency exchange results could result in poorer performance for funds that enter into these types of transactions. A fund may designate cash or securities in an amount equal to the value of the fund's total assets committed to consummating forward contracts entered into under the circumstance set forth above. If the value of the securities declines, additional cash or securities will be designated on a daily basis so that the value of the cash or securities will equal the amount of the fund's commitments on such contracts. At maturity of a forward contract, a fund may either deliver (if a contract to sell) or take delivery of (if a contract to buy) the foreign currency or terminate its contractual obligation by entering into an offsetting contract with the same currency trader, the same maturity date, and covering the same amount of foreign currency. If a fund engages in an offsetting transaction, it would incur a gain or loss to the extent there has been movement in forward contract prices. If a fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to buy or sell the foreign currency. Although a fund values its assets each business day in terms of U.S. dollars, it may not intend to convert its foreign currencies into U.S. dollars on a daily basis. It would do so from time to time, and shareholders should be aware of currency conversion costs. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (spread) between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while offering a lesser rate of exchange should a fund desire to resell that currency to the dealer. For Absolute Return Currency and Income Fund, it is possible, under certain circumstances, including entering into forward currency contracts for investment purposes, that the fund may have to limit or restructure its forward contract currency transactions to qualify as a "regulated investment company" under the Internal Revenue Code. Options on Foreign Currencies. A fund may buy put and call options and write covered call and cash-secured put options on foreign currencies for hedging purposes and to gain exposure to foreign currencies. For example, a decline in the dollar value of a foreign currency in which securities are denominated will reduce the dollar value of such securities, even if their value Statement of Additional Information - July 30, 2009 Page 25 in the foreign currency remains constant. In order to protect against the diminutions in the value of securities, a fund may buy put options on the foreign currency. If the value of the currency does decline, a fund would have the right to sell the currency for a fixed amount in dollars and would offset, in whole or in part, the adverse effect on its portfolio that otherwise would have resulted. Conversely, where a change in the dollar value of a currency would increase the cost of securities a fund plans to buy, or where a fund would benefit from increased exposure to the currency, a fund may buy call options on the foreign currency. The purchase of the options could offset, at least partially, the changes in exchange rates. As in the case of other types of options, however, the benefit to a fund derived from purchases of foreign currency options would be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, a fund could sustain losses on transactions in foreign currency options that would require it to forego a portion or all of the benefits of advantageous changes in rates. A fund may write options on foreign currencies for the same types of purposes. For example, when a fund anticipates a decline in the dollar value of foreign- denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option would most likely not be exercised and the diminution in value of securities would be fully or partially offset by the amount of the premium received. Similarly, instead of purchasing a call option when a foreign currency is expected to appreciate, a fund could write a put option on the relevant currency. If rates move in the manner projected, the put option would expire unexercised and allow the fund to hedge increased cost up to the amount of the premium. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the fund would be required to buy or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements on exchange rates. All options written on foreign currencies will be covered. An option written on foreign currencies is covered if a fund holds currency sufficient to cover the option or has an absolute and immediate right to acquire that currency without additional cash consideration upon conversion of assets denominated in that currency or exchange of other currency held in its portfolio. An option writer could lose amounts substantially in excess of its initial investments, due to the margin and collateral requirements associated with such positions. Options on foreign currencies are traded through financial institutions acting as market-makers, although foreign currency options also are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In an over-the- counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting a fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for that purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. Foreign Currency Futures and Related Options. A fund may enter into currency futures contracts to buy or sell currencies. It also may buy put and call options and write covered call and cash-secured put options on currency futures. Currency futures contracts are similar to currency forward contracts, except that they are traded on exchanges (and have margin requirements) Statement of Additional Information - July 30, 2009 Page 26 and are standardized as to contract size and delivery date. Most currency futures call for payment of delivery in U.S. dollars. A fund may use currency futures for the same purposes as currency forward contracts, subject to CFTC limitations. Currency futures and options on futures values can be expected to correlate with exchange rates, but will not reflect other factors that may affect the value of the fund's investments. A currency hedge, for example, should protect a Yen- denominated bond against a decline in the Yen, but will not protect a fund against price decline if the issuer's creditworthiness deteriorates. Because the value of a fund's investments denominated in foreign currency will change in response to many factors other than exchange rates, it may not be possible to match the amount of a forward contract to the value of a fund's investments denominated in that currency over time. A fund will hold securities or other options or futures positions whose values are expected to offset its obligations. The fund would not enter into an option or futures position that exposes the fund to an obligation to another party unless it owns either (i) an offsetting position in securities or (ii) cash, receivables and short-term debt securities with a value sufficient to cover its potential obligations. (See also Derivative Instruments and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign currency transactions include: Derivatives Risk, Interest Rate Risk, and Liquidity Risk. FOREIGN SECURITIES Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations involve special risks, including those set forth below, which are not typically associated with investing in U.S. securities. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic companies. Additionally, many foreign stock markets, while growing in volume of trading activity, have substantially less volume than the New York Stock Exchange, and securities of some foreign companies are less liquid and more volatile than securities of domestic companies. Similarly, volume and liquidity in most foreign bond markets are less than the volume and liquidity in the U.S. and, at times, volatility of price can be greater than in the U.S. Further, foreign markets have different clearance, settlement, registration, and communication procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions making it difficult to conduct such transactions. Delays in such procedures could result in temporary periods when assets are uninvested and no return is earned on them. The inability of an investor to make intended security purchases due to such problems could cause the investor to miss attractive investment opportunities. Payment for securities without delivery may be required in certain foreign markets and, when participating in new issues, some foreign countries require payment to be made in advance of issuance (at the time of issuance, the market value of the security may be more or less than the purchase price). Some foreign markets also have compulsory depositories (i.e., an investor does not have a choice as to where the securities are held). Fixed commissions on some foreign stock exchanges are generally higher than negotiated commissions on U.S. exchanges. Further, an investor may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. There is generally less government supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the U.S. It may be more difficult for an investor's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the U.S. and foreign countries may be less reliable than within the U.S., thus increasing the risk of delays or loss of certificates for portfolio securities. In addition, with respect to certain foreign countries, there is the possibility of nationalization, expropriation, the imposition of additional withholding or confiscatory taxes, political, social, or economic instability, diplomatic developments that could affect investments in those countries, or other unforeseen actions by regulatory bodies (such as changes to settlement or custody procedures). The risks of foreign investing may be magnified for investments in emerging markets, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. The introduction of a single currency, the euro, on Jan. 1, 1999 for participating European nations in the Economic and Monetary Union (EU) presents unique uncertainties, including the legal treatment of certain outstanding financial contracts after Jan. 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates; the fluctuation of the euro relative to non-euro currencies; whether the interest rate, tax or labor regimes of European countries participating in the euro will converge over time; and whether the admission of other countries such as Poland, Latvia, and Lithuania as members of the EU may have an impact on the euro. Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign securities include: Foreign/Emerging Markets Risk and Issuer Risk. Statement of Additional Information - July 30, 2009 Page 27 FUNDING AGREEMENTS A fund may invest in funding agreements issued by domestic insurance companies. Funding agreements are short-term, privately placed, debt obligations of insurance companies that offer a fixed- or floating-rate of interest. These investments are not readily marketable and therefore are considered to be illiquid securities. (See also Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with funding agreements include: Credit Risk and Liquidity Risk. HIGH-YIELD DEBT SECURITIES (JUNK BONDS) High yield (high-risk) debt securities are sometimes referred to as junk bonds. They are non-investment grade (lower quality) securities that have speculative characteristics. Lower quality securities, while generally offering higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility of default or bankruptcy. They are regarded as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. The special risk considerations in connection with investments in these securities are discussed below. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.) All fixed rate interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of lower-quality and comparable unrated securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Lower-quality and comparable unrated securities also tend to be more sensitive to economic conditions than are higher-rated securities. As a result, they generally involve more credit risks than securities in the higher- rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of lower-quality securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific corporate developments, the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss due to default by an issuer of these securities is significantly greater than a default by issuers of higher-rated securities because such securities are generally unsecured and are often subordinated to other creditors. Further, if the issuer of a lower quality security defaulted, an investor might incur additional expenses to seek recovery. Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of lower-quality securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the securities. Consequently, credit ratings are used only as a preliminary indicator of investment quality. An investor may have difficulty disposing of certain lower-quality and comparable unrated securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all lower quality and comparable unrated securities, there is no established retail secondary market for many of these securities. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for higher- rated securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. The lack of a liquid secondary market for certain securities also may make it more difficult for an investor to obtain accurate market quotations. Market quotations are generally available on many lower-quality and comparable unrated issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Legislation may be adopted from time to time designed to limit the use of certain lower quality and comparable unrated securities by certain issuers. Although one or more of the other risks described in this SAI may apply, the largest risks associated with high-yield debt securities include: Credit Risk, Interest Rate Risk, and Prepayment and Extension Risk. ILLIQUID AND RESTRICTED SECURITIES Illiquid securities are securities that are not readily marketable. These securities may include, but are not limited to, certain securities that are subject to legal or contractual restrictions on resale, certain repurchase agreements, and derivative instruments. To the extent a fund invests in illiquid or restricted securities, it may encounter difficulty in determining a market value for the securities. Disposing of illiquid or restricted securities may involve time- consuming negotiations and legal expense, and it may be difficult or impossible for a fund to sell the investment promptly and at an acceptable price. In determining the liquidity of all securities and derivatives, such as Rule 144A securities, which are unregistered securities offered to qualified institutional buyers, and interest-only and principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S. government or its agencies and instrumentalities the investment manager, under guidelines established by Statement of Additional Information - July 30, 2009 Page 28 the Board, will consider any relevant factors including the frequency of trades, the number of dealers willing to purchase or sell the security and the nature of marketplace trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with illiquid and restricted securities include: Liquidity Risk. INDEXED SECURITIES The value of indexed securities is linked to currencies, interest rates, commodities, indexes, or other financial indicators. Most indexed securities are short- to intermediate-term fixed income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be more volatile than the underlying instrument itself and they may be less liquid than the securities represented by the index. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with indexed securities include: Liquidity Risk and Market Risk. INFLATION PROTECTED SECURITIES Inflation is a general rise in prices of goods and services. Inflation erodes the purchasing power of an investor's assets. For example, if an investment provides a total return of 7% in a given year and inflation is 3% during that period, the inflation-adjusted, or real, return is 4%. Inflation-protected securities are debt securities whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. One type of inflation-protected debt security is issued by the U.S. Treasury. The principal of these securities is adjusted for inflation as indicated by the Consumer Price Index for Urban Consumers (CPI) and interest is paid on the adjusted amount. The CPI is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. If the CPI falls, the principal value of inflation-protected securities will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Conversely, if the CPI rises, the principal value of inflation-protected securities will be adjusted upward, and consequently the interest payable on these securities will be increased. Repayment of the original bond principal upon maturity is guaranteed in the case of U.S. Treasury inflation-protected securities, even during a period of deflation. However, the current market value of the inflation-protected securities is not guaranteed and will fluctuate. Other inflation-indexed securities include inflation-related bonds, which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal. Other issuers of inflation-protected debt securities include other U.S. government agencies or instrumentalities, corporations and foreign governments. There can be no assurance that the CPI or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bond's inflation measure. Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by IRS regulations to be taxable income in the year it occurs. For direct holders of an inflation-protected security, this means that taxes must be paid on principal adjustments even though these amounts are not received until the bond matures. By contrast, a fund holding these securities distributes both interest income and the income attributable to principal adjustments in the form of cash or reinvested shares, which are taxable to shareholders. Although one or more of the other risks described in this SAI may apply, the largest risks associated with inflation- protected securities include: Interest Rate Risk and Market Risk. INITIAL PUBLIC OFFERINGS (IPOS) Companies issuing IPOs generally have limited operating histories, and their prospects for future profitability are uncertain. These companies often are engaged in new and evolving businesses and are particularly vulnerable to competition and to changes in technology, markets and economic conditions. They may be dependent on certain key managers and third parties, need more personnel and other resources to manage growth and require significant additional capital. They may also be dependent on limited product lines and uncertain property rights and need regulatory approvals. Funds that invest in IPOs can be affected by sales of additional shares and by concentration of control in existing management and principal shareholders. Stock prices of IPOs can also be highly unstable, due to the absence of a prior public market, the small number of shares available for trading and limited investor information. Most IPOs involve a high degree of risk not normally associated with offerings of more seasoned companies. Statement of Additional Information - July 30, 2009 Page 29 Although one or more risks described in this SAI may apply, the largest risks associated with IPOs include: Small and Mid-Sized Company Risk and Initial Public Offering (IPO) Risk. INVERSE FLOATERS Inverse floaters or inverse floating rate securities are a type of derivative long-term fixed income obligation with a floating or variable interest rate that moves in the opposite direction of short-term interest rates. As short-term interest rates go down, the holders of the inverse floaters receive more income and, as short-term interest rates go up, the holders of the inverse floaters receive less income. As with all long-term fixed income securities, the price of the inverse floater moves inversely with long-term interest rates; as long-term interest rates go down, the price of the inverse floater moves up and, when long-term interest rates go up, the price of the inverse floater moves down. While inverse floater securities tend to provide more income than similar term and credit quality fixed-rate bonds, they also exhibit greater volatility in price movement (both up and down). In the municipal market an inverse floater is typically created when the owner of a municipal fixed rate bond transfers that bond to a trust in exchange for cash and a residual interest in the trust's assets and cash flows (inverse floater certificates). The trust funds the purchase of the bond by issuing two classes of certificates: short-term floating rate notes (typically sold to third parties) and the inverse floaters (also known as residual certificates). No additional income beyond that provided by the trust's underlying bond is created; rather, that income is merely divided-up between the two classes of certificates. The holder of the inverse floating rate securities typically has the right to (1) cause the holders of the short-term floating rate notes to tender their notes at par ($100) and (2) to return the inverse floaters and withdraw the underlying bonds, thereby collapsing the trust. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with transactions in inverse floaters include: Interest Rate Risk, Credit Risk, Liquidity Risk and Market Risk. INVESTMENT COMPANIES Investing in securities issued by registered and unregistered investment companies may involve the duplication of advisory fees and certain other expenses. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the securities of other investment companies include: Market Risk. LENDING OF PORTFOLIO SECURITIES To generate additional income, a fund may lend up to one-third of the value of its total assets to broker-dealers, banks or other institutional borrowers of securities. JPMorgan Chase Bank, N.A. serves as lending agent (the Lending Agent) to the funds pursuant to a securities lending agreement (the Securities Lending Agreement) approved by the Board. Under the Securities Lending Agreement, the Lending Agent loans securities to approved borrowers pursuant to borrower agreements in exchange for collateral equal to at least 100% of the market value of the loaned securities. Collateral may consist of cash, securities issued by the U.S. government or its agencies or instrumentalities (collectively, "U.S. government securities") or such other collateral as may be approved by the Board. For loans secured by cash, the fund retains the interest earned on cash collateral investments, but is required to pay the borrower a rebate for the use of the cash collateral. For loans secured by U.S. government securities, the borrower pays a borrower fee to the Lending Agent on behalf of the fund. If the market value of the loaned securities goes up, the Lending Agent will request additional collateral from the borrower. If the market value of the loaned securities goes down, the borrower may request that some collateral be returned. During the existence of the loan, the lender will receive from the borrower amounts equivalent to any dividends, interest or other distributions on the loaned securities, as well as interest on such amounts. Loans are subject to termination by a fund or a borrower at any time. A fund may choose to terminate a loan in order to vote in a proxy solicitation if the fund has knowledge of a material event to be voted on that would affect the fund's investment in the loaned security. Securities lending involves counterparty risk, including the risk that a borrower may not provide additional collateral when required or return the loaned securities in a timely manner. Counterparty risk also includes a potential loss of rights in the collateral if the borrower or the Lending Agent defaults or fails financially. This risk is increased if a fund's loans are concentrated with a single or limited number of borrowers. There are no limits on the number of borrowers a fund may use and a fund may lend securities to only one or a small group of borrowers. Funds participating in securities lending also bear the risk of loss in connection with investments of cash collateral received from the borrowers. Cash collateral is invested in accordance with investment guidelines contained in the Securities Lending Agreement and approved by the Board. To the extent that the value or return of a fund's investments of the cash collateral declines below the amount owed to a borrower, a fund may incur losses that exceed the amount it earned on lending the security. The Lending Agent will indemnify a fund Statement of Additional Information - July 30, 2009 Page 30 from losses resulting from a borrower's failure to return a loaned security when due, but such indemnification does not extend to losses associated with declines in the value of cash collateral investments. LOAN PARTICIPATIONS Loans, loan participations, and interests in securitized loan pools are interests in amounts owed by a corporate, governmental, or other borrower to a lender or consortium of lenders (typically banks, insurance companies, investment banks, government agencies, or international agencies). Loans involve a risk of loss in case of default or insolvency of the borrower and may offer less legal protection to an investor in the event of fraud or misrepresentation. Although one or more of the other risks described in this SAI may apply, the largest risks associated with loan participations include: Credit Risk. MORTGAGE- AND ASSET-BACKED SECURITIES Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and Collateralized Mortgage Obligations (CMOs). These securities may be issued or guaranteed by U.S. government agencies or instrumentalities (see also Agency and Government Securities), or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers, and special purpose entities. Mortgage-backed securities issued by private lenders may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any governmental guarantee of the underlying mortgage assets but with some form of non-governmental credit enhancement. Commercial mortgage- backed securities (CMBS) are a specific type of mortgage-backed security collateralized by a pool of mortgages on commercial real estate. Stripped mortgage-backed securities are a type of mortgage-backed security that receive differing proportions of the interest and principal payments from the underlying assets. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage- backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor in IOs may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans or other mortgage-related securities, such as mortgage pass through securities or stripped mortgage-backed securities. CMOs may be structured into multiple classes, often referred to as "tranches," with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than its stated maturity. The yield characteristics of mortgage-backed securities differ from those of other debt securities. Among the differences are that interest and principal payments are made more frequently on mortgage-backed securities, usually monthly, and principal may be repaid at any time. These factors may reduce the expected yield. Asset-backed securities have structural characteristics similar to mortgage- backed securities. Asset-backed debt obligations represent direct or indirect participation in, or secured by and payable from, assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement of the securities. Payments or distributions of principal and interest on asset- backed debt obligations may be supported by non-governmental credit enhancements including letters of credit, reserve funds, overcollateralization, and guarantees by third parties. The market for privately issued asset-backed debt obligations is smaller and less liquid than the market for government sponsored mortgage-backed securities. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage and asset-backed securities include: Credit Risk, Interest Rate Risk, Liquidity Risk, and Prepayment and Extension Risk. Statement of Additional Information - July 30, 2009 Page 31 MORTGAGE DOLLAR ROLLS Mortgage dollar rolls are investments in which an investor sells mortgage-backed securities for delivery in the current month and simultaneously contracts to purchase substantially similar securities on a specified future date. While an investor foregoes principal and interest paid on the mortgage-backed securities during the roll period, the investor is compensated by the difference between the current sales price and the lower price for the future purchase as well as by any interest earned on the proceeds of the initial sale. The investor also could be compensated through the receipt of fee income equivalent to a lower forward price. Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage dollar rolls include: Credit Risk and Interest Rate Risk. MUNICIPAL OBLIGATIONS Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States (including the District of Columbia and Puerto Rico). The interest on these obligations is generally exempt from federal income tax. Municipal obligations are generally classified as either "general obligations" or "revenue obligations." General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power for the payment of interest and principal. Revenue bonds are payable only from the revenues derived from a project or facility or from the proceeds of a specified revenue source. Industrial development bonds are generally revenue bonds secured by payments from and the credit of private users. Municipal notes are issued to meet the short-term funding requirements of state, regional, and local governments. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes, tax and revenue anticipation notes, construction loan notes, short-term discount notes, tax- exempt commercial paper, demand notes, and similar instruments. Municipal lease obligations may take the form of a lease, an installment purchase, or a conditional sales contract. They are issued by state and local governments and authorities to acquire land, equipment, and facilities. An investor may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases may be subject to greater risks than general obligation or revenue bonds. State constitutions and statutes set forth requirements that states or municipalities must meet in order to issue municipal obligations. Municipal leases may contain a covenant by the state or municipality to budget for and make payments due under the obligation. Certain municipal leases may, however, provide that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year. Yields on municipal bonds and notes depend on a variety of factors, including money market conditions, municipal bond market conditions, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The municipal bond market has a large number of different issuers, many having smaller sized bond issues, and a wide choice of different maturities within each issue. For these reasons, most municipal bonds do not trade on a daily basis and many trade only rarely. Because many of these bonds trade infrequently, the spread between the bid and offer may be wider and the time needed to develop a bid or an offer may be longer than other security markets. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.) Taxable Municipal Obligations. There is another type of municipal obligation that is subject to federal income tax for a variety of reasons. These municipal obligations do not qualify for the federal income exemption because (a) they did not receive necessary authorization for tax-exempt treatment from state or local government authorities, (b) they exceed certain regulatory limitations on the cost of issuance for tax-exempt financing or (c) they finance public or private activities that do not qualify for the federal income tax exemption. These non- qualifying activities might include, for example, certain types of multi-family housing, certain professional and local sports facilities, refinancing of certain municipal debt, and borrowing to replenish a municipality's underfunded pension plan. Although one or more of the other risks described in this SAI may apply, the largest risks associated with municipal obligations include: Credit Risk, Inflation Risk, Interest Rate Risk, and Market Risk. PREFERRED STOCK Preferred stock is a type of stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. The price of a preferred stock is generally determined by earnings, type of products or services, projected growth rates, experience of management, liquidity, and general market conditions of the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with preferred stock include: Issuer Risk and Market Risk. Statement of Additional Information - July 30, 2009 Page 32 REAL ESTATE INVESTMENT TRUSTS Real estate investment trusts (REITs) are pooled investment vehicles that manage a portfolio of real estate or real estate related loans to earn profits for their shareholders. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property, such as shopping centers, nursing homes, office buildings, apartment complexes, and hotels, and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs can be subject to extreme volatility due to fluctuations in the demand for real estate, changes in interest rates, and adverse economic conditions. Similar to investment companies, REITs are not taxed on income distributed to shareholders provided they comply with certain requirements under the tax law. The failure of a REIT to continue to qualify as a REIT for tax purposes can materially affect its value. A fund will indirectly bear its proportionate share of any expenses paid by a REIT in which it invests. REITs often do not provide complete tax information until after the calendar year-end. Consequently, because of the delay, it may be necessary for a fund investing in REITs to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31. In the alternative, amended Forms 1099-DIV may be sent. Although one or more of the other risks described in this SAI may apply, the largest risks associated with REITs include: Interest Rate Risk, Issuer Risk and Market Risk. REPURCHASE AGREEMENTS Repurchase agreements may be entered into with certain banks or non-bank dealers. In a repurchase agreement, the purchaser buys a security at one price, and at the time of sale, the seller agrees to repurchase the obligation at a mutually agreed upon time and price (usually within seven days). The repurchase agreement determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon the purchaser's ability to dispose of the underlying securities. Although one or more of the other risks described in this SAI may apply, the largest risks associated with repurchase agreements include: Credit Risk. REVERSE REPURCHASE AGREEMENTS In a reverse repurchase agreement, an investor sells a security and enters into an agreement to repurchase the security at a specified future date and price. The investor generally retains the right to interest and principal payments on the security. Since the investor receives cash upon entering into a reverse repurchase agreement, it may be considered a borrowing. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with reverse repurchase agreements include: Credit Risk and Interest Rate Risk. SHORT SALES In short selling transactions, a fund sells a security it does not own in anticipation of a decline in the market value of the security. To complete the transaction, a fund must borrow the security to make delivery to the buyer. A fund is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by a fund, which may result in a loss or gain, respectively. Unlike taking a long position in a security by purchasing the security, where potential losses are limited to the purchase price, short sales have no cap on maximum losses, and gains are limited to the price of the security at the time of the short sale. Short sales of forward commitments and derivatives do not involve borrowing a security. These types of short sales may include futures, options, contracts for differences, forward contracts on financial instruments and options such as contracts, credit linked instruments, and swap contracts. A fund may not always be able to borrow a security it wants to sell short. A fund also may be unable to close out an established short position at an acceptable price and may have to sell long positions at disadvantageous times to cover its short positions. The value of your investment in a fund will fluctuate in response to the movements in the market. Fund performance also will depend on the effectiveness of the investment manager's research and the management team's investment decisions. Short sales also involve other costs. A fund must repay to the lender an amount equal to any dividends or interest that accrues while the loan is outstanding. To borrow the security, a fund may be required to pay a premium. A fund also will incur truncation costs in effecting short sales. The amount of any ultimate gain for a fund resulting from a short sale will be Statement of Additional Information - July 30, 2009 Page 33 decreased and the amount of any ultimate loss will be increased, by the amount of premiums, interest or expenses a fund may be required to pay in connection with the short sale. Until a fund closes the short position, it will earmark and reserve fund assets, in cash or liquid securities to offset a portion of the leverage risk. Realized gains from short sales are typically treated as short- term gains/losses. Although one or more of the other risks described in this SAI may apply, the largest risks associated with short sales include: Market Risk and Short Sales Risk. SOVEREIGN DEBT A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by a variety of factors, including its cash flow situation, the extent of its reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward international lenders, and the political constraints to which a sovereign debtor may be subject. (See also Foreign Securities.) With respect to sovereign debt of emerging market issuers, investors should be aware that certain emerging market countries are among the largest debtors to commercial banks and foreign governments. At times, certain emerging market countries have declared moratoria on the payment of principal and interest on external debt. Certain emerging market countries have experienced difficulty in servicing their sovereign debt on a timely basis that led to defaults and the restructuring of certain indebtedness. Sovereign debt includes Brady Bonds, which are securities issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness. Although one or more of the other risks described in this SAI may apply, the largest risks associated with sovereign debt include: Credit Risk and Foreign/Emerging Markets Risk. STRUCTURED INVESTMENTS A structured investment is a security whose return is tied to an underlying index or to some other security or pool of assets. Structured investments generally are individually negotiated agreements and may be traded over-the- counter. Structured investments are created and operated to restructure the investment characteristics of the underlying security. This restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments, such as commercial bank loans, and the issuance by that entity of one or more classes of debt obligations ("structured securities") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics, such as varying maturities, payment priorities, and interest rate provisions. The extent of the payments made with respect to structured securities is dependent on the extent of the cash flow on the underlying instruments. Because structured securities typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. Structured securities are often offered in different classes. As a result a given class of a structured security may be either subordinated or unsubordinated to the right of payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Structured securities are typically sold in private placement transactions, and at any given time there may be no active trading market for a particular structured security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with structured investments include: Credit Risk and Liquidity Risk. SWAP AGREEMENTS Swap agreements are typically individually negotiated agreements that obligate two parties to exchange payments based on a reference to a specified asset, reference rate or index. Swap agreements will tend to shift a party's investment exposure from one type of investment to another. A swap agreement can increase or decrease the volatility of a fund's investments and its net asset value. Swap agreements are traded in the over-the-counter market and may be considered to be illiquid. Swap agreements entail the risk that a party will default on its payment obligations. A fund will enter into a swap agreement only if the claims- paying ability of the other party or its guarantor is considered to be investment grade by the investment manager. Generally, the unsecured senior debt or the claims-paying ability of the other party or its guarantor must be rated in one of the three highest rating categories of at least one Nationally Recognized Statistical Rating Organization (NRSRO) at the time of entering into the transaction. If there is a default by the other party to such a transaction, a fund will have to rely on its contractual Statement of Additional Information - July 30, 2009 Page 34 remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements related to the transaction. In certain circumstances, a fund may seek to minimize counterparty risk by requiring the counterparty to post collateral. Swap agreements are usually entered into without an upfront payment because the value of each party's position is the same. The market values of the underlying commitments will change over time resulting in one of the commitments being worth more than the other and the net market value creating a risk exposure for one counterparty or the other. Interest Rate Swaps. Interest rate swap agreements are often used to obtain or preserve a desired return or spread at a lower cost than through a direct investment in an instrument that yields the desired return or spread. They are financial instruments that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future. In a standard interest rate swap transaction, two parties agree to exchange their respective commitments to pay fixed or floating rates on a predetermined specified (notional) amount. The swap agreement notional amount is the predetermined basis for calculating the obligations that the swap counterparties have agreed to exchange. Under most swap agreements, the obligations of the parties are exchanged on a net basis. The two payment streams are netted out, with each party receiving or paying, as the case may be, only the net amount of the two payments. Interest rate swaps can be based on various measures of interest rates, including LIBOR, swap rates, treasury rates and other foreign interest rates. Cross Currency Swaps. Cross currency swaps are similar to interest rate swaps, except that they involve multiple currencies. A fund may enter into a currency swap when it has exposure to one currency and desires exposure to a different currency. Typically the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned at the end of the contract. In addition to paying and receiving amounts at the beginning and termination of the agreements, both sides will also have to pay in full periodically based upon the currency they have borrowed. Change in foreign exchange rates and changes in interest rates, as described above, may negatively affect currency swaps. Total Return Swaps. Total return swaps are contracts in which one party agrees to make periodic payments based on the change in market value of the underlying assets, which may include a specified security, basket of securities or security indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate of the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market. For example, CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of commercial mortgage- backed securities. In a typical total return equity swap, payments made by the fund or the counterparty are based on the total return of a particular reference asset or assets (such as an equity security, a combination of such securities, or an index). That is, one party agrees to pay another party the return on a stock, basket of stocks, or stock index in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Total return swaps involve not only the risk associated with the investment in the underlying securities, but also the risk of the counterparty not fulfilling its obligations under the agreement. Swaption Transaction. A swaption is an option on a swap agreement and a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms, in return for payment of the purchase price (the "premium") of the option. The fund may write (sell) and purchase put and call swaptions to the same extent it may make use of standard options on securities or other instruments. The writer of the contract receives the premium and bears the risk of unfavorable changes in the market value on the underlying swap agreement. Swaptions can be bundled and sold as a package. These are commonly called interest rate caps, floors and collars. In interest rate cap transactions, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or cap. Interest rate floor transactions require one party, in exchange for a premium to agree to make payments to the other to the extent that interest rates fall below a specified level, or floor. In interest rate collar transactions, one party sells a cap and purchases a floor, or vice versa, in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels or collar amounts. Credit Default Swaps. Credit default swaps are contracts in which third party credit risk is transferred from one party to another party by one party, the protection buyer, making payments to the other party, the protection seller, in return for the ability of the protection buyer to deliver a reference obligation, or portfolio of reference obligations, to the protection seller upon the occurrence of certain credit events relating to the issuer of the reference obligation and receive the notional amount of the reference obligation from the protection seller. A fund may use credit default swaps for various purposes including to increase or decrease its credit exposure to various issuers. For example, as a seller in a transaction, a fund could use credit default swaps as a way of increasing investment exposure to a particular issuer's bonds in lieu of purchasing such bonds Statement of Additional Information - July 30, 2009 Page 35 directly. Similarly, as a buyer in a transaction, a fund may use credit default swaps to hedge its exposure on bonds that it owns or in lieu of selling such bonds. A credit default swap agreement may have as reference obligations one or more securities that are not currently held by the fund. The fund may be either the buyer or seller in the transaction. Credit default swaps may also be structured based on the debt of a basket of issuers, rather than a single issuer, and may be customized with respect to the default event that triggers purchase or other factors. As a seller, the fund generally receives an up front payment or a fixed rate of income throughout the term of the swap, which typically is between six months and three years, provided that there is no credit event. If a credit event occurs, generally the seller must pay the buyer the full face amount of deliverable obligations of the reference obligations that may have little or no value. If the fund is a buyer and no credit event occurs, the fund recovers nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference obligation that may have little or no value. Credit default swap agreements can involve greater risks than if a fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to counterparty credit risk, leverage risk, hedging risk, correlation risk and liquidity risk. A fund will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. A fund's obligations under a credit default swap agreement will be accrued daily (offset against any amounts owing to the fund). In connection with credit default swaps in which a fund is the buyer, the fund will segregate or "earmark" cash or other liquid assets, or enter into certain offsetting positions, with a value at least equal to the fund's exposure (any accrued but unpaid net amounts owed by the fund to any counterparty), on a marked-to-market basis. In connection with credit default swaps in which a fund is the seller, the fund will segregate or "earmark" cash or other liquid assets, or enter into offsetting positions, with a value at least equal to the full notional amount of the swap (minus any amounts owed to the fund). Such segregation or "earmarking" will ensure that the fund has assets available to satisfy its obligations with respect to the transaction. Such segregation or "earmarking" will not limit the fund's exposure to loss. The use of swap agreements by a fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. Swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index, but also of the swap itself, without the benefit of observing the performance of the swap under all the possible market conditions. Because some swap agreements have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain swaps have the potential for unlimited loss, regardless of the size of the initial investment. Although one or more of the other risks described in this SAI may apply, the largest risks associated with swaps include: Credit Risk, Liquidity Risk and Market Risk. VARIABLE- OR FLOATING-RATE SECURITIES Variable-rate securities provide for automatic establishment of a new interest rate at fixed intervals (daily, monthly, semiannually, etc.). Floating-rate securities generally provide for automatic adjustment of the interest rate whenever some specified interest rate index changes. Variable- or floating-rate securities frequently include a demand feature enabling the holder to sell the securities to the issuer at par. In many cases, the demand feature can be exercised at any time. Some securities that do not have variable or floating interest rates may be accompanied by puts producing similar results and price characteristics. Variable-rate demand notes include master demand notes that are obligations that permit the investor to invest fluctuating amounts, which may change daily without penalty, pursuant to direct arrangements between the investor as lender, and the borrower. The interest rates on these notes fluctuate from time to time. The issuer of such obligations normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days' notice to the holders of such obligations. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated that such instruments generally will be traded. There generally is not an established secondary market for these obligations. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, the lender's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies and may involve heightened risk of default by the issuer. Although one or more of the other risks described in this SAI may apply, the largest risks associated with variable- or floating-rate securities include: Credit Risk. Statement of Additional Information - July 30, 2009 Page 36 WARRANTS Warrants are securities giving the holder the right, but not the obligation, to buy the stock of an issuer at a given price (generally higher than the value of the stock at the time of issuance) during a specified period or perpetually. Warrants may be acquired separately or in connection with the acquisition of securities. Warrants do not carry with them the right to dividends or voting rights and they do not represent any rights in the assets of the issuer. Warrants may be considered to have more speculative characteristics than certain other types of investments. In addition, the value of a warrant does not necessarily change with the value of the underlying securities, and a warrant ceases to have value if it is not exercised prior to its expiration date. Although one or more of the other risks described in this SAI may apply, the largest risks associated with warrants include: Market Risk. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS When-issued securities and forward commitments involve a commitment to purchase or sell specific securities at a predetermined price or yield in which payment and delivery take place after the customary settlement period for that type of security. Normally, the settlement date occurs within 45 days of the purchase although in some cases settlement may take longer. The investor does not pay for the securities or receive dividends or interest on them until the contractual settlement date. Such instruments involve the risk of loss if the value of the security to be purchased declines prior to the settlement date and the risk that the security will not be issued as anticipated. If the security is not issued as anticipated, a fund may lose the opportunity to obtain a price and yield considered to be advantageous. Although one or more of the other risks described in this SAI may apply, the largest risks associated with when-issued securities and forward commitments include: Credit Risk. ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES These securities are debt obligations that do not make regular cash interest payments (see also Debt Obligations). Zero-coupon and step-coupon securities are sold at a deep discount to their face value because they do not pay interest until maturity. Pay-in-kind securities pay interest through the issuance of additional securities. Because these securities do not pay current cash income, the price of these securities can be extremely volatile when interest rates fluctuate. See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with zero- coupon, step-coupon, and pay-in-kind securities include: Credit Risk and Interest Rate Risk. A fund cannot issue senior securities but this does not prohibit certain investment activities for which assets of the fund are set aside, or margin, collateral or escrow arrangements are established, to cover the related obligations. Examples of those activities include borrowing money, delayed- delivery and when-issued securities transactions, and contracts to buy or sell options, derivatives, and hedging instruments. SECURITIES TRANSACTIONS Except as otherwise noted, the description of policies and procedures in this section also applies to any fund subadviser. Subject to policies set by the Board, as well as the terms of the investment management agreements, the investment manager or subadviser is authorized to determine, consistent with a fund's investment objective and policies, which securities will be purchased, held, or sold. In determining where the buy and sell orders are to be placed, the investment manager has been directed to use its best efforts to obtain the best available price and the most favorable execution except where otherwise authorized by the Board. Each fund, the investment manager, any subadviser and RiverSource Fund Distributors, Inc. (principal underwriter and distributor of the Funds) has a strict Code of Ethics that prohibits affiliated personnel from engaging in personal investment activities that compete with or attempt to take advantage of planned portfolio transactions for the fund. A fund's securities may be traded on an agency basis with brokers or dealers or on a principal basis with dealers. In an agency trade, the broker-dealer generally is paid a commission. In a principal trade, the investment manager will trade directly with the issuer or with a dealer who buys or sells for its own account, rather than acting on behalf of another client. The investment manager may pay the dealer a commission or instead, the dealer's profit, if any, is the difference, or spread, between the dealer's purchase and sale price for the security. Statement of Additional Information - July 30, 2009 Page 37 BROKER-DEALER SELECTION In selecting broker-dealers to execute transactions, the investment manager and each subadviser will consider from among such factors as the ability to minimize trading costs, trading expertise, infrastructure, ability to provide information or services, financial condition, confidentiality, competitiveness of commission rates, evaluations of execution quality, promptness of execution, past history, ability to prospect for and find liquidity, difficulty of trade, security's trading characteristics, size of order, liquidity of market, block trading capabilities, quality of settlement, specialized expertise, overall responsiveness, willingness to commit capital and research services provided. The Board has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the funds as a factor in the selection of broker-dealers through which to execute securities transactions. On a periodic basis, the investment manager makes a comprehensive review of the broker-dealers and the overall reasonableness of their commissions, including review by an independent third-party evaluator. The review evaluates execution, operational efficiency, and research services. COMMISSION DOLLARS Broker-dealers typically provide a bundle of services including research and execution of transactions. The research provided can be either proprietary (created and provided by the broker-dealer) or third party (created by a third party but provided by the broker-dealer). Consistent with the interests of the fund, the investment manager and each subadviser may use broker-dealers who provide both types of research products and services in exchange for commissions, known as "soft dollars," generated by transactions in fund accounts. The receipt of research and brokerage products and services is used by the investment manager, and by each subadviser, to the extent it engages in such transactions, to supplement its own research and analysis activities, by receiving the views and information of individuals and research staffs of other securities firms, and by gaining access to specialized expertise on individual companies, industries, areas of the economy and market factors. Research and brokerage products and services may include reports on the economy, industries, sectors and individual companies or issuers; statistical information; accounting and tax law interpretations; political analyses; reports on legal developments affecting portfolio securities; information on technical market actions; credit analyses; on-line quotation systems; risk measurement; analyses of corporate responsibility issues; on-line news services; and financial and market database services. Research services may be used by the investment manager in providing advice to multiple RiverSource accounts, including the funds (or by any subadviser to any other client of the subadviser) even though it is not possible to relate the benefits to any particular account or fund. On occasion, it may be desirable to compensate a broker for research services or for brokerage services by paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge. The Board has adopted a policy authorizing the investment manager to do so, to the extent authorized by law, if the investment manager or subadviser determines, in good faith, that such commission is reasonable in relation to the value of the brokerage or research services provided by a broker or dealer, viewed either in the light of that transaction or the investment manager's or subadviser's overall responsibilities with respect to a fund and the other funds or accounts for which it acts as investment manager (or by any subadviser to any other client of that subadviser). As a result of these arrangements, some portfolio transactions may not be effected at the lowest commission, but overall execution may be better. The investment manager and each subadviser have represented that under its procedures the amount of commission paid will be reasonable and competitive in relation to the value of the brokerage services and research products and services provided. The investment manager or a subadviser may use step-out transactions. A "step- out" is an arrangement in which the investment manager or subadviser executes a trade through one broker-dealer but instructs that broker-dealer to step-out all or a part of the trade to another broker-dealer. The second broker-dealer will clear and settle, and receive commissions for, the stepped-out portion. The investment manager or subadviser may receive research products and services in connection with step-out transactions. Use of fund commissions may create potential conflicts of interest between the investment manager or subadviser and a fund. However, the investment manager and each subadviser has policies and procedures in place intended to mitigate these conflicts and ensure that the use of fund commissions falls within the "safe harbor" of Section 28(e) of the Securities Exchange Act of 1934. Some products and services may be used for both investment decision-making and non-investment decision-making purposes ("mixed use" items). The investment manager and each subadviser, to the extent it has mixed use items, has procedures in place to assure that fund commissions pay only for the investment decision-making portion of a mixed-use item. Statement of Additional Information - July 30, 2009 Page 38 TRADE AGGREGATION AND ALLOCATION Generally, orders are processed and executed in the order received. When a fund buys or sells the same security as another portfolio, fund, or account, the investment manager or subadviser carries out the purchase or sale pursuant to policies and procedures designed in such a way believed to be fair to the fund. Purchase and sale orders may be combined or aggregated for more than one account if it is believed it would be consistent with best execution. Aggregation may reduce commission costs or market impact on a per-share and per-dollar basis, although aggregation may have the opposite effect. There may be times when not enough securities are received to fill an aggregated order, including in an initial public offering, involving multiple accounts. In that event, the investment manager and each subadviser has policies and procedures designed in such a way believed to result in a fair allocation among accounts, including the fund. From time to time, different portfolio managers with the investment manager may make differing investment decisions related to the same security. However, with certain exceptions for funds managed using strictly quantitative methods, a portfolio manager or portfolio management team may not sell a security short if the security is owned in another portfolio managed by that portfolio manager or portfolio management team. On occasion, a fund may purchase and sell a security simultaneously in order to profit from short-term price disparities. The investment manager has portfolio management teams in its Minneapolis, New York and Los Angeles offices that may share research information regarding leveraged loans. The investment manager operates separate and independent trading desks in these locations for the purpose of purchasing and selling leveraged loans. As a result, the investment manager does not aggregate orders in leveraged loans across portfolio management teams. For example, funds and other client accounts being managed by these portfolio management teams may purchase and sell the same leveraged loan in the secondary market on the same day at different times and at different prices. There is also the potential for a particular account or group of accounts, including a fund, to forego an opportunity or to receive a different allocation (either larger or smaller) than might otherwise be obtained if the investment manager were to aggregate trades in leveraged loans across the portfolio management teams. Although the investment manager does not aggregate orders in leveraged loans across its portfolio management teams in Minneapolis, New York and Los Angeles, it operates in this structure subject to its duty to seek best execution. The following table shows total brokerage commissions paid in the last three fiscal periods. Substantially all firms through whom transactions were executed provide research services. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 4. TOTAL BROKERAGE COMMISSIONS
TOTAL BROKERAGE COMMISSIONS - ----------------------------------------------------------------------------------------------------- FUND 2009 2008 2007 - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ----------------------------------------------------------------------------------------------------- Income Builder Basic Income $ 0 $ 0(a)$ 0 - ----------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 0 0(a) 0 - ----------------------------------------------------------------------------------------------------- Income Builder Moderate Income 0 0(a) 0 - ----------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 0 0 0 - ----------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 0 0 0 - ----------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 0 0 0 - ----------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 0 0 0 - ----------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 0 0 0 - ----------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 0 0 0 - ----------------------------------------------------------------------------------------------------- S&P 500 Index 16,486 40,706 21,050 - ----------------------------------------------------------------------------------------------------- Small Company Index 123,243 108,360 56,843 - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ----------------------------------------------------------------------------------------------------- Equity Value 525,309 591,525 773,828 - ----------------------------------------------------------------------------------------------------- Partners Small Cap Growth 554,351 581,945 850,077 - ----------------------------------------------------------------------------------------------------- Precious Metals and Mining 1,067,960 960,159 494,184 - ----------------------------------------------------------------------------------------------------- Small Cap Advantage 1,795,270 2,546,419 3,585,711 - -----------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 39
TOTAL BROKERAGE COMMISSIONS - ----------------------------------------------------------------------------------------------------- FUND 2009 2008 2007 - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ----------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity $ 38,789 $ 38,557(b)$ N/A - ----------------------------------------------------------------------------------------------------- Recovery and Infrastructure 128,097(c) N/A N/A - ----------------------------------------------------------------------------------------------------- Retirement Plus 2010 0 0 0(d) - ----------------------------------------------------------------------------------------------------- Retirement Plus 2015 0 0 0(d) - ----------------------------------------------------------------------------------------------------- Retirement Plus 2020 0 0 0(d) - ----------------------------------------------------------------------------------------------------- Retirement Plus 2025 0 0 0(d) - ----------------------------------------------------------------------------------------------------- Retirement Plus 2030 0 0 0(d) - ----------------------------------------------------------------------------------------------------- Retirement Plus 2035 0 0 0(d) - ----------------------------------------------------------------------------------------------------- Retirement Plus 2040 0 0 0(d) - ----------------------------------------------------------------------------------------------------- Retirement Plus 2045 0 0 0(d) - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ----------------------------------------------------------------------------------------------------- High Yield Bond 0 0 0 - ----------------------------------------------------------------------------------------------------- Partners Aggressive Growth 923,343 859,002 1,160,632 - ----------------------------------------------------------------------------------------------------- Partners Fundamental Value 298,507 292,900 217,139 - ----------------------------------------------------------------------------------------------------- Partners Select Value 846,306 838,472 1,757,678 - ----------------------------------------------------------------------------------------------------- Partners Small Cap Equity 221,516 519,535 455,170 - ----------------------------------------------------------------------------------------------------- Partners Small Cap Value 1,484,768 1,179,158 1,422,160 - ----------------------------------------------------------------------------------------------------- Short Duration U.S. Government 35,642 43,210 42,504 - ----------------------------------------------------------------------------------------------------- U.S. Government Mortgage 14,329 17,640 10,386 - ----------------------------------------------------------------------------------------------------- 2008 2007 2006 - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ----------------------------------------------------------------------------------------------------- Dividend Opportunity 412,022 576,524 456,446 - ----------------------------------------------------------------------------------------------------- Real Estate 173,705 187,309 152,782 - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------- Cash Management 0 0 0 - ----------------------------------------------------------------------------------------------------- Disciplined Equity 1,951,255 1,577,337 987,624 - ----------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 124,754 156,759 8,916(e) - ----------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 75,041 64,928 33,110(f) - ----------------------------------------------------------------------------------------------------- Floating Rate 861 0 0(f) - ----------------------------------------------------------------------------------------------------- Growth 10,366,547 12,096,184 10,375,981 - ----------------------------------------------------------------------------------------------------- Income Opportunities 0 0 0 - ----------------------------------------------------------------------------------------------------- Inflation Protected Securities 11,586 0 0 - ----------------------------------------------------------------------------------------------------- Large Cap Equity 10,502,917 15,040,354 9,944,390 - ----------------------------------------------------------------------------------------------------- Large Cap Value 61,073 88,935 138,363 - ----------------------------------------------------------------------------------------------------- Limited Duration Bond 4,138 5,172 4,006 - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------- California Tax-Exempt 1,938 4,143 666(g) - ----------------------------------------------------------------------------------------------------- Diversified Bond 111,876 91,815 108,055 - ----------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 3,418 7,293 1,254(g) - ----------------------------------------------------------------------------------------------------- New York Tax-Exempt 724 1,524 255(g) - -----------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 40
TOTAL BROKERAGE COMMISSIONS - ----------------------------------------------------------------------------------------------------- FUND 2008 2007 2006 - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------- Balanced $ 493,156 $ 567,773 $ 420,523 - ----------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 150,374 45,978(h) N/A - ----------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 6,631(i) N/A N/A - ----------------------------------------------------------------------------------------------------- Diversified Equity Income 4,085,552 3,790,954 2,923,490 - ----------------------------------------------------------------------------------------------------- Mid Cap Value 1,672,775 1,219,474 1,354,225 - ----------------------------------------------------------------------------------------------------- Strategic Allocation 1,049,954 1,425,483 638,067 - ----------------------------------------------------------------------------------------------------- Strategic Income Allocation 17,707 6,639(h) N/A - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0 0 0(j) - ----------------------------------------------------------------------------------------------------- Disciplined International Equity 514,960 547,910 60,738(k) - ----------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 0(l) - ----------------------------------------------------------------------------------------------------- Global Bond 18,925 17,268 9,664 - ----------------------------------------------------------------------------------------------------- Global Technology 471,967 1,027,281 1,237,181 - ----------------------------------------------------------------------------------------------------- Partners International Select Growth 1,690,066 1,932,330 1,265,256 - ----------------------------------------------------------------------------------------------------- Partners International Select Value 1,558,333 1,426,926 1,533,794 - ----------------------------------------------------------------------------------------------------- Partners International Small Cap 270,663 353,096 366,091 - ----------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 3,346,690 3,361,865 3,017,380 - ----------------------------------------------------------------------------------------------------- Threadneedle European Equity 396,474 282,104 160,239 - ----------------------------------------------------------------------------------------------------- Threadneedle Global Equity 1,185,084 1,474,583 1,249,847 - ----------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 5,030(m) N/A N/A - ----------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 6,647(m) N/A N/A - ----------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 1,020,584 1,150,182 989,118 - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ----------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 684 2,175 438 - ----------------------------------------------------------------------------------------------------- Mid Cap Growth 2,165,273 2,813,784 1,867,241 - ----------------------------------------------------------------------------------------------------- Tax-Exempt Bond 6,431 19,450 4,257 - ----------------------------------------------------------------------------------------------------- Tax-Exempt High Income 24,531 74,062 17,679 - ----------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ----------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 0 0 0 - -----------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from Feb. 19, 2009 (when shares become publicly available) to April 30, 2009. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June 30. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (k) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (l) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - July 30, 2009 Page 41 For the last fiscal period, transactions were specifically directed to firms in exchange for research services as shown in the following table. The table also shows portfolio turnover rates for the last two fiscal periods. Higher turnover rates may result in higher brokerage expenses and taxes. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 5. BROKERAGE DIRECTED FOR RESEARCH AND TURNOVER RATES
- ---------------------------------------------------------------------------------------------------------------------- BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2009 2008 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ---------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income(a) $ 0(b) $ 0(b) 39% 19% - ---------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income(a) 0(b) 0(b) 36 24 - ---------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income(a) 0(b) 0(b) 40 19 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 0(b) 0(b) 35 40 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 0(b) 0(b) 27 29 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 0(b) 0(b) 34 27 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 0(b) 0(b) 33 33 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 0(b) 0(b) 29 31 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 0(b) 0(b) 28 31 - ---------------------------------------------------------------------------------------------------------------------- S&P 500 Index 0 0 5 4 - ---------------------------------------------------------------------------------------------------------------------- Small Company Index 0 0 23 14 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ---------------------------------------------------------------------------------------------------------------------- Equity Value 19,822,056 98,022 21 25 - ---------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 72,126,889 69,150 133 122 - ---------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 210,782,120 235,261 340(c) 241(c) - ---------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 121,224,845 233,347 222 179 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 2,803,890 4,443 36 23(d) - ---------------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure 4,731,215(e) 9,214(e) 4(e) N/A - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 0(b) 0(b) 55 92 - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 0(b) 0(b) 53 47 - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 0(b) 0(b) 52 50 - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 0(b) 0(b) 47 41 - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 0(b) 0(b) 47 50 - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 0(b) 0(b) 48 44 - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 0(b) 0(b) 50 52 - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 0(b) 0(b) 51 50 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------------------------------- High Yield Bond 0 0 83 64 - ---------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 128,933,735 90,607 179 141 - ---------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 0 0 19 14 - ---------------------------------------------------------------------------------------------------------------------- Partners Select Value 305,069,938 82,345 118 88 - ---------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 11,173,721 11,606 67 106 - ---------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 110,871,407 37,132 120 45 - ---------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 0 0 271(g) 209 - ---------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 0 0 431(g) 354(f) - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 42
- ---------------------------------------------------------------------------------------------------------------------- BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2008 2007 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------------------------------- Dividend Opportunity $ 15,749,145 $ 54,405 20% 17% - ---------------------------------------------------------------------------------------------------------------------- Real Estate 1,084,912 605 52 38 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------------------------------- Cash Management 0 0 N/A N/A - ---------------------------------------------------------------------------------------------------------------------- Disciplined Equity 0 0 58 62 - ---------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 0 0 56 84 - ---------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 0 0 87 127 - ---------------------------------------------------------------------------------------------------------------------- Floating Rate 0 0 43 91 - ---------------------------------------------------------------------------------------------------------------------- Growth 1,339,656,389 1,904,948 112 98 - ---------------------------------------------------------------------------------------------------------------------- Income Opportunities 0 0 75 122 - ---------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 0 59 76 - ---------------------------------------------------------------------------------------------------------------------- Large Cap Equity 1,378,682,998 1,744,468 68 66 - ---------------------------------------------------------------------------------------------------------------------- Large Cap Value 9,016,509 10,770 24 35 - ---------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 0 0 218(g) 263 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 0 0 49 62 - ---------------------------------------------------------------------------------------------------------------------- Diversified Bond 0 0 226(g) 295 - ---------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 0 0 23 26 - ---------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 0 0 31 28 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------------------------------- Balanced 67,135,127 86,479 105(g) 124 - ---------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 0 0 70 21(h) - ---------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0(i) 0(i) 6(i) N/A - ---------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 557,479,269 554,662 31 31 - ---------------------------------------------------------------------------------------------------------------------- Mid Cap Value 200,044,593 196,118 34 24 - ---------------------------------------------------------------------------------------------------------------------- Strategic Allocation 0 0 123(g) 123 - ---------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 0 0 137 70 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0 0 39 36 - ---------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 0 0 61 47 - ---------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 82 41 - ---------------------------------------------------------------------------------------------------------------------- Global Bond 0 0 75 77 - ---------------------------------------------------------------------------------------------------------------------- Global Technology 20,896,126 37,913 81 167 - ---------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 97,589,551 156,876 85 104 - ---------------------------------------------------------------------------------------------------------------------- Partners International Select Value 559,869,117 309,044 40 28 - ---------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 0 0 87 96 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 0 133 125 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 0 180 114 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 0 0 97 100 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 0(j) 0(j) 10(j) N/A - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 0(j) 0(j) 36(j) N/A - ---------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 0 78 84 - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 43
- ------------------------------------------------------------------------------------------------------------------------ BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2008 2007 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt $ 0 $ 0 36% 53% - ------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth 54,423,999 96,049 76 87 - ------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 0 0 37 51 - ------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 0 0 37 47 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 0 0 N/A N/A - ------------------------------------------------------------------------------------------------------------------------
* Reported numbers include third party soft dollar commissions and portfolio manager directed commissions directed for research. RiverSource also receives proprietary research from brokers, but these amounts have not been included in the table. (a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) The underlying funds may have directed transactions to firms in exchange for research services. (c) Higher turnover rates may result in higher brokerage expenses and taxes. The higher turnover rate can be primarily attributed to repositioning the fund to a smaller number of holdings as it worked through risk management and secondarily, market volatility made up the balance of the turnover rate. (d) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (e) For the period from Feb. 19, 2009 (when shares became publicly available) to April 30, 2009. (f) A significant portion of the turnover was the result of "roll" transactions in the liquid derivatives and Treasury securities. In the derivative transactions, positions in expiring contracts are liquidated and simultaneously replaced with positions in new contracts with equivalent characteristics. In the Treasury transactions, existing holdings are sold to purchase newly issued securities with slightly longer maturity dates. Although these transactions affect the turnover rate of the portfolio, they do not change the risk exposure or result in material transaction costs. The remaining turnover resulted from strategic reallocations and relative value trading. After transaction costs, we expect this activity to enhance the returns on the overall fund. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been: 124% for Limited Duration Bond Fund for the fiscal period ended July 31, 2008, 122% for Diversified Bond Fund for the fiscal period ended Aug. 31, 2008, 86% for Balanced Fund and 89% for Strategic Allocation Fund for the fiscal period ended Sept. 30, 2008, 199% for Short Duration U.S. Government Fund and 162% for U.S. Government Mortgage Fund for the fiscal period ended May 31, 2009. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from Aug. 1, 2008 (when the Fund became available) to Oct. 31, 2008. Statement of Additional Information - July 30, 2009 Page 44 As of the end of the most recent fiscal period, the fund held securities of its regular brokers or dealers or of the parent of those brokers or dealers that derived more than 15% of gross revenue from securities-related activities as presented below. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 6. SECURITIES OF REGULAR BROKERS OR DEALERS
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income None N/A - -------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income None N/A - -------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity None N/A - -------------------------------------------------------------------------------------------------------------------- S&P 500 Index Ameriprise Financial $ 65,185 -------------------------------------------------------------------- Charles Schwab 190,015 -------------------------------------------------------------------- Citigroup 289,179 -------------------------------------------------------------------- E*Trade Financial 9,587 -------------------------------------------------------------------- Franklin Resources 109,671 -------------------------------------------------------------------- Goldman Sachs Group 533,707 -------------------------------------------------------------------- JPMorgan Chase & Co. 1,423,202 -------------------------------------------------------------------- Legg Mason 34,047 -------------------------------------------------------------------- Morgan Stanley 321,071 -------------------------------------------------------------------- PNC Financial Services Group 207,965 - -------------------------------------------------------------------------------------------------------------------- Small Company Index Investment Technology Group 1,062,970 -------------------------------------------------------------------- LaBranche & Co. 408,547 -------------------------------------------------------------------- optionsXpress 525,824 -------------------------------------------------------------------- Piper Jaffray Companies 490,510 - -------------------------------------------------------------------------------------------------------------------- Stifel Financial 1,019,664 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------------------------- Equity Value Goldman Sachs Group 2,832,324 -------------------------------------------------------------------- JPMorgan Chase & Co. 7,599,674 -------------------------------------------------------------------- Morgan Stanley 1,446,897 - -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Eaton Vance 187,370 -------------------------------------------------------------------- Knight Capital Group Cl A 294,755 -------------------------------------------------------------------- Stifel Financial 185,800 - -------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining None N/A - -------------------------------------------------------------------------------------------------------------------- Small Cap Advantage None N/A - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity None N/A - -------------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 None N/A - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 45
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------------------------- High Yield Bond Lehman Brothers Holdings $ 1,014,750 - -------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth TD Ameritrade Holding 1,797,004 -------------------------------------------------------------------- Jefferies Group 1,273,510 -------------------------------------------------------------------- Morgan Stanley 2,445,642 - -------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Goldman Sachs Group 3,132,832 -------------------------------------------------------------------- JPMorgan Chase & Co. 16,047,411 - -------------------------------------------------------------------------------------------------------------------- Partners Select Value Stifel Financial 1,563,086 - -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity Eaton Vance 235,769 -------------------------------------------------------------------- Investment Technology Group 114,109 -------------------------------------------------------------------- Knight Capital Group Cl A 70,957 -------------------------------------------------------------------- LaBranche & Co. 5,500 -------------------------------------------------------------------- optionsXpress Holdings 1,315,143 -------------------------------------------------------------------- Stifel Financial 33,526 - -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Legg Mason 2,039,824 - -------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government Goldman Sachs Group 7,801,414 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 7,081,672 -------------------------------------------------------------------- JPMorgan Chase & Co. 2,680,716 -------------------------------------------------------------------- Morgan Stanley 8,340,454 -------------------------------------------------------------------- Morgan Stanley Mtge Loan Trust 1,136,508 - -------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Citigroup/Deutsche Bank Commercial Mtge Trust 2,782,149 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 1,650,000 -------------------------------------------------------------------- GS Mortgage Securities II 640,382 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 1,713,264 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Citigroup 23,201,974 -------------------------------------------------------------------- Goldman Sachs Group 32,663,485 -------------------------------------------------------------------- JPMorgan Chase & Co. 22,009,110 -------------------------------------------------------------------- PNC Financial Services Group 3,911,464 - -------------------------------------------------------------------------------------------------------------------- Real Estate None N/A - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------- Cash Management Bear Stearns Companies 25,000,000 -------------------------------------------------------------------- Citigroup Funding 196,618,680 -------------------------------------------------------------------- Credit Suisse NY 146,620,740 -------------------------------------------------------------------- Goldman Sachs Group 25,000,000 -------------------------------------------------------------------- JPMorgan Chase & Co. 136,841,050 -------------------------------------------------------------------- Lehman Brothers Holdings* 80,100,000 -------------------------------------------------------------------- Merrill Lynch & Co. 152,998,540 -------------------------------------------------------------------- Morgan Stanley 20,720,382 - -------------------------------------------------------------------------------------------------------------------- Disciplined Equity Charles Schwab 4,016,005 -------------------------------------------------------------------- Citigroup 89,269,962 -------------------------------------------------------------------- E*TRADE 773,132 -------------------------------------------------------------------- Goldman Sachs Group 4,770,869 -------------------------------------------------------------------- JPMorgan Chase & Co. 41,756,101 -------------------------------------------------------------------- Lehman Brothers Holdings* 7,515,746 -------------------------------------------------------------------- Merrill Lynch & Co. 19,815,362 -------------------------------------------------------------------- Morgan Stanley 39,406,764 - -------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Knight Capital Group Cl A 145,822 -------------------------------------------------------------------- Piper Jaffray Companies 63,829 -------------------------------------------------------------------- Westwood Holdings Group 134,188 - -------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Knight Capital Group Cl A 72,493 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 46
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- Floating Rate Ameritrade Holding Corp. $ 745,332 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 943,533 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 1,952,180 -------------------------------------------------------------------- CS First Boston Mtge Securities 855,783 -------------------------------------------------------------------- Lehman Brothers Holdings* 963,838 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 1,153,729 -------------------------------------------------------------------- Nuveen Investments 1,658,970 - -------------------------------------------------------------------------------------------------------------------- Growth Lehman Brothers Holdings* 6,021,142 - -------------------------------------------------------------------------------------------------------------------- Income Opportunities None N/A - -------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities None N/A - -------------------------------------------------------------------------------------------------------------------- Large Cap Equity Citigroup 26,071,447 -------------------------------------------------------------------- Goldman Sachs Group 22,551,709 -------------------------------------------------------------------- JPMorgan Chase & Co. 47,861,246 -------------------------------------------------------------------- Legg Mason 4,714,454 -------------------------------------------------------------------- Lehman Brothers Holdings* 19,819,100 -------------------------------------------------------------------- Merrill Lynch & Co. 4,367,136 -------------------------------------------------------------------- Morgan Stanley 17,105,697 -------------------------------------------------------------------- PNC Financial Services Group 7,082,875 - -------------------------------------------------------------------------------------------------------------------- Large Cap Value Citigroup 878,430 -------------------------------------------------------------------- Goldman Sachs Group 326,303 -------------------------------------------------------------------- JPMorgan Chase & Co. 1,210,083 -------------------------------------------------------------------- Legg Mason 111,487 -------------------------------------------------------------------- Lehman Brothers Holdings* 366,723 -------------------------------------------------------------------- Merrill Lynch & Co. 173,678 -------------------------------------------------------------------- Morgan Stanley 465,824 -------------------------------------------------------------------- PNC Financial Services Group 288,083 - -------------------------------------------------------------------------------------------------------------------- Limited Duration Bond Bear Stearns Adjustable Rate Mortgage Trust 872,823 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 641,299 -------------------------------------------------------------------- ChaseFlex Trust 248,077 -------------------------------------------------------------------- Citigroup 1,259,000 -------------------------------------------------------------------- Citigroup Commercial Mtge Trust 696,777 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 170,687 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 278,727 -------------------------------------------------------------------- Credit Suisse NY 226,272 -------------------------------------------------------------------- CS First Boston Mtge Securities 676,454 -------------------------------------------------------------------- GS Mortgage Securities II 799,079 -------------------------------------------------------------------- JPMorgan Chase & Co. 991,462 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 3,563,196 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 1,587,416 -------------------------------------------------------------------- Lehman Brothers Holdings* 544,494 -------------------------------------------------------------------- Merrill Lynch & Co. 706,410 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 122,321 -------------------------------------------------------------------- Morgan Stanley 944,154 -------------------------------------------------------------------- Morgan Stanley Capital 1 692,480 -------------------------------------------------------------------- Morgan Stanley Mtge Loan Trust 840,855 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 47
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- Diversified Bond Bear Stearns Adjustable Rate Mortgage Trust $ 17,436,578 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 21,099,342 -------------------------------------------------------------------- ChaseFlex Trust 1,571,241 -------------------------------------------------------------------- Citigroup 28,310,330 -------------------------------------------------------------------- Citigroup Commercial Mtge Trust 14,460,744 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 3,136,137 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 5,831,624 -------------------------------------------------------------------- Credit Suisse NY 4,591,057 -------------------------------------------------------------------- CS First Boston Mtge Securities 14,248,373 -------------------------------------------------------------------- GS Mortgage Securities II 13,047,600 -------------------------------------------------------------------- JPMorgan Chase Bank 8,319,926 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 69,173,902 -------------------------------------------------------------------- JPMorgan Chase & Co. 16,062,237 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 30,843,436 -------------------------------------------------------------------- Lehman Brothers Holdings* 12,531,597 -------------------------------------------------------------------- Merrill Lynch & Co. 13,901,778 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 3,496,976 -------------------------------------------------------------------- Morgan Stanley 16,923,975 -------------------------------------------------------------------- Morgan Stanley Capital 1 16,818,388 -------------------------------------------------------------------- Morgan Stanley Mtge Loan Trust 14,352,406 - -------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------- Balanced Bear Stearns Adjustable Rate Mortgage Trust 2,056,495 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 2,433,377 -------------------------------------------------------------------- ChaseFlex Trust 950,665 -------------------------------------------------------------------- Citigroup 11,143,567 -------------------------------------------------------------------- Citigroup Commercial Mtge Trust 1,597,731 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 352,251 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 641,835 -------------------------------------------------------------------- Credit Suisse NY 336,023 -------------------------------------------------------------------- CS First Boston Mtge Securities 618,807 -------------------------------------------------------------------- Goldman Sachs Group 2,224,256 -------------------------------------------------------------------- GS Mortgage Securities II 1,093,832 -------------------------------------------------------------------- JPMorgan Chase & Co. 13,228,624 -------------------------------------------------------------------- JPMorgan Chase Bank 485,791 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 5,788,325 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 3,548,011 -------------------------------------------------------------------- Legg Mason 378,164 -------------------------------------------------------------------- Lehman Brothers Holdings* 93,125 -------------------------------------------------------------------- Merrill Lynch & Co. 2,155,227 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 222,584 -------------------------------------------------------------------- Morgan Stanley 1,939,572 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,954,402 -------------------------------------------------------------------- PNC Financial Services Group 2,794,751 - -------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Goldman Sachs Group 2,407,041 -------------------------------------------------------------------- Merrill Lynch & Co. 1,031,582 -------------------------------------------------------------------- Morgan Stanley 2,026,438 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 48
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value Citigroup $ 465,556 -------------------------------------------------------------------- Lehman Brothers Holdings* 587 -------------------------------------------------------------------- Merrill Lynch & Co. 131,307 -------------------------------------------------------------------- Morgan Stanley 89,056 - -------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Citigroup 40,913,779 -------------------------------------------------------------------- JPMorgan Chase & Co. 49,760,204 - -------------------------------------------------------------------------------------------------------------------- Mid Cap Value None N/A - -------------------------------------------------------------------------------------------------------------------- Strategic Allocation Bear Stearns Commercial Mortgage Securities 3,562,336 -------------------------------------------------------------------- Charles Schwab 1,763,164 -------------------------------------------------------------------- Citigroup 30,594,415 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 1,642,261 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 2,042,743 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 641,835 -------------------------------------------------------------------- CS First Boston Mortgage Securities 4,882,828 -------------------------------------------------------------------- Goldman Sachs Group 994,048 -------------------------------------------------------------------- GS Mortgage Securities II 1,523,546 -------------------------------------------------------------------- JPMorgan Chase & Co. 16,986,581 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 6,446,223 -------------------------------------------------------------------- Knight Capital Group Cl A 73,899 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 4,304,264 -------------------------------------------------------------------- Lehman Brothers Holdings* 29,688 -------------------------------------------------------------------- Merrill Lynch & Co. 6,168,171 -------------------------------------------------------------------- Merrill Lynch Mortgage Trust 927,435 -------------------------------------------------------------------- Morgan Stanley 7,342,576 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,337,566 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 1,512,553 - -------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Ameritrade Holding Corp. - subsidiary 594,322 -------------------------------------------------------------------- Bear Stearns Adjustable Rate Mortgage Trust 203,614 -------------------------------------------------------------------- Bear Stearns Commercial Mortgage Securities 909,594 -------------------------------------------------------------------- Charles Schwab 25,090 -------------------------------------------------------------------- Citigroup 720,374 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 939,180 -------------------------------------------------------------------- CS First Boston Mortgage Securities 1,639,456 -------------------------------------------------------------------- Goldman Sachs Group 34,304 -------------------------------------------------------------------- JPMorgan Chase & Co. 217,669 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 1,875,303 -------------------------------------------------------------------- Lehman Brothers Holdings* 11,788 -------------------------------------------------------------------- Merrill Lynch & Co. 158,624 -------------------------------------------------------------------- Merrill Lynch Mortgage Trust 366,194 -------------------------------------------------------------------- Morgan Stanley 555,840 -------------------------------------------------------------------- Morgan Stanley Capital 1 119,467 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 756,276 -------------------------------------------------------------------- Nuveen Investments 105,610 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 49
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income Bear Stearns Companies $ 745,926 -------------------------------------------------------------------- Citigroup 619,416 -------------------------------------------------------------------- Credit Suisse First Boston USA 636,727 -------------------------------------------------------------------- GS Mortgage Securities II 2,521,127 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 849,854 -------------------------------------------------------------------- Lehman Brothers Holdings* 75,200 -------------------------------------------------------------------- Morgan Stanley 633,832 -------------------------------------------------------------------- Morgan Stanley, Dean Witter Capital 1 1,167,921 - -------------------------------------------------------------------------------------------------------------------- Disciplined International Equity None N/A - -------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Morgan Stanley 1,258,573 - -------------------------------------------------------------------------------------------------------------------- Global Bond Bear Stearns Commercial Mortgage Securities 1,106,194 -------------------------------------------------------------------- Citigroup 709,276 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 1,294,437 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 715,932 -------------------------------------------------------------------- Credit Suisse NY 452,945 -------------------------------------------------------------------- CS First Boston Mortgage Securities 1,407,343 -------------------------------------------------------------------- GS Mortgage Securities II 1,260,948 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 6,275,448 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 4,531,712 -------------------------------------------------------------------- Lehman Brothers Holdings* 171,600 -------------------------------------------------------------------- Merrill Lynch & Co. 588,461 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,458,809 - -------------------------------------------------------------------------------------------------------------------- Global Technology None N/A - -------------------------------------------------------------------------------------------------------------------- Partners International Select Growth None N/A - -------------------------------------------------------------------------------------------------------------------- Partners International Select Value Credit Suisse Group 13,198,329 - -------------------------------------------------------------------------------------------------------------------- Partners International Small Cap None N/A - -------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets None N/A - -------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity Credit Suisse Group 791,189 - -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Goldman Sachs Group 1,322,195 -------------------------------------------------------------------- JPMorgan Chase & Co. 8,071,264 - -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income JPMorgan Chase & Co. 138,146 - -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha None N/A - -------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity Credit Suisse Group 3,541,191 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- Mid Cap Growth TD Ameritrade Holding 5,944,887 - -------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond None N/A - -------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None N/A - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market None N/A - --------------------------------------------------------------------------------------------------------------------
* Subsequent to Aug. 31, 2008. Lehman Brothers Holdings filed a Chapter 11 bankruptcy petition. Statement of Additional Information - July 30, 2009 Page 50 BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE INVESTMENT MANAGER Affiliates of the investment manager may engage in brokerage and other securities transactions on behalf of a fund according to procedures adopted by the Board and to the extent consistent with applicable provisions of the federal securities laws. Subject to approval by the Board, the same conditions apply to transactions with broker-dealer affiliates of any subadviser. The investment manager will use an affiliate only if (i) the investment manager determines that the fund will receive prices and executions at least as favorable as those offered by qualified independent brokers performing similar brokerage and other services for the fund and (ii) the affiliate charges the fund commission rates consistent with those the affiliate charges comparable unaffiliated customers in similar transactions and if such use is consistent with terms of the Investment Management Services Agreement. Information about any brokerage commissions paid by a fund in the last three fiscal periods to brokers affiliated with the fund's investment manager is contained in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 7. BROKERAGE COMMISSIONS PAID TO INVESTMENT MANAGER OR AFFILIATES
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2009 2008 2007 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- $ 0(a) $ 0 Basic Income - -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- 0(a) 0 Enhanced Income - -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- 0(a) 0 Moderate Income - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None -- -- -- -- 0 0 Aggressive - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None -- -- -- -- 0 0 Conservative - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None -- -- -- -- 0 0 Aggressive - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None -- -- -- -- 0 0 Conservative - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total None -- -- -- -- 0 0 Equity - -------------------------------------------------------------------------------------------------------------------------- S&P 500 Index None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Small Company Index None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------------------------------- Equity Value None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth UBS 1 $ 2,243 0.40% 0.97% $3,919 0 Securities - -------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage None -- -- -- -- 0 0 - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 51
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2009 2008 2007 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity None -- -- -- -- 0(b) N/A - -------------------------------------------------------------------------------------------------------------------------- Recovery and None(c) -- -- -- -- N/A N/A Infrastructure - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 None -- -- -- -- 0 0(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 None -- -- -- -- 0 0(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 None -- -- -- -- 0 0(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 None -- -- -- -- 0 0(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 None -- -- -- -- 0 0(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 None -- -- -- -- 0 0(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 None -- -- -- -- 0 0(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 None -- -- -- -- 0 0(d) - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------------------------------- High Yield Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth JPMorgan 2 $62,224 14.93% 6.60% $3,532 $ 23 Securities, Inc. - -------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners Select Value Gabelli & 3 -- -- 0 7,352 Co. - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity Wachovia 4 141 0.13 0.12 0 568 Capital Markets - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Short Duration None -- -- -- -- 0 0 U.S. Government - -------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity -- -- -- -- 0 0 None - -------------------------------------------------------------------------------------------------------------------------- Real Estate None -- -- -- -- 0 0 - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 52
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------- Cash Management None -- -- -- -- $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Equity None 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small and None -- -- -- -- 0 0(e) Mid Cap Equity - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small None -- -- -- -- 0 0(f) Cap Value - -------------------------------------------------------------------------------------------------------------------------- Floating Rate None -- -- -- -- 0 0(f) - -------------------------------------------------------------------------------------------------------------------------- Growth None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Income Opportunities None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Inflation Protected None -- -- -- -- 0 0 Securities - -------------------------------------------------------------------------------------------------------------------------- Large Cap Equity None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Large Cap Value None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None -- -- -- -- 0 0(g) - -------------------------------------------------------------------------------------------------------------------------- Diversified Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None -- -- -- -- 0 0(g) - -------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt None -- -- -- -- 0 0(g) - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Balanced None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap None -- -- -- -- 0(h) N/A Growth - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap None(i) -- -- -- -- N/A N/A Value - -------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Value None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Strategic Allocation None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Strategic Income None -- -- -- -- 0(h) N/A Allocation - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency None -- -- -- -- 0 0(j) and Income - -------------------------------------------------------------------------------------------------------------------------- Disciplined International None -- -- -- -- 0 0(k) Equity - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond None -- -- -- -- 0 0(l) - -------------------------------------------------------------------------------------------------------------------------- Global Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Global Technology None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners International JPMorgan 2 0 -- -- 0 8,149 Select Growth Securities, Inc. - -------------------------------------------------------------------------------------------------------------------------- Partners International Sanford 5 1,677 0.11% 0.04% N/A N/A Select Value Bernstein - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 53
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- Partners International None -- -- -- -- $ 0 $ 0 Small Cap - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging None -- -- -- -- 0 0 Markets - -------------------------------------------------------------------------------------------------------------------------- Threadneedle European None -- -- -- -- 0 0 Equity - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity None(m) -- -- -- -- N/A N/A Income - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global None(m) -- -- -- -- N/A N/A Extended Alpha - -------------------------------------------------------------------------------------------------------------------------- Threadneedle International None -- -- -- -- 0 0 Opportunity - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth -- -- -- -- 0 0 None - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market None -- -- -- -- 0 0 - --------------------------------------------------------------------------------------------------------------------------
(1) Affiliate of UBS Global Asset Management, a subadviser. (2) Affiliate of American Century, a subadviser. (3) Affiliate of GAMCO Investors, Inc. a former subadviser, terminated Sept. 29, 2006. (4) Affiliate of Jennison Associates, LLC, a subadviser. (5) Affiliate of AllianceBernstein, a subadviser. (a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from Feb. 19, 2009 (when shares became publicly available) to April 30, 2009. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June 30. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (k) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (l) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - July 30, 2009 Page 54 VALUING FUND SHARES As of the end of the most recent fiscal period, the computation of net asset value per share of a class of a fund was based on net assets of that class divided by the number of class shares outstanding as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. All expenses of a fund, including the management fee and, as applicable, distribution and plan administration fees, are accrued daily and taken into account for the purpose of determining NAV. TABLE 8. VALUING FUND SHARES
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ----------------------------------------------------------------------------------------------------------------- Income Builder Basic Income Class A $ 186,970,729 22,677,468 $ 8.24 Class B 27,939,305 3,394,885 8.23 Class C 9,281,940 1,126,721 8.24 Class R4 8,257 1,000 8.26 - ----------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Class A 164,090,568 21,598,784 7.60 Class B 18,998,046 2,503,256 7.59 Class C 7,980,635 1,051,482 7.59 Class R4 103,837 13,670 7.60 - ----------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Class A 338,875,864 43,137,952 7.86 Class B 40,992,857 5,230,164 7.84 Class C 14,003,542 1,784,927 7.85 Class R4 14,829 1,885 7.87 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Class A 294,773,096 45,416,245 6.49 Class B 56,863,918 8,803,125 6.46 Class C 11,330,376 1,765,176 6.42 Class R4 141,064 21,713 6.50 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative Class A 145,919,328 17,150,019 8.51 Class B 41,589,703 4,905,272 8.48 Class C 10,602,340 1,249,604 8.48 Class R4 20,746 2,461 8.43 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Class A 664,054,374 87,640,367 7.58 Class B 144,798,038 19,199,873 7.54 Class C 33,449,418 4,433,154 7.55 Class R4 78,368 10,348 7.57 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive Class A 644,510,105 91,887,421 7.01 Class B 130,075,493 18,628,806 6.98 Class C 26,360,644 3,778,666 6.98 Class R4 558,316 79,497 7.02 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative Class A 257,155,177 32,046,209 8.02 Class B 60,844,849 7,606,644 8.00 Class C 15,772,351 1,971,183 8.00 Class R4 25,381 3,177 7.99 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity Class A 245,908,353 40,787,041 6.03 Class B 45,514,660 7,624,879 5.97 Class C 9,263,309 1,558,801 5.94 Class R4 74,311 12,287 6.05 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 55
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- S&P 500 Index Class D $ 21,470,665 7,875,153 $ 2.73 Class E 87,567,351 32,008,961 2.74 - ----------------------------------------------------------------------------------------------------------------- Small Company Index Class A 280,601,738 99,425,503 2.82 Class B 50,844,680 22,379,419 2.27 Class R4 4,364,248 1,490,973 2.93 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ----------------------------------------------------------------------------------------------------------------- Equity Value Class A 450,712,507 68,890,198 6.54 Class B 50,134,973 7,632,829 6.57 Class C 3,102,757 477,818 6.49 Class I 3,591 548 6.55 Class R2 2,447 374 6.54 Class R3 107,204 16,368 6.55 Class R4 4,173,423 636,556 6.56 Class R5 2,447 374 6.54 Class W 2,484 380 6.54 - ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Class A 38,606,437 17,175,057 2.25 Class B 11,644,484 5,603,218 2.08 Class C 1,632,974 785,175 2.08 Class I 30,343,515 13,031,926 2.33 Class R2 2,156 951 2.27 Class R3 2,169 951 2.28 Class R4 53,805 23,512 2.29 Class R5 2,183 951 2.30 - ----------------------------------------------------------------------------------------------------------------- Precious Metals and Mining Class A 94,319,611 10,433,590 9.04 Class B 12,722,723 1,541,104 8.26 Class C 2,257,212 278,920 8.09 Class I 9,068 989 9.17 Class R4 73,212 7,985 9.17 - ----------------------------------------------------------------------------------------------------------------- Small Cap Advantage Class A 98,550,562 41,364,743 2.38 Class B 18,095,864 8,635,167 2.10 Class C 2,142,495 1,021,091 2.10 Class I 3,701 1,484 2.49 Class R2 1,649 679 2.43 Class R3 1,660 679 2.44 Class R4 19,818 8,014 2.47 Class R5 1,671 679 2.46 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ----------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Class A 27,439,148 2,402,528 11.42 Class B 1,599,194 141,516 11.30 Class C 1,341,742 118,740 11.30 Class I 3,232,961 281,691 11.48 Class R5 5,735 500 11.47 - ----------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure Class A 50,777,415 4,371,521 11.62 Class B 4,017,674 346,389 11.60 Class C 2,722,636 234,730 11.60 Class I 12,377,893 1,064,623 11.63 Class R2 11,607 1,000 11.61 Class R3 11,614 1,000 11.61 Class R4 22,600 1,945 11.62 Class R5 11,626 1,000 11.63 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 56
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 Class A $ 3,095,956 447,244 $ 6.92 Class R2 3,240 468 6.92 Class R3 3,240 468 6.92 Class R4 3,242 468 6.93 Class R5 3,243 468 6.93 Class Y 4,703,534 678,609 6.93 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 Class A 4,840,029 712,731 6.79 Class R2 3,164 465 6.80 Class R3 3,163 465 6.80 Class R4 3,164 465 6.80 Class R5 3,167 465 6.81 Class Y 13,012,797 1,910,356 6.81 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 Class A 3,732,214 589,755 6.33 Class R2 8,994 1,416 6.35 Class R3 2,948 464 6.35 Class R4 2,948 464 6.35 Class R5 2,952 464 6.36 Class Y 14,824,867 2,331,930 6.36 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 Class A 2,261,901 361,260 6.26 Class R2 15,488 2,472 6.27 Class R3 2,929 466 6.29 Class R4 2,936 465 6.31 Class R5 2,936 465 6.31 Class Y 18,489,701 2,936,299 6.30 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 Class A 4,733,464 752,794 6.29 Class R2 7,048 1,118 6.30 Class R3 2,927 464 6.31 Class R4 2,923 464 6.30 Class R5 2,926 464 6.31 Class Y 18,044,906 2,860,073 6.31 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 Class A 1,296,313 208,303 6.22 Class R2 2,910 467 6.23 Class R3 2,912 467 6.24 Class R4 2,912 467 6.24 Class R5 2,915 467 6.24 Class Y 13,096,274 2,097,551 6.24 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 Class A 1,247,058 206,572 6.04 Class R2 8,314 1,373 6.06 Class R3 19,225 3,175 6.06 Class R4 2,811 464 6.06 Class R5 2,814 464 6.06 Class Y 8,534,956 1,407,503 6.06 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 Class A 1,182,765 191,544 6.17 Class R2 2,883 466 6.19 Class R3 2,883 466 6.19 Class R4 2,883 466 6.19 Class R5 2,885 466 6.19 Class Y 7,820,301 1,262,765 6.19 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 57
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ----------------------------------------------------------------------------------------------------------------- High Yield Bond Class A $1,003,575,895 436,811,958 $ 2.30 Class B 109,559,138 47,713,625 2.30 Class C 21,579,358 9,454,650 2.28 Class I 74,332,691 32,399,309 2.29 Class R2 14,121 6,128 2.30 Class R3 1,242,890 538,148 2.31 Class R4 2,390,655 1,040,477 2.30 Class R5 3,897 1,695 2.30 Class W 6,434,725 2,824,309 2.28 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth Class A 207,169,730 33,798,503 6.13 Class B 30,452,015 5,204,722 5.85 Class C 1,762,044 301,006 5.85 Class I 71,268,211 11,379,715 6.26 Class R2 75,006 12,246 6.12 Class R3 16,916 2,736 6.18 Class R4 90,922 14,618 6.22 Class R5 3,564 572 6.23 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Class A 319,303,984 86,102,190 3.71 Class B 68,807,426 19,386,443 3.55 Class C 8,381,816 2,350,575 3.57 Class I 147,813,699 39,425,906 3.75 Class R4 161,351 43,267 3.73 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Partners Select Value Class A 171,586,494 54,027,990 3.18 Class B 33,999,040 11,190,973 3.04 Class C 3,664,376 1,209,841 3.03 Class I 52,038,069 16,131,939 3.23 Class R4 58,363 18,230 3.20 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity Class A 106,851,808 31,129,071 3.43 Class B 11,759,149 3,675,291 3.20 Class C 1,271,635 397,882 3.20 Class I 6,010 1,724 3.49 Class R4 2,148,452 615,294 3.49 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Class A 194,255,683 58,055,466 3.35 Class B 61,304,340 19,668,144 3.12 Class C 5,806,654 1,858,261 3.12 Class I 40,476,472 11,699,997 3.46 Class R2 341,874 102,053 3.35 Class R3 26,984 7,954 3.39 Class R4 153,671 45,029 3.41 Class R5 7,086,719 2,072,383 3.42 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government Class A 529,368,837 114,236,678 4.63 Class B 113,216,242 24,431,558 4.63 Class C 12,866,781 2,776,585 4.63 Class I 41,851,347 9,022,598 4.64 Class R4 4,331,129 934,061 4.64 Class W 4,876 1,053 4.63 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 58
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Class A $ 78,939,541 16,543,068 $ 4.77 Class B 24,176,629 5,064,728 4.77 Class C 4,090,259 856,738 4.77 Class I 221,584,142 46,475,255 4.77 Class R4 63,991 13,427 4.77 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ----------------------------------------------------------------------------------------------------------------- Dividend Opportunity Class A 1,166,836,238 151,153,162 7.72 Class B 171,162,689 22,320,646 7.67 Class C 21,336,365 2,787,614 7.65 Class I 196,677,710 25,428,411 7.73 Class R2 N/A N/A N/A Class R3 N/A N/A N/A Class R4 884,486 114,314 7.74 Class R5 N/A N/A N/A Class W 4,393 568 7.73 - ----------------------------------------------------------------------------------------------------------------- Real Estate Class A 86,019,287 7,529,295 11.42 Class B 14,247,297 1,256,751 11.34 Class C 1,419,450 125,279 11.33 Class I 113,290,977 9,895,570 11.45 Class R4 109,251 9,603 11.38 Class W 3,128 275 11.37 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------------------- Cash Management Class A 4,728,063,840 4,735,985,483 1.00 Class B 85,972,944 86,123,177 1.00 Class C 7,698,464 7,709,484 1.00 Class I 86,515,821 86,572,983 1.00 Class R5 4,990 5,000 1.00 Class W 38,283,118 38,307,096 1.00 Class Y 33,285,660 33,299,232 1.00 - ----------------------------------------------------------------------------------------------------------------- Disciplined Equity Class A 1,067,408,739 181,520,585 5.88 Class B 35,383,368 6,102,723 5.80 Class C 2,787,743 482,134 5.78 Class I 391,424,906 66,059,325 5.93 Class R2 3,886 661 5.88 Class R3 3,892 661 5.89 Class R4 126,215,819 21,367,300 5.91 Class R5 3,897 661 5.90 Class W 1,355,143,677 231,124,956 5.86 - ----------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Class A 16,737,687 1,995,771 8.39 Class B 1,001,638 121,121 8.27 Class C 162,845 19,685 8.27 Class I 15,280,626 1,816,335 8.41 Class R4 10,136 1,204 8.42 Class W 6,835,033 817,433 8.36 - ----------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Class A 12,703,109 1,450,722 8.76 Class B 347,557 40,165 8.65 Class C 54,959 6,351 8.65 Class I 22,825,612 2,600,072 8.78 Class R2 3,982 455 8.75 Class R3 3,987 455 8.76 Class R4 8,777 1,000 8.78 Class R5 3,989 455 8.77 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 59
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- Floating Rate Class A $ 261,075,201 29,120,778 $ 8.97 Class B 23,136,657 2,580,594 8.97 Class C 19,695,527 2,196,860 8.97 Class I 184,939,822 20,637,515 8.96 Class R4 183,544 20,426 8.99 Class R5 4,995 556 8.98 Class W 4,456 497 8.97 - ----------------------------------------------------------------------------------------------------------------- Growth Class A 1,590,672,418 58,435,801 27.22 Class B 189,224,073 7,631,999 24.79 Class C 13,114,426 530,243 24.73 Class I 326,363,923 11,697,509 27.90 Class R2 4,280 155 27.61 Class R3 4,286 155 27.65 Class R4 55,923,087 2,013,270 27.78 Class R5 4,290 155 27.68 Class W 4,336 157 27.62 - ----------------------------------------------------------------------------------------------------------------- Income Opportunities Class A 138,240,324 14,797,904 9.34 Class B 25,890,499 2,772,741 9.34 Class C 3,872,515 414,776 9.34 Class I 68,474,383 7,321,389 9.35 Class R4 142,584 15,216 9.37 - ----------------------------------------------------------------------------------------------------------------- Inflation Protected Securities Class A 222,999,226 21,714,361 10.27 Class B 36,023,542 3,509,539 10.26 Class C 10,682,613 1,040,718 10.26 Class I 402,165,599 39,165,376 10.27 Class R4 43,246 4,214 10.26 Class W 253,836,343 24,718,020 10.27 - ----------------------------------------------------------------------------------------------------------------- Large Cap Equity Class A 3,388,815,212 750,529,476 4.52 Class B 432,695,950 98,119,285 4.41 Class C 20,752,067 4,701,508 4.41 Class I 38,943,788 8,562,931 4.55 Class R2 3,743 822 4.55 Class R3 3,749 822 4.56 Class R4 179,264,616 39,104,432 4.58 Class R5 3,789 822 4.61 - ----------------------------------------------------------------------------------------------------------------- Large Cap Value Class A 35,085,132 8,397,421 4.18 Class B 7,328,116 1,765,846 4.15 Class C 659,182 159,562 4.13 Class I 11,230,530 2,671,840 4.20 Class R2 3,187 763 4.18 Class R3 3,192 763 4.18 Class R4 21,573 5,115 4.22 Class R5 3,253 763 4.26 - ----------------------------------------------------------------------------------------------------------------- Limited Duration Bond Class A 62,676,888 6,707,418 9.34 Class B 7,350,615 786,840 9.34 Class C 1,600,298 171,367 9.34 Class I 105,609,598 11,296,909 9.35 Class R4 9,369 1,000 9.37 Class W 4,793 512 9.36 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 60
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------------------- California Tax-Exempt Class A $ 172,038,905 35,097,770 $ 4.90 Class B 4,711,779 961,893 4.90 Class C 2,843,385 579,342 4.91 - ----------------------------------------------------------------------------------------------------------------- Diversified Bond Class A 1,920,027,558 413,143,778 4.65 Class B 254,464,345 54,765,337 4.65 Class C 31,688,522 6,817,452 4.65 Class I 693,189,044 148,965,143 4.65 Class R2 9,610 2,067 4.65 Class R3 9,610 2,067 4.65 Class R4 75,478,505 16,261,328 4.64 Class R5 9,588 2,067 4.64 Class W 655,311,873 140,970,151 4.65 - ----------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt Class A 289,301,362 56,564,455 5.11 Class B 13,968,961 2,730,369 5.12 Class C 8,460,353 1,653,947 5.12 - ----------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Class A 52,571,799 10,842,089 4.85 Class B 3,503,352 722,515 4.85 Class C 717,930 148,072 4.85 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------- Balanced Class A 634,072,106 69,966,655 9.06 Class B 26,100,296 2,897,118 9.01 Class C 3,748,762 416,783 8.99 Class R4 47,215,934 5,209,145 9.06 - ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Class A 25,775,970 3,371,206 7.65 Class B 2,911,541 384,045 7.58 Class C 1,725,877 227,595 7.58 Class I 161,645,963 21,034,723 7.68 Class R2 7,654 1,000 7.65 Class R3 7,669 1,000 7.67 Class R4 22,347 2,910 7.68 Class R5 7,680 1,000 7.68 Class W 4,387 573 7.66 - ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value Class A 394,708 43,191 9.14 Class B 19,345 2,120 9.13 Class C 9,124 1,000 9.12 Class I 8,359,169 914,414 9.14 Class R2 9,129 1,000 9.13 Class R3 9,134 1,000 9.13 Class R4 9,138 1,000 9.14 Class R5 9,142 1,000 9.14 Class W 9,135 1,000 9.14 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 61
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- Diversified Equity Income Class A $4,504,417,578 483,974,117 $ 9.31 Class B 633,359,809 67,927,974 9.32 Class C 93,320,596 10,037,632 9.30 Class I 189,996,681 20,429,835 9.30 Class R2 7,727,583 832,912 9.28 Class R3 108,542,942 11,676,683 9.30 Class R4 182,738,003 19,618,165 9.31 Class R5 45,588,984 4,896,103 9.31 Class W 3,363 361 9.32 - ----------------------------------------------------------------------------------------------------------------- Mid Cap Value Class A 1,745,361,398 244,325,635 7.14 Class B 164,379,864 23,826,489 6.90 Class C 54,137,367 7,844,791 6.90 Class I 15,525,593 2,138,378 7.26 Class R2 10,456,777 1,468,157 7.12 Class R3 30,952,140 4,330,118 7.15 Class R4 270,774,444 37,623,411 7.20 Class R5 65,029,360 9,020,432 7.21 Class W 3,638 506 7.19 - ----------------------------------------------------------------------------------------------------------------- Strategic Allocation Class A 1,437,164,150 157,978,918 9.10 Class B 169,089,504 18,763,641 9.01 Class C 59,278,791 6,608,282 8.97 Class I 3,946 434 9.09 Class R2 3,946 434 9.09 Class R3 3,946 434 9.09 Class R4 6,812,658 748,545 9.10 Class R5 3,946 434 9.09 - ----------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Class A 148,194,341 16,594,182 8.93 Class B 18,190,751 2,036,698 8.93 Class C 5,807,175 650,672 8.92 Class R2 4,797 537 8.93 Class R3 4,797 537 8.93 Class R4 4,797 537 8.93 Class R5 4,797 537 8.93 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income Class A 175,659,037 17,625,597 9.97 Class B 3,268,605 328,166 9.96 Class C 9,463,358 951,266 9.95 Class I 202,106,353 20,252,851 9.98 Class R4 21,219 2,128 9.97 Class R5 9,399 942 9.98 Class W 303,933,095 30,493,927 9.97 - ----------------------------------------------------------------------------------------------------------------- Disciplined International Equity Class A 56,469,388 9,374,248 6.02 Class B 9,774,655 1,653,855 5.91 Class C 1,125,907 190,230 5.92 Class I 103,041,181 16,963,698 6.07 Class R2 3,062 509 6.02 Class R3 3,064 509 6.02 Class R4 60,625 9,985 6.07 Class R5 3,068 509 6.03 Class W 249,098,785 41,391,645 6.02 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 62
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Class A $ 9,670,545 1,370,967 $ 7.05 Class B 1,178,353 167,178 7.05 Class C 190,923 27,123 7.04 Class I 65,282,310 9,254,282 7.05 Class R4 14,966 2,122 7.05 Class W 104,386,031 14,813,074 7.05 - ----------------------------------------------------------------------------------------------------------------- Global Bond Class A 248,748,168 40,394,613 6.16 Class B 42,399,524 6,810,424 6.23 Class C 4,294,941 695,288 6.18 Class I 205,797,902 33,497,669 6.14 Class R4 118,425 19,229 6.16 Class W 135,156,943 21,988,540 6.15 - ----------------------------------------------------------------------------------------------------------------- Global Technology Class A 68,868,177 41,145,420 1.67 Class B 15,072,741 10,575,597 1.43 Class C 1,965,181 1,374,828 1.43 Class I 4,802 2,785 1.72 Class R4 80,257 47,182 1.70 - ----------------------------------------------------------------------------------------------------------------- Partners International Select Growth Class A 190,233,626 40,703,983 4.67 Class B 29,647,619 6,606,389 4.49 Class C 3,212,928 717,874 4.48 Class I 155,259,864 32,753,046 4.74 Class R4 549,030 116,504 4.71 - ----------------------------------------------------------------------------------------------------------------- Partners International Select Value Class A 659,380,574 131,334,112 5.02 Class B 112,548,353 23,561,229 4.78 Class C 12,609,706 2,647,530 4.76 Class I 95,735,708 18,694,350 5.12 Class R4 557,748 109,344 5.10 - ----------------------------------------------------------------------------------------------------------------- Partners International Small Cap Class A 27,160,173 7,106,419 3.82 Class B 4,963,699 1,344,161 3.69 Class C 450,022 122,028 3.69 Class I 14,279,407 3,686,270 3.87 Class R4 1,481,699 383,999 3.86 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Class A 250,088,197 50,453,378 4.96 Class B 28,179,486 6,354,512 4.43 Class C 3,162,935 711,847 4.44 Class I 7,972 1,558 5.12 Class R4 782,170 152,215 5.14 Class R5 2,746 535 5.13 - ----------------------------------------------------------------------------------------------------------------- Threadneedle European Equity Class A 57,915,534 14,934,494 3.88 Class B 10,080,353 2,636,641 3.82 Class C 954,195 250,456 3.81 Class I 5,191 1,336 3.89 Class R4 13,097 3,360 3.90 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 63
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Class A $ 380,429,958 73,040,390 $ 5.21 Class B 42,166,196 8,654,662 4.87 Class C 4,754,813 985,451 4.83 Class I 3,498 666 5.25 Class R2 3,314 634 5.23 Class R3 3,322 634 5.24 Class R4 5,067,319 963,574 5.26 Class R5 3,329 634 5.25 Class W 3,342 639 5.23 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income Class A 5,428,904 749,581 7.24 Class B 648,517 89,630 7.24 Class C 57,726 7,976 7.24 Class I 3,573,485 493,000 7.25 Class R2 7,248 1,000 7.25 Class R3 7,250 1,000 7.25 Class R4 8,696 1,199 7.25 Class R5 7,248 1,000 7.25 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha Class A 2,207,567 158,009 13.97 Class B 238,583 17,116 13.94 Class C 93,733 6,724 13.94 Class I 3,445,776 246,500 13.98 Class R2 6,979 500 13.96 Class R3 6,984 500 13.97 Class R4 23,241 1,663 13.98 Class R5 6,988 500 13.98 Threadneedle International Opportunity Class A 248,481,494 38,086,295 6.52 Class B 26,534,037 4,183,815 6.34 Class C 1,937,373 308,820 6.27 Class I 72,732,880 11,020,753 6.60 Class R2 3,285 496 6.62 Class R3 3,293 496 6.64 Class R4 167,848 25,145 6.68 Class R5 3,299 496 6.65 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ----------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Class A 67,541,537 13,860,690 4.87 Class B 4,766,940 979,243 4.87 Class C 2,312,311 475,008 4.87 - ----------------------------------------------------------------------------------------------------------------- Mid Cap Growth Class A 348,889,713 66,587,189 5.24 Class B 44,292,642 10,090,767 4.39 Class C 2,596,534 591,200 4.39 Class I 53,382,926 9,727,776 5.49 Class R4 2,610,805 484,792 5.39 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond Class A 583,790,472 173,452,947 3.37 Class B 19,621,893 5,829,378 3.37 Class C 5,593,015 1,661,152 3.37 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income Class A 2,135,093,331 574,689,338 3.72 Class B 53,720,142 14,466,113 3.71 Class C 12,329,720 3,317,475 3.72 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 138,915,998 138,948,951 1.00 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 64 FOR FUNDS OTHER THAN MONEY MARKET FUNDS. A fund's securities are valued as follows as of the close of business of the New York Stock Exchange (the Exchange): - Securities traded on a securities exchange for which a last-quoted sales price is readily available are valued at the last-quoted sales price on the exchange where such security is primarily traded. - Securities traded on a securities exchange for which a last-quoted sales price is not readily available are valued at the mean of the closing bid and asked prices, looking first to the bid and asked prices on the exchange where the security is primarily traded and, if none exist, to the over-the-counter market. - Securities included in the NASDAQ National Market System are valued at the last-quoted sales price in this market. - Securities included in the NASDAQ National Market System for which a last- quoted sales price is not readily available, and other securities traded over-the-counter but not included in the NASDAQ National Market System are valued at the mean of the closing bid and asked prices. - Futures and options traded on major exchanges are valued at the last- quoted sales price on their primary exchange. - Foreign securities traded outside the United States are generally valued as of the time their trading is complete, which is usually different from the close of the Exchange. Foreign securities quoted in foreign currencies are translated into U.S. dollars utilizing spot exchange rates at the close of regular trading on the Exchange. - Occasionally, events affecting the value of securities occur between the time the primary market on which the securities are traded closes and the close of the Exchange. If events materially affect the value of securities, the securities will be valued at their fair value according to procedures decided upon in good faith by the Board. This occurs most commonly with foreign securities, but may occur in other cases. The fair value of a security is likely to be different from the quoted or published price. - Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short-term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. - Securities without a readily available market price and securities for which the price quotations or valuations received from other sources are deemed unreliable or not reflective of market value are valued at fair value as determined in good faith by the Board. The Board is responsible for selecting methods it believes provide fair value. - When possible, bonds are valued at an evaluated bid by a pricing service independent from the funds. If a valuation of a bond is not available from a pricing service, the bond will be valued by a dealer knowledgeable about the bond if such a dealer is available. The assets of funds-of-funds consist primarily of shares of the underlying funds, which are valued at their NAVs. Other securities held by funds-of-funds are valued as described above. FOR MONEY MARKET FUNDS. In accordance with Rule 2a-7 of the 1940 Act, all of the securities in the fund's portfolio are valued at amortized cost. The amortized cost method of valuation is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. Amortized cost does not take into consideration unrealized capital gains or losses. The Board has established procedures designed to stabilize the fund's price per share for purposes of sales and redemptions at $1, to the extent that it is reasonably possible to do so. These procedures include review of the fund's securities by the Board, at intervals deemed appropriate by it, to determine whether the fund's net asset value per share computed by using available market quotations deviates from a share value of $1 as computed using the amortized cost method. The Board must consider any deviation that appears and, if it exceeds 0.5%, it must determine what action, if any, needs to be taken. If the Board determines a deviation exists that may result in a material dilution of the holdings of current shareholders or investors, or in any other unfair consequences for shareholders, it must undertake remedial action that it deems necessary and appropriate. Such action may include withholding dividends, calculating net asset value per share for purposes of sales and redemptions using available market quotations, making redemptions in kind, and selling securities before maturity in order to realize capital gains or losses or to shorten average portfolio maturity. Statement of Additional Information - July 30, 2009 Page 65 While the amortized cost method provides certainty and consistency in portfolio valuation, it may result in valuations of securities that are either somewhat higher or lower than the prices at which the securities could be sold. This means that during times of declining interest rates the yield on the fund's shares may be higher than if valuations of securities were made based on actual market prices and estimates of market prices. Accordingly, if using the amortized cost method were to result in a lower portfolio value, a prospective investor in the fund would be able to obtain a somewhat higher yield than the investor would get if portfolio valuations were based on actual market values. Existing shareholders, on the other hand, would receive a somewhat lower yield than they would otherwise receive. The opposite would happen during a period of rising interest rates. PORTFOLIO HOLDINGS DISCLOSURE Each fund's Board and the investment manager believe that the investment ideas of the investment manager with respect to management of a fund should benefit the fund and its shareholders, and do not want to afford speculators an opportunity to profit by anticipating fund trading strategies or by using fund portfolio holdings information for stock picking. However, each fund's Board also believes that knowledge of the fund's portfolio holdings can assist shareholders in monitoring their investments, making asset allocation decisions, and evaluating portfolio management techniques. Each fund's Board has therefore adopted the investment manager's policies and approved the investment manager's procedures, including the investment manager's oversight of subadviser practices, relating to disclosure of the fund's portfolio securities. These policies and procedures are intended to protect the confidentiality of fund portfolio holdings information and generally prohibit the release of such information until such information is made public, unless such persons have been authorized to receive such information on a selective basis, as described below. It is the policy of the fund not to provide or permit others to provide portfolio holdings on a selective basis, and the investment manager does not intend to selectively disclose portfolio holdings or expect that such holdings information will be selectively disclosed, except where necessary for the fund's operation or where there are legitimate business purposes for doing so and, in any case, where conditions are met that are designed to protect the interests of the fund and its shareholders. Although the investment manager seeks to limit the selective disclosure of portfolio holdings information and such selective disclosure is monitored under the fund's compliance program for conformity with the policies and procedures, there can be no assurance that these policies will protect the fund from the potential misuse of holdings information by individuals or firms in possession of that information. Under no circumstances may the investment manager, its affiliates or any employee thereof receive any consideration or compensation for disclosing such holdings information. A complete schedule of each fund's portfolio holdings is available semi-annually and annually in shareholder reports filed on Form N-CSR and, after the first and third fiscal quarters, in regulatory filings on Form N-Q. These shareholder reports and regulatory filings are filed with the SEC in accordance with federal securities laws and are generally available within sixty (60) days of the end of a fund's fiscal quarter, on the SEC's website. In addition, the investment manager makes publicly available information regarding a fund's top ten holdings (including name and percentage of a fund's assets invested in each such holding) and the percentage breakdown of a fund's investments by country, sector and industry, as applicable. This holdings information is made publicly available through the website as of month-end, approximately ten (10) days following the month-end. In addition to the monthly top ten holdings and the portfolio holdings information made available on the SEC website as part of a fund's annual, semi-annual and fiscal quarter filings, the investment manager also publishes on its website each fund's full portfolio holdings (including name and percentage of a fund's assets invested in each such holding) as of the end of each calendar quarter. This full list of portfolio holdings is made available approximately thirty (30) days following the end of each calendar quarter. From time to time, the investment manager may make partial or complete fund holdings information that is not publicly available on the website or otherwise available in advance of the time restrictions noted above (1) to its affiliated and unaffiliated service providers that require the information in the normal course of business in order to provide services to the fund (including, without limitation entities identified by name in the fund's prospectus or this SAI, such as custodians, auditors, subadvisers, financial printers (Cenveo, Inc., Bowne, Vestek, Data Communique, Inc.), pricing services (including Reuters Pricing Service, FT Interactive Data Corporation, Bear Stearns Pricing Service, and Kenny S&P), proxy voting services (such as Risk Metrics), and companies that deliver or support systems that provide analytical or statistical information (including Factset Research Systems, Bloomberg, L.P.), (2) to facilitate the review and/or rating of the fund by ratings and rankings agencies (including Morningstar, Inc., Thomson Financial and Lipper Inc.), (3) entities that provide trading, research or other investment related services (including Citigroup, Merrill Lynch & Co., and Morgan Stanley), and (4) fund intermediaries that include the funds in discretionary wrap or other investment programs that request such information in order to support the services provided to investors in the programs. In such situations, the information is released subject to confidentiality agreements, duties imposed under applicable policies and procedures (for example, Statement of Additional Information - July 30, 2009 Page 66 applicable codes of ethics) designed to prevent the misuse of confidential information, general duties under applicable laws and regulations, or other such duties of confidentiality. In addition, the fund discloses holdings information as required by federal, state or international securities laws, and may disclose holdings information in response to requests by governmental authorities, or in connection with litigation or potential litigation, a restructuring of a holding, where such disclosure is necessary to participate or explore participation in a restructuring of the holding (e.g., as part of a bondholder group), or to the issuer of a holding, pursuant to a request of the issuer or any other party who is duly authorized by the issuer. Each fund's Board has adopted the policies of the investment manager and approved the procedures Ameriprise Financial has established to ensure that the fund's holdings information is only disclosed in accordance with these policies. Before any selective disclosure of holdings information is permitted, the person seeking to disclose such holdings information must submit a written request to the Portfolio Holdings Committee ("PHC"). The PHC is comprised of members from the investment manager's General Counsel's Office, Compliance, and Communications. The PHC has been authorized by the fund's Board to perform an initial review of requests for disclosure of holdings information to evaluate whether there is a legitimate business purpose for selective disclosure, whether selective disclosure is in the best interests of a fund and its shareholders, to consider any potential conflicts of interest between the fund, the investment manager, and its affiliates, and to safeguard against improper use of holdings information. Factors considered in this analysis are whether the recipient has agreed to or has a duty to keep the holdings information confidential and whether risks have been mitigated such that the recipient has agreed or has a duty to use the holdings information only as necessary to effectuate the purpose for which selective disclosure was authorized, including a duty not to trade on such information. Before portfolio holdings may be selectively disclosed, requests approved by the PHC must also be authorized by a fund's Chief Compliance Officer or the fund's General Counsel. On at least an annual basis the PHC reviews the approved recipients of selective disclosure and, where appropriate, requires a resubmission of the request, in order to re-authorize any ongoing arrangements. These procedures are intended to be reasonably designed to protect the confidentiality of fund holdings information and to prohibit their release to individual investors, institutional investors, intermediaries that distribute the fund's shares, and other parties, until such holdings information is made public or unless such persons have been authorized to receive such holdings information on a selective basis, as set forth above. Although the investment manager has set up these procedures to monitor and control selective disclosure of holdings information, there can be no assurance that these procedures will protect a fund from the potential misuse of holdings information by individuals or firms in possession of that information. PROXY VOTING GENERAL GUIDELINES, POLICIES AND PROCEDURES The funds uphold a long tradition of supporting sound and principled corporate governance. For over 30 years, the Board, which consists of a majority of independent Board members, has determined policies and voted proxies. The funds' investment manager, RiverSource Investments, and the funds' administrator, Ameriprise Financial, provide support to the Board in connection with the proxy voting process. GENERAL GUIDELINES CORPORATE GOVERNANCE MATTERS -- The Board supports proxy proposals that it believes are tied to the interests of shareholders and votes against proxy proposals that appear to entrench management. For example: - The Board generally votes in favor of proposals for an independent chairman or, if the chairman is not independent, in favor of a lead independent director. - The Board supports annual election of all directors and proposals to eliminate classes of directors. - In a routine election of directors, the Board will generally vote with management's recommendations because the Board believes that management and nominating committees of independent directors are in the best position to know what qualifications are required of directors to form an effective board. However, the Board will generally vote against a nominee who has been assigned to the audit, compensation, or nominating committee if the nominee is not independent of management based on established criteria. The Board will also withhold support for any director who fails to attend 75% of meetings or has other activities that appear to interfere with his or her ability to commit sufficient attention to the company and, in general, will vote against nominees who are determined to have been involved in options backdating. Statement of Additional Information - July 30, 2009 Page 67 - The Board generally supports proposals requiring director nominees to receive a majority of affirmative votes cast in order to be elected to the board, and opposes cumulative voting based on the view that each director elected should represent the interests of all shareholders. - Votes in a contested election of directors are evaluated on a case-by-case basis. In general, the Board believes that incumbent management and nominating committees, with access to more and better information, are in the best position to make strategic business decisions. However, the Board will consider an opposing slate if it makes a compelling business case for leading the company in a new direction. SHAREHOLDER RIGHTS PLANS -- The Board generally supports shareholder rights plans based on a belief that such plans force uninvited bidders to negotiate with a company's board. The Board believes these negotiations allow time for the company to maximize value for shareholders by forcing a higher premium from a bidder, attracting a better bid from a competing bidder or allowing the company to pursue its own strategy for enhancing shareholder value. The Board supports proposals to submit shareholder rights plans to shareholders and supports limiting the vote required for approval of such plans to a majority of the votes cast. AUDITORS -- The Board values the independence of auditors based on established criteria. The Board supports a reasonable review of matters that may raise concerns regarding an auditor's service that may cause the Board to vote against a management recommendation, including, for example, auditor involvement in significant financial restatements, options backdating, material weaknesses in control, attempts to limit auditor liability or situations where independence has been compromised. STOCK OPTION PLANS AND OTHER MANAGEMENT COMPENSATION ISSUES -- The Board expects company management to give thoughtful consideration to providing competitive long-term employee incentives directly tied to the interest of shareholders. The Board votes against proxy proposals that it believes dilute shareholder value excessively. The Board believes that equity compensation awards can be a useful tool, when not abused, for retaining employees and giving them incentives to engage in conduct that will improve the performance of the company. In this regard, the Board generally favors minimum holding periods of stock obtained by senior management pursuant to an option plan and will vote against compensation plans for executives that it deems excessive. SOCIAL AND CORPORATE POLICY ISSUES -- The Board believes proxy proposals should address the business interests of the corporation. Shareholder proposals sometime seek to have the company disclose or amend certain business practices based purely on social or environmental issues rather than compelling business arguments. In general, the Board recognizes our fund shareholders are likely to have differing views of social and environmental issues and believes that these matters are primarily the responsibility of a company's management and its board of directors. POLICIES AND PROCEDURES The policy of the Board is to vote all proxies of the companies in which a fund holds investments. Because of the volume and complexity of the proxy voting process, including inherent inefficiencies in the process that are outside the control of the Board or the Proxy Team (below), not all proxies may be voted. The Board has implemented policies and procedures that have been reasonably designed to vote proxies and to ensure that there are no conflicts between interests of a fund's shareholders and those of the funds' principal underwriters, RiverSource Investments, or other affiliated persons. In exercising its proxy voting responsibilities, the Board may rely upon the research or recommendations of one or more third party service providers. The administration of the proxy voting process is handled by the RiverSource Proxy Administration Team ("Proxy Team"). In exercising its responsibilities, the Proxy Team may rely upon one or more third party service providers. The Proxy Team assists the Board in identifying situations where its guidelines do not clearly require a vote in a particular manner and assists in researching matters and making voting recommendations. RiverSource Investments may recommend that a proxy be voted in a manner contrary to the Board's guidelines. In making recommendations to the Board about voting on a proposal, the investment manager relies on its own investment personnel (or the investment personnel of a fund's subadviser(s)) and information obtained from an independent research firm. The investment manager makes the recommendation in writing. The process requires that Board members who are independent from the investment manager consider the recommendation and decide how to vote the proxy proposal or establish a protocol for voting the proposal. On an annual basis, or more frequently as determined necessary, the Board reviews recommendations to revise the existing guidelines or add new guidelines. Recommendations are based on, among other things, industry trends and the frequency that similar proposals appear on company ballots. The Board considers management's recommendations as set out in the company's proxy statement. In each instance in which a fund votes against management's recommendation (except when withholding votes from a nominated director), the Board Statement of Additional Information - July 30, 2009 Page 68 sends a letter to senior management of the company explaining the basis for its vote. This permits both the company's management and the Board to have an opportunity to gain better insight into issues presented by the proxy proposal(s). VOTING IN COUNTRIES OUTSIDE THE UNITED STATES (NON-U.S. COUNTRIES) -- Voting proxies for companies not domiciled in the United States may involve greater effort and cost due to the variety of regulatory schemes and corporate practices. For example, certain non-U.S. countries require securities to be blocked prior to a vote, which means that the securities to be voted may not be traded within a specified number of days before the shareholder meeting. The Board typically will not vote securities in non-U.S. countries that require securities to be blocked as the need for liquidity of the securities in the funds will typically outweigh the benefit of voting. There may be additional costs associated with voting in non-U.S. countries such that the Board may determine that the cost of voting outweighs the potential benefit. SECURITIES ON LOAN -- The Board will generally refrain from recalling securities on loan based upon its determination that the costs and lost revenue to the funds, combined with the administrative effects of recalling the securities, generally outweigh the benefit of voting the proxy. While neither the Board nor the funds' administrator assesses the economic impact and benefits of voting loaned securities on a case-by-case basis, situations may arise where the Board requests that loaned securities be recalled in order to vote a proxy. In this regard, if a proxy relates to matters that may impact the nature of a company, such as a proposed merger or acquisition, and the funds' ownership position is more significant, the Board has established a guideline to direct the funds' administrator to use its best efforts to recall such securities based upon its determination that, in these situations, the benefits of voting such proxies generally outweigh the costs or lost revenue to the funds, or any potential adverse administrative effects to the funds, of not recalling such securities. INVESTMENT IN AFFILIATED FUNDS -- Certain funds may invest in shares of other funds in the RiverSource Family of Funds (referred to in this context as "underlying funds") and may own substantial portions of these underlying funds. The proxy policy of the funds is to ensure that direct public shareholders of underlying funds control the outcome of any shareholder vote. To help manage this potential conflict of interest, recognizing that the direct public shareholders of these underlying funds may represent only a minority interest, the policy of the funds is to vote proxies of the underlying funds in the same proportion as the vote of the direct public shareholders. If there are no direct public shareholders of an underlying fund, the policy is to cast votes in accordance with instructions from the independent members of the Board. OBTAIN A PROXY VOTING RECORD Each year the funds file their proxy voting records with the SEC and make them available by August 31 for the 12-month period ending June 30 of that year. The records can be obtained without charge through riversource.com/funds or searching the website of the SEC at www.sec.gov. Statement of Additional Information - July 30, 2009 Page 69 INVESTING IN A FUND SALES CHARGE FOR FUNDS OTHER THAN MONEY MARKET FUNDS: Investors should understand that the purpose and function of the initial sales charge and distribution fee for Class A shares is the same as the purpose and function of the contingent deferred sales charge ("CDSC") and distribution fee for Class B and Class C shares. The sales charges and distribution fees applicable to each class pay for the distribution of shares of a fund. Shares of a fund are sold at the public offering price. The public offering price is the NAV of one share adjusted for the sales charge for Class A. For Class B, Class C, Class D, Class E, Class I, Class R2, Class R3, Class R4, Class R5, Class W and Class Y there is no initial sales charge so the public offering price is the same as the NAV. CLASS A - CALCULATION OF THE SALES CHARGE Sales charges are determined as shown in the following tables. The first table is organized by investment category. You can find your fund's investment category in Table 1. TABLE 9. CLASS A INITIAL SALES CHARGE For all funds EXCEPT Absolute Return Currency and Income, Floating Rate, Inflation Protected Securities, Intermediate Tax-Exempt, Limited Duration Bond and Short Duration U.S. Government:
- --------------------------------------------------------------------------------- Fund-of-funds - fixed income, State tax-exempt fixed income, Taxable fixed Balanced, Equity, Fund-of- income, Tax-exempt fixed funds - equity income ---------------------------------------------------------- Fund category Sales charge(a) as a percentage of: - --------------------------------------------------------------------------------- PUBLIC Public OFFERING Net amount offering Net amount TOTAL MARKET VALUE PRICE(b) invested price(b) invested - --------------------------------------------------------------------------------- Up to $49,999 5.75% 6.10% 4.75% 4.99% - --------------------------------------------------------------------------------- $50,000 - $99,999 4.75% 4.99% 4.25% 4.44% - --------------------------------------------------------------------------------- $100,000 - $249,999 3.50% 3.63% 3.50% 3.63% - --------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.56% 2.50% 2.56% - --------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% 2.00% 2.04% - --------------------------------------------------------------------------------- $1,000,000 or more(c),(d) 0.00% 0.00% 0.00% 0.00% - ---------------------------------------------------------------------------------
For Absolute Return Currency and Income, Floating Rate, Inflation Protected Securities, Intermediate Tax-Exempt, Limited Duration Bond and Short Duration U.S. Government:
- ----------------------------------------------------------------------------------------- SALES CHARGE(a) as a Percentage of Sales Charge(a) as a Public Offering Percentage of TOTAL MARKET VALUE Price(b) Net Amount Invested - ----------------------------------------------------------------------------------------- Up to $49,999 3.00% 3.09% - ----------------------------------------------------------------------------------------- $50,000 - $99,999 3.00% 3.09% - ----------------------------------------------------------------------------------------- $100,000 - $249,999 2.50% 2.56% - ----------------------------------------------------------------------------------------- $250,000 - $499,999 2.00% 2.04% - ----------------------------------------------------------------------------------------- $500,000 - $999,999 1.50% 1.52% - ----------------------------------------------------------------------------------------- $1,000,000 or more(c),(d) 0.00% 0.00% - -----------------------------------------------------------------------------------------
(a) Because of rounding in the calculation of purchase price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. (b) Purchase price includes the sales charge. (c) Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial intermediary the following out of its own resources: a sales commission of up to 1.00% for a sale of $1,000,000 to $3,999,999; a sales commission up to 0.50% for a sale of $4,000,000 to $49,999,999; and a sales commission up to 0.25% for a sale of $50,000,000 or more. (d) For certain eligible employee benefit plans defined under section 401(a), 401(k), 457 and 403(b) which meet eligibility rules for the waiver of applicable sales charges, the distributor may pay the following out of its own resources: a sale commission of 1.00% for a sale of $1 to $3,999,999 received in eligible employee benefit plans; a sales commission of up to 0.50% for a sale of $4,000,000 to $49,999,999; and a sales commission up to 0.25% for a sale of $50,000,000 or more. See "Initial Sales Charge -- Waivers of the sales charge for Class A shares" for employee benefit plan eligibility rules. Statement of Additional Information - July 30, 2009 Page 70 Using the sales charge schedule in the table above, for Class A, the public offering price for an investment of less than $50,000, made on the last day of the most recent fiscal period, was determined as shown in the following table. The sales charge is paid to the distributor by the person buying the shares. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 10. PUBLIC OFFERING PRICE
PUBLIC NET ASSET 1.0 MINUS MAXIMUM OFFERING FUND VALUE SALES CHARGE PRICE - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ---------------------------------------------------------------------------------------------- Income Builder Basic Income $ 8.24 0.9525 $ 8.65 - ---------------------------------------------------------------------------------------------- Income Builder Enhanced Income 7.60 0.9525 7.98 - ---------------------------------------------------------------------------------------------- Income Builder Moderate Income 7.86 0.9525 8.25 - ---------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 6.49 0.9425 6.89 - ---------------------------------------------------------------------------------------------- Portfolio Builder Conservative 8.51 0.9525 8.93 - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate 7.58 0.9425 8.04 - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 7.01 0.9425 7.44 - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 8.02 0.9525 8.42 - ---------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 6.03 0.9425 6.40 - ---------------------------------------------------------------------------------------------- S&P 500 Index (for Class D) 2.73 No sales charge 2.73 - ---------------------------------------------------------------------------------------------- Small Company Index 2.82 0.9425 2.99 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ---------------------------------------------------------------------------------------------- Equity Value 6.54 0.9425 6.94 - ---------------------------------------------------------------------------------------------- Partners Small Cap Growth 2.25 0.9425 2.39 - ---------------------------------------------------------------------------------------------- Precious Metals and Mining 9.04 0.9425 9.59 - ---------------------------------------------------------------------------------------------- Small Cap Advantage 2.38 0.9425 2.53 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 11.42 0.9425 12.12 - ---------------------------------------------------------------------------------------------- Recovery and Infrastructure 11.62 0.9425 12.33 - ---------------------------------------------------------------------------------------------- Retirement Plus 2010 6.92 0.9425 7.34 - ---------------------------------------------------------------------------------------------- Retirement Plus 2015 6.79 0.9425 7.20 - ---------------------------------------------------------------------------------------------- Retirement Plus 2020 6.33 0.9425 6.72 - ---------------------------------------------------------------------------------------------- Retirement Plus 2025 6.26 0.9425 6.64 - ---------------------------------------------------------------------------------------------- Retirement Plus 2030 6.29 0.9425 6.67 - ---------------------------------------------------------------------------------------------- Retirement Plus 2035 6.22 0.9425 6.60 - ---------------------------------------------------------------------------------------------- Retirement Plus 2040 6.04 0.9425 6.41 - ---------------------------------------------------------------------------------------------- Retirement Plus 2045 6.17 0.9425 6.55 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------- High Yield Bond 2.30 0.9525 2.41 - ---------------------------------------------------------------------------------------------- Partners Aggressive Growth 6.13 0.9425 6.50 - ---------------------------------------------------------------------------------------------- Partners Fundamental Value 3.71 0.9425 3.94 - ---------------------------------------------------------------------------------------------- Partners Select Value 3.18 0.9425 3.37 - ---------------------------------------------------------------------------------------------- Partners Small Cap Equity 3.43 0.9425 3.64 - ---------------------------------------------------------------------------------------------- Partners Small Cap Value 3.35 0.9425 3.55 - ---------------------------------------------------------------------------------------------- Short Duration U.S. Government 4.63 0.9700 4.77 - ---------------------------------------------------------------------------------------------- U.S. Government Mortgage 4.77 0.9525 5.01 - ----------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 71
PUBLIC NET ASSET 1.0 MINUS MAXIMUM OFFERING FUND VALUE SALES CHARGE PRICE - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------- Dividend Opportunity $ 7.72 0.9425 $ 8.19 - ---------------------------------------------------------------------------------------------- Real Estate 11.42 0.9425 12.12 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------- Cash Management 1.00 No sales charge 1.00 - ---------------------------------------------------------------------------------------------- Disciplined Equity 5.88 0.9425 6.24 - ---------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 8.39 0.9425 8.90 - ---------------------------------------------------------------------------------------------- Disciplined Small Cap Value 8.76 0.9425 9.29 - ---------------------------------------------------------------------------------------------- Floating Rate 8.97 0.9700 9.25 - ---------------------------------------------------------------------------------------------- Growth 27.22 0.9425 28.88 - ---------------------------------------------------------------------------------------------- Income Opportunities 9.34 0.9525 9.81 - ---------------------------------------------------------------------------------------------- Inflation Protected Securities 10.27 0.9700 10.59 - ---------------------------------------------------------------------------------------------- Large Cap Equity 4.52 0.9425 4.80 - ---------------------------------------------------------------------------------------------- Large Cap Value 4.18 0.9425 4.44 - ---------------------------------------------------------------------------------------------- Limited Duration Bond 9.34 0.9700 9.63 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------- California Tax-Exempt 4.90 0.9525 5.14 - ---------------------------------------------------------------------------------------------- Diversified Bond 4.65 0.9525 4.88 - ---------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 5.11 0.9525 5.36 - ---------------------------------------------------------------------------------------------- New York Tax-Exempt 4.85 0.9525 5.09 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------- Balanced 9.06 0.9425 9.61 - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 7.65 0.9425 8.12 - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Value 9.14 0.9425 9.70 - ---------------------------------------------------------------------------------------------- Diversified Equity Income 9.31 0.9425 9.88 - ---------------------------------------------------------------------------------------------- Mid Cap Value 7.14 0.9425 7.58 - ---------------------------------------------------------------------------------------------- Strategic Allocation 9.10 0.9425 9.66 - ---------------------------------------------------------------------------------------------- Strategic Income Allocation 8.93 0.9525 9.38 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------- Absolute Return Currency and Income 9.97 0.9700 10.28 - ---------------------------------------------------------------------------------------------- Disciplined International Equity 6.02 0.9425 6.39 - ---------------------------------------------------------------------------------------------- Emerging Markets Bond 7.05 0.9525 7.40 - ---------------------------------------------------------------------------------------------- Global Bond 6.16 0.9525 6.47 - ---------------------------------------------------------------------------------------------- Global Technology 1.67 0.9425 1.77 - ---------------------------------------------------------------------------------------------- Partners International Select Growth 4.67 0.9425 4.95 - ---------------------------------------------------------------------------------------------- Partners International Select Value 5.02 0.9425 5.33 - ---------------------------------------------------------------------------------------------- Partners International Small Cap 3.82 0.9425 4.05 - ---------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 4.96 0.9425 5.26 - ---------------------------------------------------------------------------------------------- Threadneedle European Equity 3.88 0.9425 4.12 - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity 5.21 0.9425 5.53 - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 7.24 0.9425 7.68 - ---------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 13.97 0.9425 14.82 - ---------------------------------------------------------------------------------------------- Threadneedle International Opportunity 6.52 0.9425 6.92 - ----------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 72
PUBLIC NET ASSET 1.0 MINUS MAXIMUM OFFERING FUND VALUE SALES CHARGE PRICE - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 4.87 0.9700 $ 5.02 - ---------------------------------------------------------------------------------------------- Mid Cap Growth 5.24 0.9425 5.56 - ---------------------------------------------------------------------------------------------- Tax-Exempt Bond 3.37 0.9525 3.54 - ---------------------------------------------------------------------------------------------- Tax-Exempt High Income 3.72 0.9525 3.91 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ---------------------------------------------------------------------------------------------- Tax-Exempt Money Market 1.00 No sales charge 1.00 - ----------------------------------------------------------------------------------------------
CLASS A - LETTER OF INTENT (LOI) If you intend to invest $50,000 or more over a period of time, you may be able to reduce the sales charge you pay on investments in Class A by completing a LOI form and committing to invest a certain amount. The LOI must be filed with and accepted in good order by the distributor. The LOI can start at any time and you will have up to 13 months to fulfill your commitment. Existing Rights of Accumulation (ROA) can be included for purposes of meeting your commitment under the LOI. For example, a shareholder currently has $60,000 ROA in the funds. Shareholder completes an LOI to invest $100,000 in the funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in the funds' Class A shares over the next 13 months in order to fulfill the LOI commitment, during which time the shareholder receives reduced front-end sales charge(s) on investments. Your investments during this 13-month period will be charged the sales charge that applies to the amount you have committed to invest under the LOI. A portion of your commitment will be invested in Class A shares and placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow (less any amount necessary to pay sales charges to the extent the LOI commitment was not met, as described below). Once the LOI has ended or your investments entitle you to a lower sale charge than would otherwise be available to you under the LOI, future sales charges will be determined by ROA as described in the prospectus. If you do not invest the commitment amount by the end of the 13-month period, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. The commitment amount does not include purchases in any class of funds other than Class A; does not include any new reinvested dividends and directed dividends earned in any funds during the 13-month period; purchases in funds held within a wrap product; and purchases of money market funds unless they are subsequently exchanged to Class A shares of a fund within the 13-month period. A LOI is not an option (absolute right) to buy shares. If you purchase shares through different channels, for example, in a brokerage account or through a third party, you must inform your financial institution in writing about the LOI when placing any purchase orders during the period of the LOI. If you do not complete and file the LOI form, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. CLASS A SHARES Class A shares may be sold at net asset value to certain persons since such sales require less sales effort and lower sales-related expenses as compared with sales to the general public. If you are eligible to purchase Class A shares without a sales charge, you should inform your financial advisor, financial intermediary or the transfer agent of such eligibility and be prepared to provide proof thereof. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. - participants of "eligible employee benefit plans" including 403(b) plans for which Ameriprise Financial Services, Inc. (Ameriprise Financial Services) serves as broker-dealer, and the school district or group received a written proposal from Ameriprise Financial Services between November 1, 2007 and December 31, 2008 (each a Qualifying 403(b) Plan). In order for participants in one of these 403(b) plans to receive this waiver, at least one participant account of the 403(b) plan must have been funded at Ameriprise Financial Services prior to December 31, 2009. This waiver may be discontinued for any Qualifying 403(b) Plan, in the sole discretion of the distributor, after December 31, 2009. - to separate accounts established and maintained by an insurance company which are exempt from registration under Section 3(c)(11) of the 1940 Act. - plans that (i) own Class B shares of any Seligman fund and (ii) participate in Seligman Growth 401(k) through Ascensus's (formerly BISYS) third party administration platform may, with new contributions, purchase Class A shares at net asset value. Class A shares purchased at net asset value are subject to a CDSC of 1% on shares purchased within 18 months prior to plan termination. Statement of Additional Information - July 30, 2009 Page 73 - to participants in retirement and deferred compensation plans and trusts used to fund those plans, including but not limited to, those defined in Sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code and "rabbi trusts" for which Charles Schwab & Co., Inc. acts as broker dealer. - to participants in plans established at the transfer agent (Seligman funds only) prior to January 7, 2008, the plan had $500,000 or 50 participants when the shares were initially purchased. - to participants in retirement and benefit plans made through financial intermediaries that perform participant recordkeeping or other administrative services for the plans and that have entered into special arrangements as alliance program partners with the funds and/or the distributor specifically for such purchases. - to other investment companies in the RiverSource Family of Funds pursuant to a "fund of funds" arrangement. CLASS B SHARES Class B shares have a CDSC for six years. Class B shares purchased in a RiverSource fund prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased in a Seligman fund on or prior to June 12, 2009 will convert to Class A shares in the month prior to the ninth year of ownership. Class B shares purchased in a RiverSource fund beginning May 21, 2005 and Class B shares purchased in a Seligman fund beginning June 13, 2009 will convert to Class A shares one month after the eighth year of ownership. CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - for shares of Seligman funds in retail retirement plans sold to Merrill to which no sales commission or transaction fee was paid to an authorized financial institution at the time of purchase. - for shares of RiverSource funds held in investment-only accounts (i.e. accounts where Ameriprise Trust Company does not act as the custodian) at Ameriprise Financial Services on behalf of a trust for an employee benefit plan - for shares of RiverSource funds held in IRAs or certain qualified plans, on or prior to June 12, 2009, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans where Ameriprise Trust Company is acting as custodian, provided that the shareholder is: - at least 59 1/2 years old and taking a retirement distribution (if the sale is part of a transfer to an IRA or qualified plan, or a custodian- to-custodian transfer, the CDSC will not be waived) OR - selling under an approved substantially equal periodic payment arrangement. CLASS C SHARES Class C shares are available to all investors. Class C shares are sold without a front-end sales charge. For Class C shares, a 1% CDSC may apply if shares are sold within one year after purchase. Class C shares are subject to a distribution fee. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares: - for shares of RiverSource funds held in investment-only accounts (i.e. accounts where Ameriprise Trust Company does not act as the custodian) at Ameriprise Financial Services on behalf of a trust for an employee benefit plan and for shares of RiverSource funds held in tax-sheltered custodial accounts where Ameriprise Trust Company is the custodian, in cases where the sale is not a full liquidation of the Qualified Plan Account, and in cases where the sale is a full liquidation of a Qualified Plan Account held for the benefit of multiple plan participants, but the full liquidation is not the result of a mutual fund line-up (plan investment option) change or plan termination. CLASS D SHARES Class D shares are offered through wrap fee programs or other investment products. Class D shares are sold without a front-end sales charge or CDSC. Class D shares are subject to a distribution fee. CLASS E SHARES Class E shares are offered to qualifying institutional investors and brokerage accounts. Class E shares are sold without a front-end sales charge or CDSC. Class E shares are subject to a plan administration fee. CLASS I SHARES Class I shares are offered to qualifying institutional investors. Class I shares are sold without a front-end sales charge or CDSC. CLASS R SHARES Class R2, Class R3, Class R4 and Class R5 shares are offered to certain institutional investors. Class R2, Class R3, Class R4 and Class R5 shares are sold without a front-end sales charge or a CDSC. Class R2 and Class R3 shares are subject to a Statement of Additional Information - July 30, 2009 Page 74 distribution fee. Class R2, Class R3 and R4 shares are subject to a plan administration fee. The following investors are eligible to purchase Class R2, Class R3, Class R4 and Class R5 shares: - Qualified employee benefit plans; - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code; - Nonqualified deferred compensation plans; - State sponsored college savings plans established under Section 529 of the Internal Revenue Code; - Health Savings Accounts (HSAs) created pursuant to public law 108-173. Additionally, the following eligible investors may purchase Class R5 shares: - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all RiverSource funds); and - Bank Trusts. CLASS W SHARES Class W shares are offered to qualifying discretionary accounts. Class W shares are sold without a front-end sales charge or CDSC. Class W shares are subject to a distribution fee. CLASS Y SHARES Class Y shares are offered to certain institutional investors. Class Y shares are sold without a front-end sales charge or a CDSC. Class Y shares are subject to a plan administration fee. The following investors are eligible to purchase Class Y shares: - Qualified employee benefit plans; - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code; - Nonqualified deferred compensation plans; and - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. In addition, for Class I, Class R and Class W shares, the distributor, in its sole discretion, may accept investments from other purchasers not listed above. FUND REORGANIZATIONS Class A shares may be issued without an initial sales charge in connection with the acquisition of cash and securities owned by other investment companies. Any CDSC will be waived in connection with the redemption of shares of the fund if the fund is combined with another fund or in connection with a similar reorganization transaction. REJECTION OF BUSINESS Each fund and the distributor of the fund reserve the right to reject any business, in its sole discretion. SELLING SHARES You have a right to sell your shares at any time. For an explanation of sales procedures, please see the applicable prospectus. During an emergency, the Board can suspend the computation of NAV, stop accepting payments for purchase of shares, or suspend the duty of a fund to redeem shares for more than seven days. Such emergency situations would occur if: - The Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or - Disposal of a fund's securities is not reasonably practicable or it is not reasonably practicable for the fund to determine the fair value of its net assets, or, - The SEC, under the provisions of the 1940 Act, declares a period of emergency to exist. Should a fund stop selling shares, the Board may make a deduction from the value of the assets held by the fund to cover the cost of future liquidations of the assets so as to distribute these costs fairly among all shareholders. Statement of Additional Information - July 30, 2009 Page 75 Each RiverSource fund has elected to be governed by Rule 18f-1 under the 1940 Act, which obligates the RiverSource fund to redeem shares in cash, with respect to any one shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the net assets of the fund at the beginning of the period. Although redemptions in excess of this limitation would normally be paid in cash, the RiverSource fund reserves the right to make these payments in whole or in part in securities or other assets in case of an emergency, or if the payment of a redemption in cash would be detrimental to the existing shareholders of the RiverSource fund as determined by the Board. In these circumstances, the securities distributed would be valued as set forth in this SAI. Should a RiverSource fund distribute securities, a shareholder may incur brokerage fees or other transaction costs in converting the securities to cash. PAY-OUT PLANS You can use any of several pay-out plans to redeem your investment in regular installments. If you redeem shares, you may be subject to a contingent deferred sales charge as discussed in the prospectus. While the plans differ on how the pay-out is figured, they all are based on the redemption of your investment. Net investment income dividends and any capital gain distributions will automatically be reinvested, unless you elect to receive them in cash. If you redeem an IRA or a qualified retirement account, certain restrictions, federal tax penalties, and special federal income tax reporting requirements may apply. You should consult your tax advisor about this complex area of the tax law. Applications for a systematic investment in a class of a fund subject to a sales charge normally will not be accepted while a pay-out plan for any of those funds is in effect. Occasional investments, however, may be accepted. To start any of these plans, please consult your financial intermediary. Your authorization must be received at least five days before the date you want your payments to begin. Payments will be made on a monthly, bimonthly, quarterly, semiannual, or annual basis. Your choice is effective until you change or cancel it. Statement of Additional Information - July 30, 2009 Page 76 CAPITAL LOSS CARRYOVER For federal income tax purposes, certain funds had total capital loss carryovers at the end of the most recent fiscal period that, if not offset by subsequent capital gains, will expire as follows. Because the measurement periods for a regulated investment company's income are different for excise tax purposes verses income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the funds are permitted to treat net capital losses realized between November 1 and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. The total capital loss carryovers below include post- October losses, if applicable. It is unlikely that the Board will authorize a distribution of any net realized capital gains until the available capital loss carryover has been offset or has expired except as required by Internal Revenue Service rules. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 11. CAPITAL LOSS CARRYOVER
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2009 IN 2010 IN 2011 IN 2012 IN 2013 IN 2014 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income $ 8,559,573 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income $ 13,065,266 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income $ 19,970,659 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive $ 10,806,229 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative $ 192,230 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate $ 10,391,694 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive $ 13,834,899 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative $ 2,290,537 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity $ 11,256,800 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index $ 5,965,014 $0 $942,797 $0 $0 $2,640,220 $235,890 - ----------------------------------------------------------------------------------------------------------------------------------- Small Company Index $ 22,588,242 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ----------------------------------------------------------------------------------------------------------------------------------- Equity Value $102,840,472 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth $ 46,052,763 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining $ 27,030,083 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage $146,526,808 $0 $ 0 $0 $0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2015 IN 2016 IN 2017 IN 2018 - ------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------ Income Builder Basic Income $ 0 $0 $ 2,942,103 $ 5,617,470 - ------------------------------------------------------------------------------------ Income Builder Enhanced Income $ 0 $0 $ 5,920,892 $ 7,144,374 - ------------------------------------------------------------------------------------ Income Builder Moderate Income $ 0 $0 $ 7,376,558 $ 12,594,101 - ------------------------------------------------------------------------------------ Portfolio Builder Aggressive $ 0 $0 $ 2,936,474 $ 7,869,755 - ------------------------------------------------------------------------------------ Portfolio Builder Conservative $ 0 $0 $ 0 $ 192,230 - ------------------------------------------------------------------------------------ Portfolio Builder Moderate $ 0 $0 $ 7,597,638 $ 2,794,056 - ------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive $ 0 $0 $ 1,997,917 $ 11,836,982 - ------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative $ 0 $0 $ 1,062,939 $ 1,227,598 - ------------------------------------------------------------------------------------ Portfolio Builder Total Equity $ 0 $0 $ 3,787,911 $ 7,468,889 - ------------------------------------------------------------------------------------ S&P 500 Index $66,065 $0 $ 0 $ 2,080,042 - ------------------------------------------------------------------------------------ Small Company Index $ 0 $0 $ 0 $ 22,588,242 - ------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------ Equity Value $ 0 $0 $25,779,763 $ 77,060,709 - ------------------------------------------------------------------------------------ Partners Small Cap Growth $ 0 $0 $12,606,381 $ 33,446,382 - ------------------------------------------------------------------------------------ Precious Metals and Mining $ 0 $0 $16,291,615 $ 10,738,468 - ------------------------------------------------------------------------------------ Small Cap Advantage $ 0 $0 $26,058,315 $120,468,493 - ------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 77
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2009 IN 2010 IN 2011 IN 2012 IN 2013 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity $ 8,822,619 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Recovery and Infrastructure $ 0 -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 $ 2,839,371 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 $ 3,165,812 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 $ 4,016,808 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 $ 3,000,254 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 $ 1,777,786 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 $ 900,438 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 $ 622,124 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 $ 301,915 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------ High Yield Bond $1,283,661,310 $0 $517,121,802 $552,664,309 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Partners Aggressive Growth $ 528,390,106 $0 $315,348,050 $23,741,111 $27,111,944 $0 - ------------------------------------------------------------------------------------------------------------------------ Partners Fundamental Value $ 100,708,798 $0 $0 $0 -- -- - ------------------------------------------------------------------------------------------------------------------------ Partners Select Value $ 111,922,284 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Equity $ 65,709,663 $0 $7,164,740 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Value $ 93,886,708 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ Short Duration U.S. Government $ 88,365,852 $0 $0 $0 $0 $36,267,962 - ------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage $ 13,435,568 $0 $0 $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------ TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity $ 343,927,468 $0 $0 $0 $343,927,468 $0 - ------------------------------------------------------------------------------------------------------------------------ Real Estate $ 0 -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------ AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2014 IN 2015 IN 2016 IN 2017 IN 2018 - --------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - --------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity $0 $0 $0 $3,090,734 $5,731,885 - --------------------------------------------------------------------------------------------------- Recovery and Infrastructure -- -- -- -- -- - --------------------------------------------------------------------------------------------------- Retirement Plus 2010 $0 $0 $0 $428,181 $2,411,190 - --------------------------------------------------------------------------------------------------- Retirement Plus 2015 $0 $0 $0 $704,342 $2,461,470 - --------------------------------------------------------------------------------------------------- Retirement Plus 2020 $0 $0 $0 $502,050 $3,514,758 - --------------------------------------------------------------------------------------------------- Retirement Plus 2025 $0 $0 $0 $662,473 $2,337,781 - --------------------------------------------------------------------------------------------------- Retirement Plus 2030 $0 $0 $0 $623,604 $1,154,182 - --------------------------------------------------------------------------------------------------- Retirement Plus 2035 $0 $0 $0 $312,553 $587,885 - --------------------------------------------------------------------------------------------------- Retirement Plus 2040 $0 $0 $0 $370,260 $251,864 - --------------------------------------------------------------------------------------------------- Retirement Plus 2045 $0 $0 $0 $84,212 $217,703 - --------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - --------------------------------------------------------------------------------------------------- High Yield Bond $19,078,058 $0 $6,050,907 $110,841,094 $77,905,140 - --------------------------------------------------------------------------------------------------- Partners Aggressive Growth $0 $0 $0 $54,181,922 $108,007,079 - --------------------------------------------------------------------------------------------------- Partners Fundamental Value -- -- -- $26,053,833 $74,654,965 - --------------------------------------------------------------------------------------------------- Partners Select Value $0 $0 $0 $34,137,314 $77,784,970 - --------------------------------------------------------------------------------------------------- Partners Small Cap Equity $0 $0 $0 $15,394,778 $43,150,145 - --------------------------------------------------------------------------------------------------- Partners Small Cap Value $0 $0 $0 $20,926,946 $72,959,762 - --------------------------------------------------------------------------------------------------- Short Duration U.S. Government $20,469,230 $9,579,187 $0 $3,846,817 $18,202,656 - --------------------------------------------------------------------------------------------------- U.S. Government Mortgage $0 $0 $0 $410,120 $13,025,448 - --------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017 - --------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - --------------------------------------------------------------------------------------------------- Dividend Opportunity $0 $0 $0 $0 $0 - --------------------------------------------------------------------------------------------------- Real Estate -- -- -- -- -- - ---------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 78
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------- Cash Management $ 8,101,462 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Equity $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity $ 17,293,096 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value $ 3,831,834 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Floating Rate $ 17,326,421 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Growth $202,027,584 $ 0 $ 0 $ 0 $178,158,939 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Income Opportunities $ 12,433,543 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Large Cap Equity $235,009,471 $ 0 $60,717,128 $ 20,982,455 $ 9,473,267 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Large Cap Value $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond $ 2,491,213 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt $ 1,415,210 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Diversified Bond $125,823,517 $ 0 $56,247,571 $ 49,658,521 $ 0 $ 5,227,159 - -------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt $ 2,765,793 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt $ 102,852 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Balanced $718,823,723 $ 0 $ 0 $294,910,142 $368,676,980 $24,886,878 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth $ 5,736,409 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value $ 24,253 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Value $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Strategic Allocation $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation $ 11,089 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017 - ------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------- Cash Management $ 0 $ 0 $ 0 $ 6,554 $ 8,094,908 - ------------------------------------------------------------------------------------------------------- Disciplined Equity -- -- -- -- -- - ------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity $ 0 $ 93,125 $ 21,904 $2,186,828 $ 14,991,239 - ------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value $ 0 $ 0 $ 0 $ 554,680 $ 3,277,154 - ------------------------------------------------------------------------------------------------------- Floating Rate $ 0 $ 0 $ 33,562 $3,488,601 $ 13,804,258 - ------------------------------------------------------------------------------------------------------- Growth $ 0 $ 0 $ 0 $ 0 $ 23,868,645 - ------------------------------------------------------------------------------------------------------- Income Opportunities $ 0 $ 0 $ 0 $1,946,556 $ 10,486,987 - ------------------------------------------------------------------------------------------------------- Inflation Protected Securities -- -- -- -- -- - ------------------------------------------------------------------------------------------------------- Large Cap Equity $ 0 $ 0 $ 0 $ 0 $143,836,621 - ------------------------------------------------------------------------------------------------------- Large Cap Value -- -- -- -- -- - ------------------------------------------------------------------------------------------------------- Limited Duration Bond $ 0 $ 0 $2,205,797 $ 0 $ 285,416 - ------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------- California Tax-Exempt $ 0 $ 0 $ 0 $ 359,905 $ 1,055,305 - ------------------------------------------------------------------------------------------------------- Diversified Bond $2,996,287 $9,840,520 $ 0 $ 0 $ 1,853,459 - ------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt $1,199,755 $ 913,006 $ 3,601 $ 0 $ 649,431 - ------------------------------------------------------------------------------------------------------- New York Tax-Exempt $ 0 $ 0 $ 0 $ 3,668 $ 99,184 - ------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------- Balanced $ 0 $ 0 $ 0 $ 0 $ 30,349,723 - ------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth $ 0 $ 0 $ 0 $ 0 $ 5,736,409 - ------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value $ 0 $ 0 $ 0 $ 24,253 $ 0 - ------------------------------------------------------------------------------------------------------- Diversified Equity Income -- -- -- -- -- - ------------------------------------------------------------------------------------------------------- Mid Cap Value -- -- -- -- -- - ------------------------------------------------------------------------------------------------------- Strategic Allocation -- -- -- -- -- - ------------------------------------------------------------------------------------------------------- Strategic Income Allocation $ 0 $ 0 $ 0 $ 0 $ 11,089 - -------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 79
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity $ 23,521,188 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond $ 2,399,388 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Global Bond $ 6,492,562 $ 0 $ 0 $ 3,665,053 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Global Technology $348,953,680 $ 0 $250,345,326 $ 81,299,227 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth $ 57,544,459 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Partners International Select Value $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap $ 16,740,416 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets $ 8,838,403 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity $ 45,298,067 $ 0 $ 19,489,378 $ 16,514,518 $ 5,021,215 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity $404,243,287 $ 0 $170,490,067 $143,634,885 $30,509,951 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income $ 182,867 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha $ 577,229 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity $246,866,293 $ 0 $137,301,860 $ 59,231,998 $38,262,972 $ 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 538,998 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth $ 21,448,607 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond $ 9,775,831 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income $ 30,950,938 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market $ 675 $ 0 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017 - ------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income -- -- -- -- -- - ------------------------------------------------------------------------------------------------------- Disciplined International Equity $ 0 $ 0 $ 0 $23,521,188 $ 0 - ------------------------------------------------------------------------------------------------------- Emerging Markets Bond $ 0 $ 0 $ 0 $ 2,399,388 $ 0 - ------------------------------------------------------------------------------------------------------- Global Bond $ 0 $498,771 $ 0 $ 2,328,738 $ 0 - ------------------------------------------------------------------------------------------------------- Global Technology $ 0 $ 0 $ 0 $17,309,127 $ 0 - ------------------------------------------------------------------------------------------------------- Partners International Select Growth $ 0 $ 0 $ 0 $57,544,459 $ 0 - ------------------------------------------------------------------------------------------------------- Partners International Select Value -- -- -- -- -- - ------------------------------------------------------------------------------------------------------- Partners International Small Cap $ 0 $ 0 $ 0 $16,740,416 $ 0 - ------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets $ 0 $ 0 $ 0 $ 8,838,403 $ 0 - ------------------------------------------------------------------------------------------------------- Threadneedle European Equity $ 0 $ 0 $ 0 $ 4,272,956 $ 0 - ------------------------------------------------------------------------------------------------------- Threadneedle Global Equity $ 0 $ 0 $ 0 $59,608,384 $ 0 - ------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income $ 0 $ 0 $ 0 $ 182,867 $ 0 - ------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha $ 0 $ 0 $ 0 $ 577,229 $ 0 - ------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity $ 0 $ 0 $ 0 $12,069,463 $ 0 - ------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 0 $177,580 $ 0 $ 361,418 $ 0 - ------------------------------------------------------------------------------------------------------- Mid Cap Growth $ 0 $ 0 $ 0 $21,448,607 $ 0 - ------------------------------------------------------------------------------------------------------- Tax-Exempt Bond $ 0 $729,270 $ 0 $ 9,046,561 $ 0 - ------------------------------------------------------------------------------------------------------- Tax-Exempt High Income $ 0 $ 0 $ 0 $30,950,938 $ 0 - ------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market $675 $ 0 $ 0 $ 0 $ 0 - -------------------------------------------------------------------------------------------------------
TAXES SUBCHAPTER M COMPLIANCE Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code as a regulated investment company. Each fund intends to maintain its qualification as a regulated investment company by meeting certain requirements relating to distributions, source of income, and asset diversification. Distribution requirements include distributing at least 90% of the fund's investment company taxable income (which includes net short-term capital gains) and tax-exempt ordinary income to fund shareholders each taxable year. The source of income rules require that at least 90% of the fund's gross income be derived from dividends, interest, certain payments with respect to securities loans, gain from the sale or other disposition of Statement of Additional Information - July 30, 2009 Page 80 stock, securities or foreign currencies (subject to certain limitations), and certain other income derived with respect to its business of investing in stock, securities or currencies, and net income from certain interests in qualified publicly traded partnerships. Asset diversification requirements are met when the fund owns, at the end of each quarter of its taxable year, a portfolio, 50% of which includes cash and cash items, U.S. government securities, securities of other regulated investment companies and, securities of other issuers in which the fund has not invested more than 5% of the value of the fund's assets (or 10% of the value of the outstanding voting securities of any one issuer). Also, no more than 25% of the fund's assets may be invested in the securities of any one issuer or two or more issuers which the fund controls and which are engaged in the same or similar trades or businesses (excepting U.S. government securities and securities of other regulated investment companies) or the securities of one or more qualified publicly traded partnerships. This is a simplified description of the relevant laws. If the fund fails to qualify as a regulated investment company under Subchapter M, the fund would be taxed as a corporation on the entire amount of its taxable income (including its capital gain) without a dividends paid deduction. Also, "all of" a shareholder's distributions would generally be taxable to shareholders as qualified dividend income (QDI) (or could be treated as a return of capital, if there weren't sufficient earnings and profits) and generally would be eligible for the dividends received deduction in the case of corporate shareholders. Under federal tax law, by the end of a calendar year a fund must declare and pay dividends representing 98% of ordinary income for that calendar year and 98% of net capital gains (both long-term and short-term) for the 12-month period ending Oct. 31 of that calendar year. The fund is subject to an excise tax equal to 4% of the excess, if any, of the amount required to be distributed over the amount actually distributed. Each fund intends to comply with federal tax law and avoid any excise tax. For purposes of the excise tax distributions, section 988 ordinary gains and losses are distributable based on an Oct. 31 year end. This is an exception to the general rule that ordinary income is paid based on a calendar year end. The fund intends to distribute sufficient dividends within each calendar year, as well as on a fiscal year basis, to avoid income and excise taxes. A fund may be subject to U.S. taxes resulting from holdings in passive foreign investment companies (PFIC). To avoid unfavorable tax consequences, a fund may make an election to mark to market its PFIC investments. A foreign corporation is a PFIC when 75% or more of its gross income for the taxable year is passive income or 50% or more of the average value of its assets consists of assets that produce or could produce passive income. Income earned by a fund may have had foreign taxes imposed and withheld on it in foreign countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of a fund's total assets at the close of its fiscal year consists of securities of foreign corporations, the fund will be eligible to file an election with the Internal Revenue Service (IRS) under which shareholders of the fund would be required to include their pro rata portions of foreign taxes withheld by foreign countries as gross income in their federal income tax returns. These pro rata portions of foreign taxes withheld may be taken as a credit or deduction in computing the shareholders' federal income taxes. If the election is filed, the fund will report to its shareholders the per share amount of such foreign taxes withheld and the amount of foreign tax credit or deduction available for federal income tax purposes. A fund may use equalization payments to satisfy its requirement to make distributions of net investment income and capital gain net income. Equalization payments occur when a fund allocates a portion of its net investment income and realized capital gain net income to redemptions of fund shares. These payments reduce the amount of taxable distributions paid to shareholders. The IRS has not issued any guidance concerning the methods used to allocate investment income and capital gain to redemptions of shares. If the IRS determines that a fund is using an improper method of allocation for these purposes, the fund may be liable for additional federal income tax. This is a brief summary that relates to federal income taxation only. Shareholders should consult their tax advisor as to the application of federal, state, and local income tax laws to fund distributions. See Appendix B for more information regarding state tax-exempt funds. EXCHANGES, PURCHASES AND SALES For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. If you sell shares for less than their cost, the difference is a capital loss. If you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held more than one year). Capital gain of a non-corporate U.S. shareholder that is recognized in a taxable year beginning before January 1, 2011 is generally taxed at a maximum rate of 15% in respect of shares held for more than one year. Net capital gain of a corporate shareholder is taxed at the same rate as ordinary income. However, if shares on which a long-term capital gain distribution Statement of Additional Information - July 30, 2009 Page 81 has been received are subsequently sold or redeemed and such shares have been held for six months or less (after taking into account certain hedging transactions), any loss realized will be treated as long-term capital loss to the extent that it does not exceed the long-term capital gain distribution. A capital loss on a sale or redemption of a security in a nonqualified account may be disallowed for tax purposes if the same or a substantially identical security is purchased or acquired (including shares acquired through dividend reinvestment) within 30 days before or after the date of the loss transaction. This is called a wash sale. When a wash sale occurs, the loss is disallowed to the extent of shares repurchased, and the cost basis on the security acquired is increased by the amount of the loss that is disallowed. The loss is disallowed in a nonqualified account whether the purchase is in a nonqualified account or in an IRA or Roth IRA, however, an individual's cost basis in an IRA or Roth IRA is not increased due to the wash sale rules. The wash sale rules apply only to capital losses. Sales of securities that result in capital gains are generally recognized when incurred. If you buy Class A shares and within 91 days exchange into another fund, you may not include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. FOR EXAMPLE You purchase 100 shares of an equity fund having a public offering price of $10.00 per share. With a sales load of 5.75%, you pay $57.50 in sales load. With a NAV of $9.425 per share, the value of your investment is $942.50. Within 91 days of purchasing that fund, you decide to exchange out of that fund, now at a NAV of $11.00 per share, up from the original NAV of $9.425, and purchase a second fund, at a NAV of $15.00 per share. The value of your investment is now $1,100.00 ($11.00 x 100 shares). You cannot use the $57.50 paid as a sales load when calculating your tax gain or loss in the sale of the first fund shares. So instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a $157.50 gain ($1,100.00 - $942.50). You can include the $57.50 sales load in the calculation of your tax gain or loss when you sell shares in the second fund. The following paragraphs provide information based on a fund's investment category. You can find your fund's investment category in Table 1. FOR STATE TAX-EXEMPT FIXED INCOME AND TAX-EXEMPT FIXED INCOME FUNDS, all distributions of net investment income during the fund's fiscal year will have the same percentage designated as tax-exempt. This percentage is expected to be substantially the same as the percentage of tax-exempt income actually earned during any particular distribution period. FOR BALANCED, EQUITY, FUNDS-OF-FUNDS, TAXABLE MONEY MARKET AND TAXABLE FIXED INCOME FUNDS, if you have a nonqualified investment in a fund and you wish to move part or all of those shares to an IRA or qualified retirement account in the fund, you can do so without paying a sales charge. However, this type of exchange is considered a redemption of shares and may result in a gain or loss for tax purposes. See wash sale discussion above. In addition, this type of exchange may result in an excess contribution under IRA or qualified plan regulations if the amount exchanged exceeds annual contribution limitations. You should consult your tax advisor for further details about this complex subject. DISTRIBUTIONS DIVIDENDS Net investment income dividends (other than qualified dividend income) received and distributions from the excess of net short-term capital gains over net long- term capital losses should be treated as ordinary income for federal income tax purposes. Corporate shareholders are generally entitled to a deduction equal to 70% of that portion of a fund's dividend that is attributable to dividends the fund received from domestic (U.S.) securities. If there is debt-financed portfolio stock, that is, bank financing is used to purchase long securities, the 70% dividends received deduction would be reduced by the average amount of portfolio indebtedness divided by the average adjusted basis in the stock. This does not impact the qualified dividend income available to individual shareholders. For the most recent fiscal period, net investment income dividends qualified for the corporate deduction are shown in the following table. Only certain QDI will be subject to the 15% and 0% (for lower-bracket taxpayers) tax rates for 2008-2010. QDI is dividends earned from domestic corporations and qualified foreign corporations. Qualified foreign corporations are corporations incorporated in a U.S. possession, corporations whose stock is readily tradable on an established U.S. securities market (ADRs), and certain other corporations eligible for relief under an income tax treaty with the U.S. that includes an exchange of information agreement. PFICs are excluded from this treatment. Holding periods for shares must also be met to be eligible for QDI treatment (more than 60 days for common stock and more than 90 days for certain preferred's dividends). Dividends declared in October, November or December, payable to shareholders of record on a specified date in such a month and paid in the following January will be treated as having been paid by a fund and received by each shareholder in Statement of Additional Information - July 30, 2009 Page 82 December. Under this rule, therefore, shareholders may be taxed in one year on dividends or distributions actually received in January of the following year. The QDI for individuals for the most recent fiscal period is shown in the table below. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 12. CORPORATE DEDUCTION AND QUALIFIED DIVIDEND INCOME
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------- Income Builder Basic Income 13.39% 15.15% - -------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 10.32 14.00 - -------------------------------------------------------------------------------------------------- Income Builder Moderate Income 14.02 16.58 - -------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 36.36 52.12 - -------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 5.23 7.20 - -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 12.95 18.45 - -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 20.91 29.91 - -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 8.87 12.44 - -------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 69.21 99.47 - -------------------------------------------------------------------------------------------------- S&P 500 Index 100.00 100.00 - -------------------------------------------------------------------------------------------------- Small Company Index 100.00 100.00 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------- Equity Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Partners Small Cap Growth 0 0 - -------------------------------------------------------------------------------------------------- Precious Metals and Mining 1.27 7.08 - -------------------------------------------------------------------------------------------------- Small Cap Advantage 0 0 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 0 0 - -------------------------------------------------------------------------------------------------- Recovery and Infrastructure 0 0 - -------------------------------------------------------------------------------------------------- Retirement Plus 2010 24.54 35.75 - -------------------------------------------------------------------------------------------------- Retirement Plus 2015 31.08 46.03 - -------------------------------------------------------------------------------------------------- Retirement Plus 2020 34.11 56.35 - -------------------------------------------------------------------------------------------------- Retirement Plus 2025 0 0 - -------------------------------------------------------------------------------------------------- Retirement Plus 2030 37.40 63.51 - -------------------------------------------------------------------------------------------------- Retirement Plus 2035 37.91 63.80 - -------------------------------------------------------------------------------------------------- Retirement Plus 2040 100.00 100.00 - -------------------------------------------------------------------------------------------------- Retirement Plus 2045 38.94 64.17 - --------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 83
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------- High Yield Bond 0% 0% - -------------------------------------------------------------------------------------------------- Partners Aggressive Growth 0 0 - -------------------------------------------------------------------------------------------------- Partners Fundamental Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Partners Select Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Partners Small Cap Equity 0 0 - -------------------------------------------------------------------------------------------------- Partners Small Cap Value 0 0 - -------------------------------------------------------------------------------------------------- Short Duration U.S. Government 0 0 - -------------------------------------------------------------------------------------------------- U.S. Government Mortgage 0 0 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------- Dividend Opportunity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Real Estate 1.69 15.81 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------- Cash Management 0 0 - -------------------------------------------------------------------------------------------------- Disciplined Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Floating Rate 0 0 - -------------------------------------------------------------------------------------------------- Growth 100.00 100.00 - -------------------------------------------------------------------------------------------------- Income Opportunities 0 0 - -------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 0 - -------------------------------------------------------------------------------------------------- Large Cap Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Large Cap Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Limited Duration Bond 0 0 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------- California Tax-Exempt 0 0 - -------------------------------------------------------------------------------------------------- Diversified Bond 0 0 - -------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 0 0 - -------------------------------------------------------------------------------------------------- New York Tax-Exempt 0 0 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------- Balanced 60.12 64.58 - -------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 100.00 100.00 - -------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0 0 - -------------------------------------------------------------------------------------------------- Diversified Equity Income 100.00 100.00 - -------------------------------------------------------------------------------------------------- Mid Cap Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Strategic Allocation 52.43 76.74 - -------------------------------------------------------------------------------------------------- Strategic Income Allocation 4.53 3.90 - --------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 84
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0% 0% - -------------------------------------------------------------------------------------------------- Disciplined International Equity 0.54 100.00 - -------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 - -------------------------------------------------------------------------------------------------- Global Bond 0 0 - -------------------------------------------------------------------------------------------------- Global Technology 0 0 - -------------------------------------------------------------------------------------------------- Partners International Select Growth 6.48 100.00 - -------------------------------------------------------------------------------------------------- Partners International Select Value 0 0 - -------------------------------------------------------------------------------------------------- Partners International Small Cap 0 0 - -------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 0 - -------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 100.00 - -------------------------------------------------------------------------------------------------- Threadneedle Global Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 100.00 100.00 - -------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 0 0 - -------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 100.00 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 0 0 - -------------------------------------------------------------------------------------------------- Mid Cap Growth 25.80 25.95 - -------------------------------------------------------------------------------------------------- Tax-Exempt Bond 0 0 - -------------------------------------------------------------------------------------------------- Tax-Exempt High Income 0 0 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 0 0 - --------------------------------------------------------------------------------------------------
CAPITAL GAINS DISTRIBUTIONS Capital gain distributions, if any, received by shareholders (in cash or invested in additional shares) should be treated as long-term capital gains regardless of how long shareholders owned their shares. Short-term capital gains earned by a fund are paid to shareholders as part of their ordinary income dividend and are taxable as ordinary income. Special rates on capital gains may apply to sales of precious metals, if any, owned directly by a fund and to investments in REITs. Individual shareholders will be subject to federal income tax on distributions of net capital gains generally at a maximum rate of 15% if designated as derived from a fund's capital gains from property held for more than one year and recognized in the taxable years beginning before January 1, 2011. Net capital gain of a corporate shareholder is taxed at the same rate as ordinary income. Such distributions are not eligible for the dividends received deduction allowed to corporate shareholders. Shareholders receiving distributions in the form of additional shares issued by a fund will generally be treated for federal income tax purposes as having received a distribution in an amount equal to the cash that could have been elected to be received instead of the additional shares. Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable to fluctuations in exchange rates that occur between the time a fund accrues interest or other receivables, or accrues expenses or other liabilities denominated in a foreign currency and the time the fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, gains or losses on disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of disposition may be treated as ordinary or capital gains or losses. These gains or losses, referred to under the Code as "section 988" gains or losses, may increase or decrease the amount of a fund's investment company taxable income to be distributed to its shareholders as ordinary income. RETURN OF CAPITAL If a mutual fund is the holder of record of any share of stock on the record date for any dividend payable with respect to the stock, the dividend will be included in gross income by the fund as of the later of (1) the date the share became ex-dividend or (2) the date the fund acquired the share. Because the dividends on some foreign equity investments may be received some Statement of Additional Information - July 30, 2009 Page 85 time after the stock goes ex-dividend, and in certain rare cases may never be received by the fund, this rule may cause a fund to pay income to its shareholders that it has not actually received. To the extent that the dividend is never received, the fund will take a loss at the time that a determination is made that the dividend will not be received. If a fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to its shareholders. A return of capital is a return of a portion of the shareholder's original investment. A return of capital will generally not be taxable, however, any amounts received in excess of a shareholder's tax basis are treated as capital gain. Forms 1099 will be sent to shareholders to report any return of capital. WITHHOLDING Unless a shareholder provides a certified taxpayer identification number (social security number for individuals) on the account application or other document and certifies that the shareholder is not subject to backup withholding, the fund is required to withhold and remit to the IRS 28% backup withholding on taxable and exempt-interest dividends and redemptions. Shareholders should be aware that, under regulations promulgated by the IRS, a fund may be fined for each account for which a certified taxpayer identification number (social security number for individuals) is not provided. Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder") depends on whether the income from the fund is "effectively connected" with a U.S. trade or business carried on by such shareholder. If the income from the fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, ordinary income and qualified dividends paid to such foreign shareholders generally will be subject to a 30% U.S. withholding tax under existing provisions of the Internal Revenue Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty or law. Nonresident shareholders are urged to consult their own tax advisers concerning the applicability of the U.S. withholding tax. If the income from the fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, qualified dividends, capital gain dividends, undistributed capital gains credited to such shareholder and any gains realized upon the sale of shares of the fund will be subject to U.S. federal income tax at the graduated rates applicable to U.S. citizens or domestic corporations. In the case of foreign non-corporate shareholders, the fund may be required to backup withhold U.S. federal income tax on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the fund with proper documentation related to their foreign status. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the fund, the procedure for claiming the benefit of a lower treaty rate and the applicability of foreign taxes. SERVICE PROVIDERS INVESTMENT MANAGEMENT SERVICES RiverSource Investments is the investment manager for each fund. Under the Investment Management Services Agreements, the investment manager, subject to the policies set by the Board, provides investment management services. For its services, the investment manager is paid a monthly fee based on the following schedule. Each class of a fund pays its proportionate share of the fee. The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding day. TABLE 13. INVESTMENT MANAGEMENT SERVICES AGREEMENT FEE SCHEDULE
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity First $0.25 0.950% 0.950% Next 0.25 0.930 Next 0.50 0.910 Over 1.0 0.890 - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 86
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income First 1.0 0.890% 0.890% Next 1.0 0.865 Next 1.0 0.840 Next 3.0 0.815 Next 1.5 0.790 Next 1.5 0.775 Next 1.0 0.770 Next 5.0 0.760 Next 5.0 0.750 Next 4.0 0.740 Next 26.0 0.720 Over 50.0 0.700 - ------------------------------------------------------------------------------------------------------------------------------- Balanced First 1.0 0.530 0.530% Next 1.0 0.505 Next 1.0 0.480 Next 3.0 0.455 Next 1.5 0.430 Next 2.5 0.410 Next 5.0 0.390 Next 9.0 0.370 Over 24.0 0.350 - ------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt First 0.25 0.410 California - 0.410% Minnesota Tax-Exempt Next 0.25 0.385 Minnesota - 0.405% New York Tax-Exempt Next 0.25 0.360 New York - 0.410% Next 0.25 0.345 Next 6.5 0.320 Next 2.5 0.310 Next 5.0 0.300 Next 9.0 0.290 Next 26.0 0.270 Over 50.0 0.250 - ------------------------------------------------------------------------------------------------------------------------------- Cash Management First $1.0 0.330 0.285% Next 0.5 0.313 Next 0.5 0.295 Next 0.5 0.278 Next 2.5 0.260 Next 1.0 0.240 Next 1.5 0.220 Next 1.5 0.215 Next 1.0 0.190 Next 5.0 0.180 Next 5.0 0.170 Next 4.0 0.160 Over 24.0 0.150 - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 87
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity First 1.0 0.600% Disciplined Equity - 0.575% Disciplined Large Cap Growth Next 1.0 0.575 Disciplined Large Cap Growth - 0.600% Disciplined Large Cap Value Next 1.0 0.550 Disciplined Large Cap Value - 0.600% Diversified Equity Income Next 3.0 0.525 Diversified Equity Income - 0.551% Growth Next 1.5 0.500 Growth - 0.584% Large Cap Equity Next 2.5 0.485 Large Cap Equity - 0.562% Large Cap Value Next 5.0 0.470 Large Cap Value - 0.600% Next 5.0 0.450 Next 4.0 0.425 Next 26.0 0.400 Over 50.0 0.375 - ------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity First 0.25 0.800 Disciplined International Equity - 0.790% Threadneedle European Equity Next 0.25 0.775 Threadneedle European Equity - 0.800% Threadneedle Global Equity Next 0.25 0.750 Threadneedle Global Equity - 0.789% Threadneedle Global Equity Income Next 0.25 0.725 Threadneedle Global Equity Income - 0.800% Threadneedle International Opportunity Next 1.0 0.700 Threadneedle International Opportunity - 0.793% Next 5.5 0.675 Next 2.5 0.660 Next 5.0 0.645 Next 5.0 0.635 Next 4.0 0.610 Next 26.0 0.600 Over 50.0 0.570 - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity First 1.0 0.700 Disciplined Small and Mid Cap Mid Cap Growth Next 1.0 0.675 Equity - 0.700% Next 1.0 0.650 Mid Cap Growth - 0.700% Next 3.0 0.625 Next 1.5 0.600 Next 2.5 0.575 Next 5.0 0.550 Next 9.0 0.525 Next 26.0 0.500 Over 50.0 0.475 - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value First 0.25 0.850 0.850% Next 0.25 0.825 Next 0.25 0.800 Next 0.25 0.775 Next 1.0 0.750 Over 2.0 0.725 - ------------------------------------------------------------------------------------------------------------------------------- Diversified Bond First $1.0 0.480 Diversified Bond - 0.446% Limited Duration Bond Next 1.0 0.455 Limited Duration Bond - 0.480% Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.360 Next 5.0 0.350 Next 5.0 0.340 Next 4.0 0.330 Next 26.0 0.310 Over 50.0 0.290 - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 88
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity First 0.50 0.610% 0.584% Next 0.50 0.585 Next 1.0 0.560 Next 1.0 0.535 Next 3.0 0.510 Next 4.0 0.480 Next 5.0 0.470 Next 5.0 0.450 Next 4.0 0.425 Next 26.0 0.400 Over 50.0 0.375 - ------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond First 0.25 0.720 Emerging Markets Bond - 0.720% Global Bond Next 0.25 0.695 Global Bond - 0.699% Next 0.25 0.670 Next 0.25 0.645 Next 6.5 0.620 Next 2.5 0.605 Next 5.0 0.590 Next 5.0 0.580 Next 4.0 0.560 Next 26.0 0.540 Over 50.0 0.520 - ------------------------------------------------------------------------------------------------------------------------------- Equity Value First 0.50 0.530 0.530% Next 0.50 0.505 Next 1.0 0.480 Next 1.0 0.455 Next 3.0 0.430 Over 6.0 0.400 - ------------------------------------------------------------------------------------------------------------------------------- Floating Rate First 1.0 0.610 0.610% Income Opportunities Next 1.0 0.585 Next 1.0 0.560 Next 3.0 0.535 Next 1.5 0.510 Next 1.5 0.495 Next 1.0 0.470 Next 5.0 0.455 Next 5.0 0.445 Next 4.0 0.420 Next 26.0 0.405 Over 50.0 0.380 - ------------------------------------------------------------------------------------------------------------------------------- Global Technology First $0.25 0.720 0.720% Next 0.25 0.695 Next 0.25 0.670 Next 0.25 0.645 Next 1.0 0.620 Over 2.0 0.595 - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 89
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------- High Yield Bond First 1.0 0.590% 0.586% Next 1.0 0.565 Next 1.0 0.540 Next 3.0 0.515 Next 1.5 0.490 Next 1.5 0.475 Next 1.0 0.450 Next 5.0 0.435 Next 5.0 0.425 Next 4.0 0.400 Next 26.0 0.385 Over 50.0 0.360 - ------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A Income Builder Enhanced Income Income Builder Moderate Income Portfolio Builder Aggressive Portfolio Builder Conservative Portfolio Builder Moderate Portfolio Builder Moderate Aggressive Portfolio Builder Moderate Conservative Portfolio Builder Total Equity Retirement Plus 2010 Retirement Plus 2015 Retirement Plus 2020 Retirement Plus 2025 Retirement Plus 2030 Retirement Plus 2035 Retirement Plus 2040 Retirement Plus 2045 - ------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities First 1.0 0.440 0.440% Next 1.0 0.415 Next 1.0 0.390 Next 3.0 0.365 Next 1.5 0.340 Next 1.5 0.325 Next 1.0 0.320 Next 5.0 0.310 Next 5.0 0.300 Next 4.0 0.290 Next 26.0 0.270 Over 50.0 0.250 - ------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt First $1.0 0.390 0.390% Next 1.0 0.365 Next 1.0 0.340 Next 3.0 0.315 Next 1.5 0.290 Next 2.5 0.280 Next 5.0 0.270 Next 35.0 0.260 Over 50.0 0.250 - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 90
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value First 1.0 0.700% 0.682% Next 1.0 0.675 Next 1.0 0.650 Next 3.0 0.625 Next 1.5 0.600 Next 2.5 0.575 Next 5.0 0.550 Next 9.0 0.525 Next 26.0 0.500 Over 50.0 0.475 - ------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth First 0.50 0.890 0.890% Next 0.50 0.865 Next 1.0 0.840 Next 1.0 0.815 Next 3.0 0.790 Over 6.0 0.765 - ------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value First 0.50 0.730 0.728% Next 0.50 0.705 Next 1.0 0.680 Next 1.0 0.655 Next 3.0 0.630 Over 6.0 0.600 - ------------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth First 0.25 1.000 0.992% Next 0.25 0.975 Next 0.25 0.950 Next 0.25 0.925 Next 1.0 0.900 Over 2.0 0.875 - ------------------------------------------------------------------------------------------------------------------------------- Partners International Select Value First 0.25 0.900 0.868% Next 0.25 0.875 Next 0.25 0.850 Next 0.25 0.825 Next 1.0 0.800 Over 2.0 0.775 - ------------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap First 0.25 1.120 1.120% Next 0.25 1.095 Next 0.25 1.070 Next 0.25 1.045 Next 1.0 1.020 Over 2.0 0.995 - ------------------------------------------------------------------------------------------------------------------------------- Partners Select Value First $0.50 0.780 0.780% Next 0.50 0.755 Next 1.0 0.730 Next 1.0 0.705 Next 3.0 0.680 Over 6.0 0.650 - ------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity First 0.25 0.970 0.970% Next 0.25 0.945 Next 0.25 0.920 Next 0.25 0.895 Over 1.0 0.870 - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 91
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth First 0.25 0.920% 0.920% Next 0.25 0.895 Next 0.25 0.870 Next 0.25 0.845 Next 1.0 0.820 Over 2.0 0.795 - ------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value First 0.25 0.970 0.965% Next 0.25 0.945 Next 0.25 0.920 Next 0.25 0.895 Over 1.0 0.870 - ------------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining First 0.25 0.800 0.800% Next 0.25 0.775 Next 0.25 0.750 Next 0.25 0.725 Next 1.0 0.700 Over 2.0 0.675 - ------------------------------------------------------------------------------------------------------------------------------- Real Estate First 1.0 0.840 0.840% Next 1.0 0.815 Next 1.0 0.790 Next 3.0 0.765 Next 6.0 0.740 Next 12.0 0.730 Over 24.0 0.720 - ------------------------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure First 1.0 0.650 0.650% Next 1.0 0.600 Next 4.0 0.550 Over 6.0 0.500 - ------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index First 1.0 0.220 0.220% Next 1.0 0.210 Next 1.0 0.200 Next 4.5 0.190 Next 2.5 0.180 Next 5.0 0.170 Next 9.0 0.160 Next 26.0 0.140 Over 50.0 0.120 - ------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government First $1.0 0.480 0.480% Next 1.0 0.455 Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.340 Next 5.0 0.325 Next 5.0 0.315 Next 4.0 0.290 Next 26.0 0.275 Over 50.0 0.250 - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 92
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage First 0.25 0.790% 0.790% Next 0.25 0.765 Next 0.25 0.740 Next 0.25 0.715 Next 1.0 0.690 Over 2.0 0.665 - ------------------------------------------------------------------------------------------------------------------------------- Small Company Index First 0.25 0.360 0.357% Next 0.25 0.350 Next 0.25 0.340 Next 0.25 0.330 Next 6.5 0.320 Next 7.5 0.300 Next 9.0 0.280 Next 26.0 0.260 Over 50.0 0.240 - ------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation First 1.0 0.570 0.560% Next 1.0 0.545 Next 1.0 0.520 Next 3.0 0.495 Next 1.5 0.470 Next 2.5 0.450 Next 5.0 0.430 Next 9.0 0.410 Over 24.0 0.390 - ------------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation First 0.25 0.550 0.550% Next 0.25 0.525 Next 0.25 0.500 Over 0.75 0.475 - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond First 1.0 0.410 0.410% Next 1.0 0.385 Next 1.0 0.360 Next 3.0 0.335 Next 1.5 0.310 Next 2.5 0.300 Next 5.0 0.290 Next 9.0 0.280 Next 26.0 0.260 Over 50.0 0.250 - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income First $1.0 0.470 0.454% Next 1.0 0.445 Next 1.0 0.420 Next 3.0 0.395 Next 1.5 0.370 Next 2.5 0.360 Next 5.0 0.350 Next 9.0 0.340 Next 26.0 0.320 Over 50.0 0.300 - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 93
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market First 1.0 0.330% 0.330% Next 0.5 0.313 Next 0.5 0.295 Next 0.5 0.278 Next 2.5 0.260 Next 1.0 0.240 Next 1.5 0.220 Next 1.5 0.215 Next 1.0 0.190 Next 5.0 0.180 Next 5.0 0.170 Next 4.0 0.160 Over 24.0 0.150 - ------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets First 0.25 1.100 1.100% Next 0.25 1.080 Next 0.25 1.060 Next 0.25 1.040 Next 1.0 1.020 Next 5.5 1.000 Next 2.5 0.985 Next 5.0 0.970 Net 5.0 0.960 Next 4.0 0.935 Next 26.0 0.920 Over 50.0 0.900 - ------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha First 0.25 1.050 1.050% Next 0.25 1.030 Next 0.50 1.010 Next 1.0 0.990 - ------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage First 1.0 0.480 0.480% Next 1.0 0.455 Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.360 Next 5.0 0.350 Next 5.0 0.340 Next 4.0 0.330 Next 26.0 0.310 Over 50.0 0.290 - -------------------------------------------------------------------------------------------------------------------------------
Under the agreement, a fund also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees and charges; fidelity bond premiums; certain legal fees; registration fees for shares; consultants' fees; compensation of Board members, officers and employees not employed by the investment manager or its affiliates; corporate filing fees; organizational expenses; expenses incurred in connection with lending securities; interest and fee expense related to a fund's participation in inverse floater structures; and expenses properly payable by a fund, approved by the Board. For Equity and Balanced Funds, except for S&P 500 Index and Small Company Index, before the fee based on the asset charge is paid, it is adjusted for the fund's investment performance relative to a Performance Incentive Adjustment Index Statement of Additional Information - July 30, 2009 Page 94 (PIA Index) as shown in the table below. The adjustment increased or decreased the fee for the last fiscal period as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 14. PIA INDEXES
FEE INCREASE OR FUND PIA INDEX (DECREASE) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING MARCH 31 - ---------------------------------------------------------------------------------------------- Equity Value Lipper Large-Cap Value Funds $ 321,014 - ---------------------------------------------------------------------------------------------- Partners Small Cap Growth Lipper Small-Cap Growth Funds 25,307 - ---------------------------------------------------------------------------------------------- Precious Metals and Mining Lipper Gold Funds (36,234) - ---------------------------------------------------------------------------------------------- Small Cap Advantage Lipper Small-Cap Core Funds (367,087) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING APRIL 30 - ---------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Russell 3000 Index N/A* - ---------------------------------------------------------------------------------------------- Recovery and Infrastructure S&P 500 Index N/A* - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING MAY 31 - ---------------------------------------------------------------------------------------------- Partners Aggressive Growth Lipper Mid-Cap Growth Funds (182,474) - ---------------------------------------------------------------------------------------------- Partners Fundamental Value Lipper Large-Cap Core Funds (190,097) - ---------------------------------------------------------------------------------------------- Partners Select Value Lipper Mid-Cap Value Funds 299,806 - ---------------------------------------------------------------------------------------------- Partners Small Cap Equity Lipper Small-Cap Core Funds (72,062) - ---------------------------------------------------------------------------------------------- Partners Small Cap Value Lipper Small-Cap Value Funds (238,798) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING JUNE 30 - ---------------------------------------------------------------------------------------------- Dividend Opportunity Lipper Equity Income Funds 916,530 - ---------------------------------------------------------------------------------------------- Real Estate Lipper Real Estate Funds (190,002) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING JULY 31 - ---------------------------------------------------------------------------------------------- Disciplined Equity Lipper Large-Cap Core Funds (1,361,345) - ---------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Lipper Mid-Cap Core Funds (79,088) - ---------------------------------------------------------------------------------------------- Disciplined Small Cap Value Lipper Small-Cap Value Funds (38,280) - ---------------------------------------------------------------------------------------------- Growth Lipper Large-Cap Growth Funds (3,707,468) - ---------------------------------------------------------------------------------------------- Large Cap Equity Lipper Large-Cap Core Funds (4,214,418) - ---------------------------------------------------------------------------------------------- Large Cap Value Lipper Large-Cap Value Funds (58,120) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------- Balanced Lipper Balanced Funds (787,804) - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Lipper Large-Cap Growth Funds (106,808) - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Value Lipper Large-Cap Value Funds N/A* - ---------------------------------------------------------------------------------------------- Diversified Equity Income Lipper Equity Income Funds 4,992,605 - ---------------------------------------------------------------------------------------------- Mid Cap Value Lipper Mid-Cap Value Funds 1,681,079 - ---------------------------------------------------------------------------------------------- Strategic Allocation Lipper Flexible Portfolio Funds (1,260,515) - ----------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 95
FEE INCREASE OR FUND LIPPER INDEX (DECREASE) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------- Lipper International Large-Cap Core Disciplined International Equity Funds $ (213,635) - ---------------------------------------------------------------------------------------------- Lipper Global Science and Technology Global Technology Funds(a) (148,556) - ---------------------------------------------------------------------------------------------- Lipper International Multi-Cap Partners International Select Growth Growth Funds (387,870) - ---------------------------------------------------------------------------------------------- Lipper International Multi-Cap Value Partners International Select Value Funds (2,449,779) - ---------------------------------------------------------------------------------------------- Partners International Small Cap Lipper International Small-Cap Funds (51,416) - ---------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Lipper Emerging Markets Funds 507,378 - ---------------------------------------------------------------------------------------------- Threadneedle European Equity Lipper European Funds 19,559 - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Lipper Global Funds 393,409 - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Income MSCI All Country World Index N/A* - ---------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha MSCI All Country World Index N/A* - ---------------------------------------------------------------------------------------------- Lipper International Large-Cap Core Threadneedle International Opportunity Funds 119,014 - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------- Mid Cap Growth Lipper Mid-Cap Growth Funds (965,508) - ----------------------------------------------------------------------------------------------
(a) The index against which the fund's performance was measured prior to July 1, 2008 was the Lipper Science and Technology Funds Index. See "Change in Index" below. FOR ALL FUNDS NOTED IN TABLE 14 EXCEPT 120/20 CONTRARIAN EQUITY, RECOVERY AND INFRASTRUCTURE, AND THREADNEEDLE GLOBAL EXTENDED ALPHA: The adjustment will be determined monthly by measuring the percentage difference over a rolling 12-month period (subject to earlier determination based on the Transition Period, as set forth below) between the annualized performance of one Class A share of the fund and the annualized performance of the PIA Index ("performance difference"). The performance difference is then used to determine the adjustment rate. The adjustment rate, computed to five decimal places, is determined in accordance with the following table and is applied against average daily net assets for the applicable rolling 12-month period or Transition Period, and divided by 12 to obtain the fee reflecting the performance fee adjustment for that month. The table is organized by fund category. You can find your fund's category in Table 1. TABLE 15A. PERFORMANCE INCENTIVE ADJUSTMENT CALCULATION
- -------------------------------------------------------------------------------------------------------- EQUITY FUNDS BALANCED FUNDS - -------------------------------------------------------------------------------------------------------- PERFORMANCE PERFORMANCE DIFFERENCE ADJUSTMENT RATE DIFFERENCE ADJUSTMENT RATE - -------------------------------------------------------------------------------------------------------- 0.00% - 0.50% 0 0.00% - 0.50% 0 - -------------------------------------------------------------------------------------------------------- 0.50% - 1.00% 6 basis points times the 0.50% - 1.00% 6 basis points times the performance difference over 0.50%, performance difference over 0.50%, times 100 (maximum of 3 basis times 100 (maximum of 3 basis points if a 1% performance points if a 1% performance difference) difference) - -------------------------------------------------------------------------------------------------------- 1.00% - 2.00% 3 basis points, plus 3 basis points 1.00% - 2.00% 3 basis points, plus 3 basis points times the performance difference times the performance difference over 1.00%, times 100 (maximum 6 over 1.00%, times 100 (maximum 6 basis points if a 2% performance basis points if a 2% performance difference) difference) - -------------------------------------------------------------------------------------------------------- 2.00% - 4.00% 6 basis points, plus 2 basis points 2.00% - 3.00% 6 basis points, plus 2 basis points times the performance difference times the performance difference over 2.00%, times 100 (maximum 10 over 2.00%, times 100 (maximum 8 basis points if a 4% performance basis points if a 3% performance difference) difference) - -------------------------------------------------------------------------------------------------------- 4.00% - 6.00% 10 basis points, plus 1 basis point 3.00% or 8 basis points times the performance difference more over 4.00%, times 100 (maximum 12 basis points if a 6% performance difference) - -------------------------------------------------------------------------------------------------------- 6.00% or more 12 basis points - --------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 96 For example, if the performance difference for an Equity Fund is 2.38%, the adjustment rate is 0.000676 (0.0006 [6 basis points] plus 0.0038 [the 0.38% performance difference over 2.00%] x 0.0002 [2 basis points] x 100 (0.000076)). Rounded to five decimal places, the adjustment rate is 0.00068. The maximum adjustment rate for the fund is 0.0012 per year. Where the fund's Class A performance exceeds that of the PIA Index, the fee paid to the investment manager will increase. Where the performance of the PIA Index exceeds the performance of the fund's Class A shares, the fee paid to the investment manager will decrease. The 12-month comparison period rolls over with each succeeding month, so that it always equals 12 months, ending with the month for which the performance adjustment is being computed. TRANSITION PERIOD The performance incentive adjustment will not be calculated for the first 6 months from the inception of the fund. After 6 full calendar months, the performance fee adjustment will be determined using the average assets and performance difference over the first 6 full calendar months, and the adjustment rate will be applied in full. Each successive month an additional calendar month will be added to the performance adjustment computation. After 12 full calendar months, the full rolling 12-month period will take affect. CHANGE IN INDEX If the PIA Index ceases to be published for a period of more than 90 days, changes in any material respect, otherwise becomes impracticable or, at the discretion of the Board, is no longer appropriate to use for purposes of a performance incentive adjustment, for example, if Lipper reclassifies the fund from one peer group to another, the Board may take action it deems appropriate and in the best interests of shareholders, including: (1) discontinuance of the performance incentive adjustment until such time as it approves a substitute index; or (2) adoption of a methodology to transition to a substitute index it has approved. In the case of a change in the PIA Index, a fund's performance will be compared to a 12-month blended index return that reflects the performance of the current index for the portion of the 12-month performance measurement period beginning the effective date of the current index and the performance of the prior index for the remainder of the measurement period. At the conclusion of the transition period, the performance of the prior index will be eliminated from the performance incentive adjustment calculation, and the calculation will include only the performance of the current index. Statement of Additional Information - July 30, 2009 Page 97 FOR 120/20 CONTRARIAN EQUITY, RECOVERY AND INFRASTRUCTURE, AND THREADNEEDLE GLOBAL EXTENDED ALPHA: The adjustment will be determined monthly by measuring the percentage difference over a rolling 36-month period (subject to earlier determination based on the Transition Period, as set forth below) between the annualized performance of one Class A share of the fund and the annualized performance of the PIA Index ("performance difference"). The performance difference will then be used to determine the adjustment rate. The adjustment rate, computed to five decimal places, is determined in accordance with the following table and is applied against average daily net assets for the applicable rolling 36-month period or Transition Period, and divided by 12 to obtain the fee reflecting the performance fee adjustment for that month. TABLE 15B. PERFORMANCE INCENTIVE ADJUSTMENT CALCULATION
- -------------------------------------------------------------------------------------------------------- 120/20 CONTRARIAN EQUITY RECOVERY AND INFRASTRUCTURE THREADNEEDLE GLOBAL EXTENDED ALPHA - -------------------------------------------------------------------------------------------------------- PERFORMANCE PERFORMANCE DIFFERENCE ADJUSTMENT RATE DIFFERENCE ADJUSTMENT RATE - -------------------------------------------------------------------------------------------------------- 0.00% - 0.50% 0 0.00% - 1.00% 0 - -------------------------------------------------------------------------------------------------------- 0.50% - 1.00% 6 basis points times the 1.00% - 6.00% 10 basis points times the performance difference over 0.50%, performance difference over 1.00%, times 100 (maximum of 3 basis times 100 (maximum 50 basis points points if a 1% performance if a 6% performance difference) difference) - -------------------------------------------------------------------------------------------------------- 1.00% - 2.00% 3 basis points, plus 3 basis points 6.00% or 50 basis points times the performance difference more over 1.00%, times 100 (maximum 6 basis points if a 2% performance difference) - -------------------------------------------------------------------------------------------------------- 2.00% - 4.00% 6 basis points, plus 2 basis points times the performance difference over 2.00%, times 100 (maximum 10 basis points if a 4% performance difference) - -------------------------------------------------------------------------------------------------------- 4.00% - 6.00% 10 basis points, plus 1 basis point times the performance difference over 4.00%, times 100 (maximum 12 basis points if a 6% performance difference) - -------------------------------------------------------------------------------------------------------- 6.00% or more 12 basis points - --------------------------------------------------------------------------------------------------------
For example, if the performance difference for 120/20 Contrarian Equity is 2.38%, the adjustment rate is 0.00138 [the 1.38% performance difference over 1.00%] x 0.0010 [10 basis points] x 100. Rounded to five decimal places, the adjustment rate is 0.00138. This adjustment rate of 0.00138 is then applied against the average daily net assets for the applicable rolling 36-month or Transition Period, and divided by 12, which provides the performance adjustment fee for that month. Where the fund's Class A performance exceeds that of the PIA Index for the applicable rolling 36-month period or Transition Period, the fee paid to the Investment Manager will increase by the adjustment rate. Where the performance of the PIA Index exceeds the performance of the fund's Class A shares for the applicable rolling 36-month period or Transition Period, the fee paid to the Investment Manager will decrease by the adjustment rate. The 36-month comparison period rolls over with each succeeding month, so that it always equals 36 months, ending with the month for which the performance adjustment is being computed. TRANSITION PERIOD The performance incentive adjustment will not be calculated for the first 24 months from the inception of the fund. After 24 full calendar months, the performance fee adjustment will be determined using the average assets and Performance Difference over the first 24 full calendar months, and the Adjustment Rate will be applied in full. Each successive month an additional calendar month will be added to the performance adjustment computation. After 36 full calendar months, the full rolling 36-month period will take affect. CHANGE IN INDEX If the PIA Index ceases to be published for a period of more than 90 days, changes in any material respect, otherwise becomes impracticable or, at the discretion of the Board, is no longer appropriate to use for purposes of a performance incentive adjustment, the Board may take action it deems appropriate and in the best interests of shareholders, including: Statement of Additional Information - July 30, 2009 Page 98 (1) discontinuance of the performance incentive adjustment until such time as it approves a substitute index, or (2) adoption of a methodology to transition to a substitute index it has approved. In the case of a change the PIA Index, a fund's performance will be compared to a 36-month blended index return that reflects the performance of the current index for the portion of the 36-month performance measurement period beginning the effective date of the current index and the performance of the prior index for the remainder of the measurement period. At the conclusion of the transition period, the performance of the prior index will be eliminated from the performance incentive adjustment calculation, and the calculation will include only the performance of the current index. The table below shows the total management fees paid by each fund for the last three fiscal periods as well as nonadvisory expenses, net of earnings credits, waivers and expenses reimbursed by the investment manager and its affiliates. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 16. MANAGEMENT FEES AND NONADVISORY EXPENSES
- -------------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES - -------------------------------------------------------------------------------------------------------------------------- FUND 2009 2008 2007 2009 2008 2007 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A $ 139,640 $ 103,636(a) $ 145,971 - -------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income N/A N/A N/A 118,255 134,546(a) 153,282 - -------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 175,842 129,062(a) 202,410 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive N/A N/A N/A* 199,501 168,942 209,004 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative N/A N/A N/A* 146,492 96,147 134,788 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A* 278,861 247,980 246,216 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive N/A N/A N/A* 299,503 247,472 355,360 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative N/A N/A N/A* 170,774 117,533 140,615 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A* 149,589 173,675 188,843 - -------------------------------------------------------------------------------------------------------------------------- S&P 500 Index $ 371,178 $ 579,548 $ 566,109 (194,370) (254,777) (272,996) - -------------------------------------------------------------------------------------------------------------------------- Small Company Index 1,990,095 3,292,392 3,889,499 (1,171,627) (1,007,306) (662,392) - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------------------------------- Equity Value 4,340,117 6,797,853 6,969,436 343,552 413,170 361,720 - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 1,243,691 1,887,518 2,066,992 (41,768) 99,186 111,014 - -------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 824,176 956,280 876,127 242,615 175,405 144,337 - -------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 1,255,250 2,903,208 4,703,119 (389,920) (383,991) (252,816) - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 368,969 159,311(b) N/A 34,475 21,297(b) N/A - -------------------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure 45,652(c) N/A N/A 18,717(c) N/A N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A (4,254) 41 4,075(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A N/A (7,894) 310 3,927(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A (9,956) 745 6,231(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A N/A (12,026) 332 4,478(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A (9,748) 431 2,766(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A N/A (7,948) 487 878(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A (6,946) (796) 2,640(d) - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A N/A (6,418) (2,131) (2,522)(d) - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 99
- -------------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES - -------------------------------------------------------------------------------------------------------------------------- FUND 2009 2008 2007 2009 2008 2007 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------------------------------- High Yield Bond $ 6,353,707 $ 9,610,810 $11,401,845 $ (748,008) $ 665,785 $ 481,606 - -------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 3,280,397 5,729,264 4,627,106 (997,666) (786,490) (1,047,823) - -------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 4,416,792 7,668,633 7,530,722 (939,055) (213,176) (215,041) - -------------------------------------------------------------------------------------------------------------------------- Partners Select Value 2,539,813 4,388,735 4,807,861 (278,114) (142,897) (162,440) - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 1,381,155 2,441,742 2,964,236 (435,641) (539,268) (464,274) - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 3,098,591 6,511,571 9,159,989 (963,886) (972,781) (878,605) - -------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 3,665,529 3,816,196 4,419,003 (610,585) (771,512) (1,025,939) - -------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 1,731,277 1,958,404 1,348,887 (327,855) (389,262) (438,473) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- 2008 2007 2006 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 12,015,660 10,678,661 7,688,134 626,341 540,349 480,473 - -------------------------------------------------------------------------------------------------------------------------- Real Estate 1,667,040 2,299,121 1,398,778 138,649 207,925 153,244 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------- Cash Management 15,026,220 12,713,351 10,801,723 1,290,897 859,062 (1,747,535) - -------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 17,556,244 14,110,274 5,175,451 726,080 (202,920) (83,131) - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 365,578 273,481 13,335(e) 125,645 91,799 4,577(e) - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 286,759 206,071 49,035(f) 33,868 37,535 9,684(f) - -------------------------------------------------------------------------------------------------------------------------- Floating Rate 3,509,190 3,332,472 412,667(f) 293,676 151,486 19,402(f) - -------------------------------------------------------------------------------------------------------------------------- Growth 12,541,267 22,705,786 19,922,079 850,735 954,358 1,214,759 - -------------------------------------------------------------------------------------------------------------------------- Income Opportunities 1,767,885 2,116,555 2,229,460 196,944 187,627 198,512 - -------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 2,554,103 1,313,892 1,078,635 (238,396) (126,032) (45,905) - -------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 25,467,893 39,667,264 20,724,477 (995,206) 1,168,504 682,652 - -------------------------------------------------------------------------------------------------------------------------- Large Cap Value 401,168 602,406 715,200 205,428 184,710 186,504 - -------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 792,200 726,809 990,881 (78,320) (73,339) (96,959) - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 715,946 717,999 1,008,174(g) 44,499 20,854 (8,449)(g) - -------------------------------------------------------------------------------------------------------------------------- Diversified Bond 14,772,880 12,770,016 12,388,294 (461,298) (1,129,485) (1,870,049) - -------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 1,246,083 1,351,439 1,898,065(g) 506,328 676,782 599,362(g),(h) - -------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 242,807 279,438 402,241(g) 75,790 134,099 133,306(g),(h) - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Balanced 3,977,541 6,315,077 5,690,832 437,940 368,447 563,493 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 905,956 114,048(i) N/A 195,661 54,709(i) N/A - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 6,618(j) N/A N/A 2,877(j) N/A N/A - -------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 44,177,652 42,530,087 37,321,661 1,905,627 1,561,033 1,761,776 - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 18,813,340 15,908,732 11,459,838 992,201 826,273 728,841 - -------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 10,108,947 11,025,000 7,064,937 1,047,907 921,198 665,164 - -------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 904,660 168,875(i) N/A 294,099 76,656(i) N/A - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 100
- -------------------------------------------------------------------------------------------------------------------------- 2008 2007 2006 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income $ 4,188,137 $ 887,341 $ 176,149(k) $ 313,877 $ 103,119 $ 28,907(k) - -------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 5,209,129 2,161,563 147,388(l) 512,793 358,005 48,716(l) - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 1,182,004 706,943 191,237(m) 172,124 120,044 77,772(m) - -------------------------------------------------------------------------------------------------------------------------- Global Bond 5,074,934 3,438,893 3,734,676 165,694 (17,529) (159,716) - -------------------------------------------------------------------------------------------------------------------------- Global Technology 857,290 1,412,081 1,327,883 188,087 187,390 249,939 - -------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 5,965,413 6,048,963 4,039,162 334,550 672,542 530,707 - -------------------------------------------------------------------------------------------------------------------------- Partners International Select Value 13,239,202 20,067,871 15,936,398 1,054,830 1,286,758 990,734 - -------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 1,057,146 1,270,558 1,050,011 63,912 208,621 246,920 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 7,352,591 7,106,815 5,659,680 1,138,897 1,190,259 745,246 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 980,629 952,484 821,750 223,792 199,237 182,061 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 5,825,153 6,075,014 5,791,016 554,139 577,463 517,920 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 15,723(n) N/A N/A 2,989(n) N/A N/A - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 16,485(n) N/A N/A 1,122(n) N/A N/A - -------------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 4,661,800 4,923,040 4,840,788 486,074 545,663 505,513 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 291,762 321,011 435,316 2,588 (4,565) (25,206) - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 4,726,590 6,373,531 9,852,112 437,496 241,412 670,574 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 2,764,541 3,157,092 3,345,629 506,736 (8,650) 905,255 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 11,447,732 13,006,578 15,027,647 2,984,232 (847,490) 8,025,340 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 464,177 406,763 390,170 161,459 32,730 118,441 - --------------------------------------------------------------------------------------------------------------------------
* Effective Feb. 1, 2006, this fee was eliminated. (a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the fiscal period from Feb. 19, 2009 (when shares became publicly available) to April 30, 2009. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is from July 1, 2005 through Aug. 31, 2006. (h) During 2006, the Fund changed the method of accounting for its participation in inverse floater structures. Previously, nonadvisory expenses for the fiscal year end 2006 were reported as $(68,320) for Minnesota Tax-Exempt Fund and $(21,864) for New York Tax-Exempt Fund. (i) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (j) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (k) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (l) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (n) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. MANAGER OF MANAGERS EXEMPTION The funds have received an order from the SEC that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. For California Tax-Exempt, Cash Management, Diversified Bond, Global Bond, High Yield Bond, Intermediate Tax- Exempt, Minnesota Tax-Exempt, New York Tax-Exempt, Short Duration U.S. Government, Tax-Exempt Bond, Tax-Exempt High Income, Tax- Exempt Money Market and U.S. Government Mortgage funds: before the fund may rely on the order, holders of a majority of the fund's outstanding voting securities will need to approve operating the fund in this manner. There is no assurance shareholder approval will be received, and no changes will be made without shareholder approval until that time. Statement of Additional Information - July 30, 2009 Page 101 SUBADVISORY AGREEMENTS The assets of certain funds are managed by subadvisers that have been selected by the investment manager, subject to the review and approval of the Board. The investment manager has recommended the subadvisers to the Board based upon its assessment of the skills of the subadvisers in managing other assets with objectives and investment strategies substantially similar to those of the applicable fund. Short-term investment performance is not the only factor in selecting or terminating a subadviser, and the investment manager does not expect to make frequent changes of subadvisers. Certain subadvisers, affiliated with the investment manager, have been directly approved by shareholders. These subadvisers are noted in Table 18. The investment manager allocates the assets of a fund with multiple subadvisers among the subadvisers. Each subadviser has discretion, subject to oversight by the Board and the investment manager, to purchase and sell portfolio assets, consistent with the fund's investment objectives, policies, and restrictions. Generally, the services that a subadviser provides to the fund are limited to asset management and related recordkeeping services. The investment manager has entered into an advisory agreement with each subadviser under which the subadviser provides investment advisory assistance and day-to-day management of some or all of the fund's portfolio, as well as investment research and statistical information. A subadviser may also serve as a discretionary or non-discretionary investment adviser to management or advisory accounts that are unrelated in any manner to the investment manager or its affiliates. The following table shows the advisory fee schedules for fees paid by the investment manager to subadvisers for funds that have subadvisers. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 17. SUBADVISERS AND SUBADVISORY AGREEMENT FEE SCHEDULES
PARENT FUND SUBADVISER COMPANY FEE SCHEDULE - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Essex Investment Management Company, LLC A 0.70% on the first $20 million, reducing to Growth* (effective Sept. 23, 2005) 0.60% as assets increase ------------------------------------------------------------------------------------------------------ Federated MDTA, LLC (MDTA)(a) (effective B 0.60% on the first $75 million, reducing to Sept. 23, 2005) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Turner Investment Partners, Inc. N/A 0.60% on the first $50 million, reducing to (Turner) (effective Aug. 18, 2003) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ UBS Global Asset N/A 0.55% on the first $150 million, reducing to Management (Americas) (UBS) 0.50% as assets increase (effective Aug. 18, 2003) - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - --------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive American Century Investment C 0.50% on the first $100 million, reducing to Growth Management, Inc. (American Century) 0.38% as assets increase (effective April 24, 2003) ------------------------------------------------------------------------------------------------------ Turner N/A 0.55% on the first $100 million, reducing to (effective April 24, 2003) 0.38% as assets increase - --------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Davis Selected Advisers, N/A 0.45% on the first $100 million, reducing to Value LP (Davis)(a), (b) 0.25% as assets increase (effective June 18, 2001) - --------------------------------------------------------------------------------------------------------------------------------- Partners Select Value Systematic Financial Management, D 0.50% on the first $50 million, L.P. (Systematic)(a) reducing to 0.30% as assets (effective Sept. 29, 2006) increase ------------------------------------------------------------------------------------------------------ WEDGE Capital Management N/A 0.75% on the first $10 million, L.L.P. (WEDGE)(a) reducing to 0.30% as assets (effective Sept. 29, 2006) increase - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 102
PARENT FUND SUBADVISER COMPANY FEE SCHEDULE - --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap American Century C 0.65% on the first $25 million, reducing to Equity* (effective Dec. 12, 2003) 0.55% as assets increase ------------------------------------------------------------------------------------------------------ Jennison Associates LLC (Jennison) E 0.55% on all assets (effective Feb. 22, 2008) ------------------------------------------------------------------------------------------------------ Lord, Abbett & Co. LLC N/A 0.65% on the first $100 million, (Lord Abbett) reducing to 0.55% as assets (effective Dec. 12, 2003) increase - --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Barrow, Hanley, Mewhinney & F 1.00% on the first $10 million, Strauss (BHMS)(a) reducing to 0.30% as assets (effective March 12, 2004) increase ------------------------------------------------------------------------------------------------------ Donald Smith & Co., Inc. N/A 0.60% on the first $175 million, (Donald Smith)(a) reducing to 0.55% as assets (effective March 12, 2004) increase ------------------------------------------------------------------------------------------------------ MDTA(a) B 0.60% on the first $75 million, reducing to (effective June 6, 2008) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Metropolitan West Capital Management, LLC G 0.50% on all assets (MetWest Capital) (effective April 24, 2006) - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------------------------------------------------------- Partners International Columbia Wanger Asset Management L.P. H 0.70% on the first $100 million, reducing to Select Growth (Columbia WAM)(a) (effective Sept. 5, 2001) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Principal Global Investors, LLC L 0.40% on the first $250 million, reducing to (Principal) (effective April 24, 2006) 0.25% as assets increase - --------------------------------------------------------------------------------------------------------------------------------- Partners International AllianceBernstein L.P. N/A 0.65% on the first $75 million, reducing to Select Value (AllianceBernstein) 0.30% as assets increase (effective Sept. 17, 2001) ------------------------------------------------------------------------------------------------------ Mondrian Investment Partners Limited N/A 0.70% on all assets (Mondrian) (effective August 18, 2008) ------------------------------------------------------------------------------------------------------ Tradewinds Global Investors, LLC N/A 0.50% on the first $250 million, reducing to (Tradewinds) (effective August 18, 2008) 0.40 as assets increase - --------------------------------------------------------------------------------------------------------------------------------- Partners International AIG Global Investment Corp. (AIGGIC) I 0.75% on the first $100 million, reducing to Small Cap (effective April 24, 2006 0.70% as assets increase through Aug. 7, 2009) ------------------------------------------------------------------------------------------------------ Batterymarch Financial Management, Inc. J 0.75% on the first $100 million, reducing to (Batterymarch) (effective April 24, 2006) 0.70% as assets increase ------------------------------------------------------------------------------------------------------ Columbia WAM(a) H 0.70% on the first $150 million, reducing to (effective Aug. 10, 2009) 0.50% as assets increase - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Threadneedle International Limited(b) K 0.45% of the first $150 million, reducing to Markets (Threadneedle) 0.30% as assets increase, and subject to a (effective July 9, 2004) performance incentive adjustment(c) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Threadneedle(b) K 0.35% of the first $150 million, reducing to Equity (effective July 9, 2004) 0.20% as assets increase, and subject to a performance incentive adjustment(c) - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 103
PARENT FUND SUBADVISER COMPANY FEE SCHEDULE - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(b) K 0.35% of the first $150 million, reducing to Equity (effective July 9, 2004) 0.20% as assets increase, and subject to a performance incentive adjustment(b) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(b) K 0.45% of the first $250 million, reducing to Equity Income (effective Aug. 1, 2008) 0.35% as assets increase, and subject to a performance incentive adjustment(c) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(b) K 0.70% of the first $250 million, reducing to Extended Alpha (effective Aug. 1, 2008) 0.60% as assets increase, and subject to a performance incentive adjustment(c) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Threadneedle(b) K 0.35% of the first $150 million, reducing to International Opportunity (effective July 9, 2004) 0.20% as assets increase, and subject to a performance incentive adjustment(c) - ---------------------------------------------------------------------------------------------------------------------------------
* Effective Aug. 10, 2009, the fund's Subadvisory Agreements are terminated and the fund's portfolio will be managed by RiverSource Investments. (a) The fee is calculated based on the combined net assets subject to the subadviser's investment management. (b) Davis is a 1940 Act affiliate of the investment manager because it owns or has owned more than 5% of the public issued securities of the investment manager's parent company, Ameriprise Financial. Threadneedle is an affiliate of the investment manager as an indirect wholly-owned subsidiary of Ameriprise Financial. (c) The adjustment for Threadneedle is based on the performance of one Class A share of the fund and the change in the PIA Index described in Table 14. The performance of the fund and the Index will be calculated using the method described above for the performance incentive adjustment paid to the investment manager under the terms of the Investment Management Services Agreement. The amount of the adjustment to Threadneedle's fee, whether positive or negative, shall be equal to the following amount of the performance incentive adjustment made to the investment management fee payable to the investment manager under the terms of the Investment Management Services Agreement: 50% for Threadneedle Emerging Markets, Threadneedle European Equity, Threadneedle Global Equity and Threadneedle International Opportunity; 100% for Threadneedle Global Equity Income and Threadneedle Global Extended Alpha. The performance incentive adjustment was effective Dec. 1, 2004. A - Essex is majority owned by Affiliated Managers Group. B - Federated MDTA LLC is an indirect, wholly-owned subsidiary of Federated Investors, Inc. C - American Century Investment Management, Inc. is a direct, wholly-owned subsidiary of American Century Companies, Inc. D - Systematic is an affiliate of Affiliated Managers Group. E - Jennison Associates LLC's sole member is Prudential Investments Management, Inc. which is a direct, wholly-owned subsidiary of Prudential Asset Management Holding Company LLC, which is a direct, wholly-owned subsidiary of Prudential Financial, Inc. F - BHMS is an independent-operating subsidiary of Old Mutual Asset Management. G - Metropolitan West Capital Management, LLC (MetWest Capital) is a subsidiary of Wells Fargo & Company and operates within the Evergreen Investments unit of its asset management division. H - Columbia WAM is an indirect wholly-owned subsidiary of Columbia Management Group, Inc., which in turn is a wholly-owned subsidiary of Bank of America Corporation. I - AIGGIC is an indirect wholly-owned subsidiary of American International Group, Inc. (AIG). J - Batterymarch is a wholly-owned, independent subsidiary of Legg Mason, Inc. K - Threadneedle is an indirect wholly-owned subsidiary of Ameriprise Financial. L - Principal Global Investors, LLC is a wholly-owned, indirect subsidiary of Principal Financial Group, Inc. Statement of Additional Information - July 30, 2009 Page 104 The following table shows the subadvisory fees paid by the investment manager to subadvisers in the last three fiscal periods. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 18. SUBADVISORY FEES
SUBADVISORY FEES PAID ------------------------------------------ FUND SUBADVISER 2009 2008 2007 - ----------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ----------------------------------------------------------------------------------------------------------------------- Partners Small Cap Essex (from Sept. 23, 2005 to Aug. 7, $ 171,944 $ 257,999 $ 281,295 Growth 2009) ------------------------------------------------------------------------------------- MDTA (from Sept. 23, 2005 to Aug. 7, 255,223 397,581 411,034 2009) ------------------------------------------------------------------------------------- Turner (from Aug. 18, 2003 to Aug. 7, 167,422 241,810 265,516 2009) ------------------------------------------------------------------------------------- UBS (from Aug. 18, 2003 to Aug. 7, 2009) 194,949 293,079 342,871 - ----------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Former Subadviser: Kenwood 986,189(a) 2,318,621 3,180,483 (from May 4, 1999 to Nov. 21, 2008) - ----------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ----------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth American Century 983,026 1,438,912 1,321,245 ------------------------------------------------------------------------------------- Turner 900,672 1,310,040 1,304,994 - ----------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Davis 2,020,698 3,220,929 3,673,544 - ----------------------------------------------------------------------------------------------------------------------- Partners Select Value Systematic 608,750 1,025,272 753,292(b) ------------------------------------------------------------------------------------- WEDGE 666,913 981,822 776,260(b) ------------------------------------------------------------------------------------- Former subadviser: GAMCO Asset N/A N/A 786,466(c) Management Inc. (from inception to September 28, 2006) - ----------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity American Century 280,018 506,417 662,396 (from Dec. 12, 2003 to Aug. 7, 2009) ------------------------------------------------------------------------------------- Jennison (from Feb. 22, 2008 to Aug. 7, 271,108 107,599(d) N/A 2009) ------------------------------------------------------------------------------------- Lord Abbett (from Dec. 12, 2003 to Aug. 363,340 583,123 677,462 7, 2009) ------------------------------------------------------------------------------------- Former Subadviser: Wellington Management N/A 362,413(e) 650,960* Company, LLP (from Dec. 12, 2003 to Feb. 22, 2008) - ----------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value BHMS 437,027 865,372 970,241 ------------------------------------------------------------------------------------- Donald Smith 497,789 984,692 1,180,183 ------------------------------------------------------------------------------------- MDTA 443,715 N/A(f) N/A ------------------------------------------------------------------------------------- MetWest Capital 466,432 955,503 1,769,553 ------------------------------------------------------------------------------------- Former subadviser: Franklin Portfolio 22,583 964,510 1,198,029 Associates (from March 2004 to June 6, 2008) ------------------------------------------------------------------------------------- Former subadviser: Goldman Sachs Asset N/A N/A 38,601(g) Management, L.P. (from Aug. 2002 to April 24, 2006) - ----------------------------------------------------------------------------------------------------------------------- 2008 2007 2006 - ----------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------------- Partners International Columbia WAM 1,557,963 1,568,158 1,264,808 Select Growth ------------------------------------------------------------------------------------- Principal 1,849,485 1,760,150 632,882(h) ------------------------------------------------------------------------------------- Former subadviser: American Century N/A N/A 821,124(i) Global Investment Management** (from Jan. 2005 to April 24, 2006) - ----------------------------------------------------------------------------------------------------------------------- Partners International AllianceBernstein 6,268,208 7,962,307 6,022,579 Select Value ------------------------------------------------------------------------------------- Mondrian 77,048(j) N/A N/A ------------------------------------------------------------------------------------- Tradewinds 129,124(j) N/A N/A - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 105
SUBADVISORY FEES PAID ------------------------------------------ FUND SUBADVISER 2008 2007 2006 - ----------------------------------------------------------------------------------------------------------------------- Partners International Small Cap AIGGIC (from April 24, 2006 to Aug. 7, $ 355,245 $ 425,696 $ 201,650(h) 2009) ------------------------------------------------------------------------------------- Columbia WAM (effective Aug. 10, 2009) N/A N/A N/A ------------------------------------------------------------------------------------- Batterymarch 386,194 439,593 205,659(h) ------------------------------------------------------------------------------------- Former subadviser: Templeton Investment N/A N/A 226,154(i) Counsel, LLC (Franklin Templeton) (from Oct. 3, 2002 to April 24, 2006) ------------------------------------------------------------------------------------- Former subadviser: Wellington Management N/A N/A 243,185(i) Company, LLP together with its affiliate Wellington Management International Ltd (from Oct. 3, 2002 to April 24, 2006) - ----------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Threadneedle 2,801,637 2,728,720 2,170,719 - ----------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity Threadneedle 443,279 406,594 356,308 - ----------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Threadneedle 2,269,177 2,408,387 2,358,731 - ----------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Threadneedle 9,057(k) N/A N/A Income - ----------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Threadneedle 11,750(k) N/A N/A Alpha - ----------------------------------------------------------------------------------------------------------------------- Threadneedle International Threadneedle 1,907,215 1,895,712 1,948,352 Opportunity - -----------------------------------------------------------------------------------------------------------------------
* Beginning on July 1, 2006, under the Subadvisory Agreement, RiverSource Investments is subject to a minimum annual fee of $350,000, payable to Wellington Management. ** American Century Global Investment Management managed the portion of the Fund's portfolio previously managed by American Century since Sept. 2001. The change of subadviser is the result of corporate restructuring of American Century and did not result in any modifications to the investment objective, principal investment strategies, portfolio managers, or the fees paid by the Fund. (a) For the fiscal period from April 1, 2008 to Nov. 21, 2008. (b) For the fiscal period from Sept. 29, 2006 to May 31, 2007. (c) For the fiscal period from June 1, 2006 to Sept. 28, 2006. (d) For the fiscal period from Feb. 22, 2008 to May 31, 2008. (e) For the fiscal period from June 1, 2007 to Feb. 22, 2008. (f) The subadviser did not begin managing the fund until after the fund's fiscal year end. (g) Payments made to subadviser in accordance with termination agreement. (h) For the fiscal period from April 24, 2006 to Oct. 31, 2006. (i) For the fiscal period from Nov. 1, 2005 to April 24, 2006. (j) For the fiscal period from Aug. 18, 2008 to Oct. 31, 2008. (k) For the fiscal period from Aug. 1, 2008 to Oct. 31, 2008. Statement of Additional Information - July 30, 2009 Page 106 PORTFOLIO MANAGERS. For funds other than money market funds, the following table provides information about the fund's portfolio managers as of the end of the most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 19. PORTFOLIO MANAGERS
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Dimitris Bertsimas 32 RICs $9.23 billion 9 RICs ($6.78 B) None Basic Income 2 PIVs $595.75 million 15 other accounts $948.29 million -------------------------------------------------------------------------------------------- Colin Lundgren 16 RICs $948.29 million None None (8) (26) - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Dimitris Bertsimas 32 RICs $9.26 billion 9 RICs ($6.78 B) None Enhanced Income 2 PIVs $595.75 million 15 other accounts $948.29 million -------------------------------------------------------------------------------------------- Colin Lundgren 16 RICs $981.77 million None None (8) (26) - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Dimitris Bertsimas 32 RICs $9.06 billion 9 RICs ($6.78 B) $100,001 - Moderate Income 2 PIVs $595.75 million $500,000 15 other accounts $948.29 million -------------------------------------------------------------------------------------------- Colin Lundgren 16 RICs $779.16 million None $100,001 - (8) (26) $500,000 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene(b) $10,001 - Builder $50,000 Aggressive -------------------- ------------- David M. Joy 5 RICs $2.48 billion None None (1) (27) -------------------- ------------- Michelle M. None Keeley(c) -------------------- ------------- William F. None Truscott(c) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene(b) $10,001 - Builder $50,000 Conservative -------------------- ------------- David M. Joy 5 RICs $2.64 billion None None (1) (27) -------------------- ------------- Michelle M. None Keeley(c) -------------------- ------------- William F. None Truscott(c) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene(b) $50,001 - Builder Moderate $100,000 -------------------- ------------- David M. Joy 5 RICs $2.0 billion None None (1) (27) -------------------- ------------- Michelle M. None Keeley(c) -------------------- ------------- William F. None Truscott(c) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene(b) $10,001 - Builder Moderate $50,000 Aggressive -------------------- ------------- David M. Joy None (1) (27) -------------------- ------------- Michelle M. 5 RICs $2.04 billion None None Keeley(c) -------------------- ------------- William F. $50,001 - Truscott(c) $100,000 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene(b) $10,001 - Builder $50,000 Moderate Conservative -------------------- ------------- David M. Joy 5 RICs $2.51 billion None None (1) (27) -------------------- ------------- Michelle M. None Keeley(c) -------------------- ------------- William F. None Truscott(c) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene(b) $10,001 - Builder $50,000 Total Equity -------------------- ------------- David M. Joy 5 RICs $2.54 billion None $100,000 - (1) (27) $500,000 -------------------- ------------- Michelle M. None Keeley(c) -------------------- ------------- William F. None Truscott(c) - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index Dimitris Bertsimas 32 RICs $9.44 billion 9 RICs ($6.78 B) None 2 PIVs $595.75 million 15 other accounts $948.29 million (2) (26) -------------------------------------------------------------------------------------------- Georgios Vetoulis 2 RICs $511.99 million None None 1 PIV $586.92 million - ------------------------------------------------------------------------------------------------------------------------------------ Small Company Dimitris Bertsimas 32 RICs $9.12 billion 9 RICs ($6.78 B) None Index 2 PIVs $595.75 million 15 other accounts $948.29 million (2) (26) -------------------------------------------------------------------------------------------- Georgios Vetoulis 2 RICs $186.05 million None None 1 PIV $586.92 million - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 107
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value Warren Spitz 16 RICs $10.59 billion 10 RICs ($10.2 B) $10,001 - 2 PIVs $35.83 million $50,000 (2) (28) 10 other accounts(d) $319.21 million -------------------------------------------------------------------------------------------- Steve Schroll $50,001 - 15 RICs $10.56 billion $100,000 -------------------- ------------- Laton Spahr 2 PIVs $35.83 million 9 RICs ($10.2 B) $100,001 - 10 other accounts(d) $319.21 million $500,000 -------------------- ------------- Paul Stocking $50,001 - $100,000 - ------------------------------------------------------------------------------------------------------------------------------------ Partners Small UBS**: Cap Growth Paul A. Graham** 3 RICs $326.0 million 1 PIV $79.0 million 16 other accounts $233.0 million --------------------------------------------------------- David N. Wabnik** 3 RICs $326.0 million 1 other account None (4) (29) 1 PIV $79.0 million ($53 M) 31 other accounts $230.0 million ------------------------------------------------------------------------------------------------------------------- TURNER**: William C. McVail** 7 RICs $674.0 million 1 RIC ($28 M); 9 PIVs $52.0 million 4 other accounts 50 other accounts $1.9 billion ($218 M) ------------------------------------------------------------------------------ Jason D. 14 RICs $2.2 billion 1 RIC ($19.0 M); Schrotberger** 27 PIVs $232.0 million 1 PIV ($21 M); None (5) (30) 58 other accounts $1.8 billion 5 other accounts ($279 M) ------------------------------------------------------------------------------ Rick Wetmore** 4 RICs $308.0 million 4 other accounts 6 PIVs $25.0 million ($218 M) 42 other accounts $1.3 billion ------------------------------------------------------------------------------------------------------------------- ESSEX**: Nancy B. Prial** 5 RICs $206 million 1 PIV ($0.70 M) 8 PIVs $147 million None (6) (31) 38 other accounts $230 million ------------------------------------------------------------------------------------------------------------------- MDTA**: Daniel J. Mahr** -------------------- Frederick L. 9 RICs $469.98 million 1 other account Konopka** -------------------- Brian M. Greenberg** 3 PIVs $191.56 million ($0.41 M) None (7) (32) -------------------- Douglas K. Thunen** 54 other accounts $3.04 billion - ------------------------------------------------------------------------------------------------------------------------------------ Precious Metals Clay Hoes 1 PIV $46.70 million None $1 - $10,000 (2),(3) (28) - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Neil T. Eigen 6 RICs $350.98 million Advantage 1 PIV $92.04 million 69 other accounts(d) $2.23 billion --------------------------------------------------------- Richard S. Rosen 6 RICs $350.98 million 2 RICs ($61.95 M) None (2) (33) 1 PIV $92.04 million 70 other accounts(d) $2.20 billion - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------------------ 120/20 Warren Spitz 16 RICs $11.50 billion 10 RICs ($11.05 B) None Contrarian 2 PIVs $38.06 million Equity 10 other accounts(d) $400.77 million -------------------------------------------------------------------------------------------- Steve Schroll 15 RICs $11.43 billion 9 RICs ($10.98 B) $10,001 - 2 PIVs $38.06 million $50,000 -------------------- ------------- Laton Spahr 10 other accounts(d) $400.77 million $100,001 - (2) (28) $500,000 -------------------- ------------- Paul Stocking $100,001 - $500,000 - ------------------------------------------------------------------------------------------------------------------------------------ Recovery and Warren Spitz 16 RICs $11.47 billion 10 RICs ($11.01 B) $500,001 - (2) (28) Infrastructure 2 PIVs $38.06 million $1,000,000 10 other accounts(d) $400.77 million - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 31 RICs $9.75 billion 9 RICs ($7.0 B) (8) (26) 2010 1 PIV $606.31 million 14 other accounts(d) $2.50 billion None ------------------------------------------------------------------------------ Colin Lundgren 16 RICs $1.28 billion None 4 other accounts $41.11 million - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 31 RICs $9.74 billion 9 RICs ($7.0 B) None (8) (26) 2015 1 PIV $606.31 million 14 other accounts(d) $2.50 billion ------------------------------------------------------------------------------ Colin Lundgren 16 RICs $1.27 billion None 4 other accounts $41.11 million - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 108
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 31 RICs $9.74 billion 9 RICs ($7.0 B) None (8) (26) 2020 1 PIV $606.31 million 14 other accounts(d) $2.50 billion ------------------------------------------------------------------------------ Colin Lundgren 16 RICs $1.27 billion None 4 other accounts $41.11 million - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 31 RICs $9.74 billion 9 RICs ($7.0 B) $10,001 - (8) (26) 2025 1 PIV $606.31 million $50,000 14 other accounts(d) $2.50 billion -------------------------------------------------------------------------------------------- Colin Lundgren 16 RICs $1.27 billion None None 4 other accounts $41.11 million - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 31 RICs $9.73 billion 9 RICs ($7.0 B) Over (8) (26) 2030 1 PIV $606.31 million $1,000,000 14 other accounts(d) $2.50 billion -------------------------------------------------------------------------------------------- Colin Lundgren 16 RICs $1.27 billion None $10,001 - 4 other accounts $41.11 million $50,000 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 31 RICs $9.74 billion 9 RICs ($7.0 B) None (8) (26) 2035 1 PIV $606.31 million 14 other accounts(d) $2.50 billion ------------------------------------------------------------------------------ Colin Lundgren 16 RICs $1.28 billion None 4 other accounts $41.11 million - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 31 RICs $9.75 billion 9 RICs ($7.0 B) None (8) (26) 2040 1 PIV $606.31 million 14 other accounts(d) $2.50 billion ------------------------------------------------------------------------------ Colin Lundgren 16 RICs $1.28 billion None 4 other accounts $41.11 million - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 31 RICs $9.75 billion 9 RICs ($7.0 B) None (8) (26) 2045 1 PIV $606.31 million 14 other accounts(d) $2.50 billion ------------------------------------------------------------------------------ Colin Lundgren 16 RICs $1.28 billion None 4 other accounts $41.11 million - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond Scott Schroepfer 10 RICs $12.4 billion None $500,001 - 0 PIVs $0 $1,000,000 (2) (34) 0 other accounts $0 - ------------------------------------------------------------------------------------------------------------------------------------ Partners AMERICAN CENTURY: Aggressive Glenn A. Fogle 6 RICs $2.6 billion Growth -------------------- Brad Eixmann 0 PIVs $0 None None (9) (35) 2 other accounts $95.73 million ------------------------------------------------------------------------------------------------------------------- TURNER: Christopher K. 12 RICs $2.2 billion 2 RICs ($57 M); McHugh 29 PIVs $306 million 1 PIV ($22 M); 27 other accounts $1.2 billion 2 other accounts ($93 M) ------------------------------------------------------------------------------ Tara Hedlund 9 RICs $2.1 billion 1 RIC ($24 M); 17 PIVs $232 million 1 other account None (5) (30) 16 other accounts $515 million ($72 M) ------------------------------------------------------------------------------ Jason Schrotberger 14 RICs $2.5 billion 1 RIC ($24 M); 25 PIVs $299 million 1 PIV ($22 M); 58 other accounts $2.1 billion 5 other accounts ($331 M) - ------------------------------------------------------------------------------------------------------------------------------------ Partners DAVIS: Fundamental Christopher C. Davis 29 RICs $49.0 billion Value 12 PIVs $799.0 million 122 other $7.5 billion None None(f) (12) (36) accounts(e) --------------------------------------------------------- Kenneth C. Feinberg 27 RICs $49.0 billion 11 PIVs $732.0 million 113 other $6.8 billion accounts(e) - ------------------------------------------------------------------------------------------------------------------------------------ Partners Select SYSTEMATIC: Value Ron Mushock 10 RICS $1,079 million 1 other account -------------------- Kevin McCreesh 7 PIVS $258 million ($208M) None (24) (37) 1,458 other accounts $3,890 million ------------------------------------------------------------------------------------------------------------------- WEDGE: R. Michael James 5 RICs $194.8 million -------------------- Peter R. Bridge 1 PIV $2.2 million None None (25) (38) -------------------- Paul M. VeZolles 191 other accounts $2.2 billion - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 109
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ Partners Small AMERICAN CENTURY**: Cap Equity Thomas P. Vaiana** 7 RICs $3.05 billion 2 PIVs $95.41 million 1 other accounts $8.94 million --------------------------------------------------------- Wihelmine von Turk** 3 RICs $510.0 million 1 PIV $63.52 million 0 other accounts $0 None None (9) (35) --------------------------------------------------------- Brian Ertley** 5 RICs $632.93 million 1 PIV $63.52 million 1 other accounts $1.02 million --------------------------------------------------------- Melissa Fong** 3 RICs $510.03 million 1 PIV $63.52 million 0 other accounts $0 ------------------------------------------------------------------------------------------------------------------- JENNISON**: John Mullman** 5 RICs $2.71 billion 1 PIV ($11.84 M)(h) 5 PIVs $529.60 million 11 other accounts(g) $848.28 million None (11) (39) ------------------------------------------------------------------------------ Jason Swiatek** 1 RIC $8.12 million None 3 PIVs $493.57 million 11 other accounts $848.28 million ------------------------------------------------------------------------------------------------------------------- LORD, ABBETT**: Michael T. Smith** 2 RICs $1.19 billion None 0 PIVs $0 None(i) (13) (40) 14 other accounts $643.75 million - ------------------------------------------------------------------------------------------------------------------------------------ Partners Small DONALD SMITH: Cap Value Donald G. Smith 1 RIC $609 million 1 RIC ($609M) -------------------- Richard L. Greenberg 1 PIV $97 million None (14) (41) 30 other accounts $1,751 million ------------------------------------------------------------------------------------------------------------------- MDTA: Daniel J. Mahr -------------------- Douglas Thunen 9 RIC $740.9 million 1 other account -------------------- Frederick Konopka 3 PIV $179.1 million ($411,922) None (7) (32) -------------------- Brian M. Greenberg 57 other accounts $3.27 billion ------------------------------------------------------------------------------------------------------------------- BHMS: James S. McClure 4 RIC $484.1 million None -------------------- John P. Harloe 1 PIV $3.5 million None (16) (42) 15 other accounts $458.1 million ------------------------------------------------------------------------------------------------------------------- METWEST: Samir Sikka 4 RICs $347.8 million None 3 PIVs $61.2 million None (17) (43) 9 other accounts $54.4 million - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration Todd White 13 RICs $13.21 billion 2 other accounts $50,001 - U.S. Government 7 PIVs $3.39 billion ($93.84M) $100,000 39 other accounts $19.29 (2) (34) billion(d) -------------------------------------------------------------------------------------------- John McColley 2 RICs $565.3 million None None 0 PIVs $0 0 other accounts $0 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Todd White 13 RICs $13.58 billion 2 other accounts $50,001 - Mortgage 7 PIVs $3.39 billion ($93.84M) $100,000 39 other accounts $19.29 (2) (34) billion(d) -------------------------------------------------------------------------------------------- Jason J. Callan 0 RICs $0 None None 0 PIVs $0 0 other accounts $0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------------------ Dividend Warren Spitz $500,001 - Opportunity $1,000,000 -------------------- ------------- Steve Schroll 11 RICs $14.7 billion $100,001 - (2) (28) 1 PIV $26.73 million 6 RICs ($14.24 B) $500,000 -------------------- ------------- Laton Spahr 8 other accounts(d) $380.85 million $100,001 - $500,000 -------------------- ------------- Paul Stocking $50,001 - $100,000 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate Julene Melquist None None None $10,001 - (2),(3) (28) $50,000 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 110
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Dimitris Bertsimas 22 RICs $3.74 billion 5 RICs ($2.32 B) $100,001 - (2) (26) Equity 2 PIVs $22.75 million $500,000 14 other accounts $3.50 million ------------------------------------------------------------------------------ Gina Mourtzinou 4 RICs $1.58 billion 4 RICs ($1.58 B) $50,001 - 5 other accounts $136.55 million $100,000 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Dimitris Bertsimas 22 RICs $6.68 billion 5 RICs ($5.26 B) $100,001 - Small and Mid Cap 2 PIVs $22.75 million $500,000 Equity 14 other accounts $3.50 million -------------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $4.52 billion 4 RICs ($4.52 B) None (2) (26) 5 other accounts $136.55 million -------------------------------------------------------------------------------------------- Steve Kokkotos 2 RICs $1.33 billion 2 RICs ($1.33 B) $10,001 - 1 other account $10.19 million $50,000 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Dimitris Bertsimas 22 RICs $6.68 billion 5 RICs ($5.27 B) $100,001 - Small Cap Value 2 PIVs $22.75 million $500,000 14 other accounts $3.50 million -------------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $4.52 billion 4 RICs ($4.52 B) $10,001 - (2) (26) 5 other accounts $136.55 million $50,000 -------------------------------------------------------------------------------------------- Steve Kokkotos 2 RICs $1.33 billion 2 RICs ($1.33 B) $10,001 - 1 other account $10.19 million $50,000 - ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate Lynn Hopton 11 PIVs $5.02 billion None -------------------- --------------- Yvonne Stevens 3 other accounts $496.12 million None --------------------------------------------------------- ------------- Steve Staver(k) 10 PIVs $4.65 billion None None (2) (44) 3 other accounts $507.57 million - ------------------------------------------------------------------------------------------------------------------------------------ Growth Erik J. Voss(k) 8 RICs $2.60 billion None None (2) (33) 20 other accounts $179.40 million - ------------------------------------------------------------------------------------------------------------------------------------ Income Brian Lavin 1 RIC $871.16 million None $50,001 - (2) (34) Opportunities 1 PIV $7.02 million $100,000 1 other account $608.42 million - ------------------------------------------------------------------------------------------------------------------------------------ Inflation Margaret Brandt(m) None N/A N/A None Protected -------------------------------------------------------------------------------------------- Securities Todd White(m) 13 RICs $10.63 billion 3 RICs ($1.01 B); None (2) (34) 5 PIVs $1.66 billion 1 other account 40 other accounts(d) $16.02 billion ($113.3 M) - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Equity Dimitris 24 RICs $5.96 billion 7 RICs ($4.62 B) None (2) (26) Bertsimas(k) 2 PIVs $21.11 million 15 other accounts $3.31 billion ------------------------------------------------------------------------------ Gina Mourtzinou(k) 6 RICs $4.04 billion 6 RICs ($4.04 B) 5 other accounts $118.86 million - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value Warren Spitz(k) 12 RICs $14.57 billion -------------------- Steve Schroll(k) 2 PIVs $27.55 million 7 RICs ($14.11 B) None (2) (28) -------------------- Laton Spahr(k) -------------------- Paul Stocking(k) 8 other accounts $441.14 million - ------------------------------------------------------------------------------------------------------------------------------------ Limited Duration Tom Murphy 5 RICs $9.93 billion 3 RICs ($1.32 B) $50,001 - Bond 2 PIVs $885.02 million $100,000 14 other accounts $10.75 billion -------------------------------------------------------------------------------------------- Timothy J. Doubek(i) None N/A N/A None (2) (34) - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ California Tax- 5 RICs $3.68 billion Exempt 11 other accounts $7.38 billion - ---------------- ------------------------------------ Minnesota Tax- Catherine Stienstra 5 RICs $3.55 billion None None (2) (34) Exempt 11 other accounts $7.38 billion - ---------------- ------------------------------------ New York Tax- 5 RICs $3.80 billion Exempt 11 other accounts $7.38 billion - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Bond Tom Murphy 5 RICs $6.55 billion 3 RICs ($1.33 B) $50,001 - 2 PIVs $880.06 million $100,000 14 other accounts $10.90 billion -------------------------------------------------------------------------------------------- Scott Schroepfer(l) 2 RICs $953.09 million None None (2) (34) -------------------------------------------------------------------------------------------- Todd White(m) 12 RICs $7.44 billion 3 RICs ($1.01 B); None 5 PIVs $1.66 billion 1 other account 40 other accounts(d) $16.02 billion ($113.3 M) - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 111
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUND WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced Warren Spitz(k) None -------------------- ------------- Steve Schroll(k) 12 RICs $14.57 billion None -------------------- ------------- Laton Spahr(k) 2 PIVs $27.55 million 7 RICs ($14.11 B) $1 - $10,000 (2) (28) -------------------- ------------- Paul Stocking(k) 8 other accounts(d) $441.14 million None ------------------------------------------------------------------------------------------------------------------- Tom Murphy 5 RICs $9.77 billion $10,001 - 2 PIVs $870.92 million 2 RICs ($996.38 M) $50,000 14 other accounts $10.19 billion -------------------------------------------------------------------------------------------- Scott Schroepfer(l) 2 RICs $953.09 million None None (2) (34) -------------------------------------------------------------------------------------------- Todd White(m) 12 RICs $10.42 billion 2 RICs ($801.35 M); None 5 PIVs $1.66 billion 1 other account 40 other accounts(d) $16.02 billion ($113.3 M) - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Dimitris Bertsimas 23 RICs $5.77 million 6 RICs ($4.42 B) None Large Cap 2 PIVs $21.11 million Growth 15 other accounts $3.31 billion (2) (26) -------------------------------------------------------------------------------------------- Gina Mourtzinou 5 RICs $3.85 billion 5 RICs ($3.85 B) None 5 other accounts $118.86 million - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Dimitris Bertsimas 23 RICs $5.95 million 6 RICs ($4.61 B) None Large Cap 2 PIVs $21.11 million Value 15 other accounts $3.31 billion (2) (26) -------------------------------------------------------------------------------------------- Gina Mourtzinou 5 RICs $4.03 billion 5 RICs ($4.03 B) None 5 other accounts $118.86 million - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Warren Spitz $50,001 - Equity Income $100,000 -------------------- ------------- Laton Spahr 11 RICs $8.78 billion $100,001 - $500,000 -------------------- ------------- Steve Schroll 2 PIVs $27.55 million 6 RICs ($8.32 B) $50,001 - (2) (28) $100,000 -------------------- ------------- Paul Stocking 8 other accounts(d) $441.14 million $100,001 - $500,000 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value Warren Spitz $50,001 - $100,000 -------------------- ------------- Laton Spahr 11 RICs $12.21 billion $100,001 - $500,000 -------------------- ------------- Steve Schroll 2 PIVs $27.55 million 6 RICs ($11.75 B) $50,001 - (2) (28) $100,000 -------------------- ------------- Paul Stocking 8 other accounts(d) $441.14 million $100,001 - $500,000 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Tom Murphy 5 RICs $9.47 billion 2 RICs ($699.76 M) $100,001 - Allocation 2 PIVs $870.92 million $500,000 14 other accounts $10.19 billion -------------------------------------------------------------------------------------------- Scott Schroepfer(l) 2 RICs $953.09 million None None (2) (34) -------------------------------------------------------------------------------------------- Todd White(m) 12 RICs $10.17 billion 2 RICs ($549.42 M); None 5 PIVs $1.66 billion 1 other account 40 other accounts(d) $16.02 billion ($113.3 M) ------------------------------------------------------------------------------------------------------------------- Dimitris Bertsimas 23 RICs $4.85 billion 6 RICs ($3.5 B) Over $500,000 (2) (26) 2 PIVs $21.11 million 15 other accounts $3.31 billion -------------------------------------------------------------------------------------------- Gina Mourtzinou 5 RICs $2.93 billion 5 RICs ($2.93 B) $100,001 - 5 other accounts $118.86 million $500,000 -------------------------------------------------------------------------------------------- Alex Sauer-Budge 1 RIC $573.80 million 1 RIC ($573.8 M) $1 - $10,000 -------------------------------------------------------------------------------------------- Steve E. Kokkotos 2 RICs $69.74 million 2 RICs ($69.74 M) $100,001 - 1 other account $9.26 million $500,000 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Income Dimitris Bertsimas 23 RICs $5.95 billion 7 RICs ($4.62 B) None Allocation 2 PIVs $21.11 million 15 other accounts $3.31 billion (2) (26) -------------------------------------------------------------------------------------------- Colin Lundgren 17 RICs $1.76 billion None None -------------------------------------------------------------------------------------------- Gene R. Tannuzzo(o) None None None $1 - $10,000 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Absolute Return Nicholas Pifer 7 RICs $10.79 billion None $50,001 - (2) (34) Currency and 6 PIVs $284.56 million $100,000 Income 11 other accounts $3.27 billion - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 112
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Dimitris Bertsimas 23 RICs $4.53 billion 6 RICs ($3.35 B) $100,001 - International 2 PIVs $19.28 million $500,000 Equity 15 other accounts $2.88 billion (2) (26) -------------------------------------------------------------------------------------------- Alex Sauer-Budge 1 RIC $837.35 million 1 RIC ($837.35 M) $1 - $10,000 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Nicholas Pifer 7 RICs $11.31 billion None $10,001 - (2) (34) Bond 6 PIVs $284.56 million $50,000 11 other accounts $3.27 billion --------------------------------------------------------- ------------- Jim Carlene(l) 4 PIVs $312.86 million None 3 other accounts $170.11 million - ------------------------------------------------------------------------------------------------------------------------------------ Global Bond Nicholas Pifer 7 RICs $10.85 billion None $50,001 - (2) (34) 6 PIVs $284.56 million $100,000 11 other accounts $3.27 billion - ------------------------------------------------------------------------------------------------------------------------------------ Global Richard M. 4 RICs $2.40 billion 2 PIVs ($1.5B); None (2) (45) Technology Parower(n) 5 PIVs $1.50 billion 2 other accounts 6 other accounts $186.40 million ($183.7 M) --------------------------------------------------------- Paul H. Wick(n) 4 RICs $2.40 billion 5 PIVs $1.50 billion 6 other accounts $185.60 million --------------------------------------------------------- Reema D. Shah(n) 4 RICs $2.40 billion 5 PIVs $1.50 billion 5 other accounts $186.40 million --------------------------------------------------------- Ajay Diwan(n) 4 RICs $2.40 billion 5 PIVs $1.50 billion 5 other accounts $189.20 million ------------------------------------------------------------------------------ Benjamin Lu(n) 2 RICs $204.50 million None 2 PIVs $31.20 million 1 other account $0.05 million - ------------------------------------------------------------------------------------------------------------------------------------ Partners COLUMBIA WAM: International P. Zachary Egan 1 RIC $3.0 billion None None (19) (46) Select Growth --------------------------------------------------------- Louis J. Mendes 2 RICs $4.0 billion ------------------------------------------------------------------------------------------------------------------- PRINCIPAL: John Pihlblad 2 RICs $1.31 billion None None (20) (47) 2 PIVs $95.93 million 9 other accounts $987.26 million --------------------------------------------------------- Steven Larson 2 RICs $1.32 billion 2 PIVs $93.40 million 9 other accounts $987.26 million - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 113
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ Partners ALLIANCEBERNSTEIN: International Kevin F. Simms 132 RICs $46.32 billion 3 RICs ($6.66 B); Select 168 PIVs $24.39 billion 9 PIVs ($1.17 B); Value 39,323 other $106.60 billion 139 other accounts accounts ($12.51 B) ------------------------------------------------------------------------------ Henry S. D'Auria 89 RICs $27.28 billion 2 RICs ($2.74 B); 103 PIVs $18.93 billion 7 PIVs ($563 M); 953 other $78.52 billion 131 other accounts accounts ($11.85 B) ------------------------------------------------------------------------------ Sharon E. Fay 132 RICs $46.32 billion 3 RICs ($6.66 B); 156 PIVs $21.41 billion 8 PIVs ($563 M); 39,323 other $106.60 billion 139 other accounts accounts ($12.51 B) ------------------------------------------------------------------------------ Marilyn G. Fedak 120 RICs $45.86 billion 3 RICs ($6.66 B); None (21) (48) 140 PIVs $17.32 billion 3 PIVs ($217 M); 39,230 other $89.62 billion 110 other accounts accounts ($7.76 B) ------------------------------------------------------------------------------ John P. Mahedy 119 RICs $45.62 billion 3 RICs ($6.66 B); 139 PIVs $17.20 billion 3 PIVs ($217 M); 39,211 other $88.11 billion 101 other accounts accounts ($7.55 B) ------------------------------------------------------------------------------ Giulio Martini 71 RICs $25.49 billion 2 RICs ($2.74 B); 106 PIVs $21.29 billion 8 PIVs ($1.13 B); 811 other $62.13 billion 105 other accounts accounts ($8.1 B) ------------------------------------------------------------------------------------------------------------------- MONDRIAN: Ormala Krishnan 1 RIC $265.0 million None None (10) (49) 1 PIV $141.90 million 7 other accounts $528.80 million ------------------------------------------------------------------------------------------------------------------- TRADEWINDS: Peter Boardman(p) 5 RICs $1.35 billion 1 other account -------------------- Alberto Jimenez 9 PIVs $859.65 million ($73.15M) None (15) (50) Crespo(p) 43,383 other $12.06 billion accounts - ------------------------------------------------------------------------------------------------------------------------------------ Partners AIGGIC**: International Chantal Brennan** 2 RICs $347.0 million 3 other accounts Small Cap 4 PIVs $323.0 million ($90 M) 8 other accounts $255.0 million ------------------------------------------------------------------------------ Midori Katsumi** 1 RIC $7.0 million 4 other accounts None (22) (51) 1 PIV $58.0 million ($200 M) 7 other accounts $269.0 million ------------------------------------------------------------------------------ Elizabeth Soon** 2 RICs $69.0 million 3 other accounts 2 PIVs $53.0 million ($27 M) 7 other accounts $80.0 million ------------------------------------------------------------------------------------------------------------------- BATTERYMARCH: Adam Petryk 8 RICs $2.36 billion None None (23) (52) 19 PIVs $1.45 billion 34 other accounts $3.66 billion --------------------------------------------------------- Charles F. Lovejoy 4 RICs $1.22 billion -------------------- Christopher W. 12 PIVs $669.86 million Floyd 22 other accounts $2.34 billion - ------------------------------------------------------------------------------------------------------------------------------------ Threadneedle THREADNEEDLE: Emerging Markets Julian A.S. Thompson 1 RIC $695.16 million 1 RIC ($695.16 M) None(j) (18) (53) Jules Mort 1 PIV $26.09 million 2 other accounts $18.74 million - ------------------------------------------------------------------------------------------------------------------------------------ Threadneedle THREADNEEDLE: European Equity Rob Jones 1 PIV $32.78 million None None(j) (18) (53) 1 other account $184.29 million ------------------------------------------------------------------------------ Dan Ison(j) 3 PIVs $141.4 million 2 PIVs ($62.2 M) - ------------------------------------------------------------------------------------------------------------------------------------ Threadneedle THREADNEEDLE: Global Equity Stephen Thornber 1 RIC $9.58 million 1 RIC ($9.58 M) None(j) (18) (53) 1 PIV $7.73 million 3 other accounts $346.56 million ------------------------------------------------------------------------------ Andrew Holliman 1 RIC $6.0 million 1 RIC ($6 M) 2 PIVs $404.78 million 2 other accounts $309.49 million - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 114
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ Threadneedle THREADNEEDLE: Global Equity Stephen Thornber 1 RIC $432.44 million 1 RIC ($432.44 M) None(j) (18) (53) Income 1 PIV $7.73 million 3 other accounts $346.56 million ------------------------------------------------------------------------------ Jeremy Podger 1 RIC $6.0 million 1 RIC ($6 M) 2 PIVs $10.58 million 2 other accounts $221.36 million - ------------------------------------------------------------------------------------------------------------------------------------ Threadneedle THREADNEEDLE: Global Extended Andrew Holliman 1 RIC $432.44 million 1 RIC ($432.44 M) None(j) (18) (53) Alpha 2 PIVs $404.78 million 2 other accounts $309.49 million ------------------------------------------------------------------------------ Jeremy Podger 1 RIC $9.58 million 1 RIC ($9.58 M) 2 PIVs $10.58 million 2 other accounts $221.36 million - ------------------------------------------------------------------------------------------------------------------------------------ Threadneedle THREADNEEDLE: International Alex Lyle 1 RIC $9.85 billion 1 RIC ($9.85 B) None(j) (18) (53) Opportunity 28 PIVs $834.30 million 11 other accounts $415.43 million --------------------------------------------------------- Esther Perkins 1 RIC $9.85 billion 1 other account $184.29 million - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Catherine Stienstra 5 RICs $3.30 billion None None (2) (34) Tax-Exempt 11 other accounts $6.33 billion - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap John K. Schonberg 2 RICs $256.55 million 2 RICs None (2) (54) Growth 2 PIVs $15.93 million ($256.55 M) 3 other accounts $2.61 million ------------------------------------------------------------------------------------------------------------------- Sam Murphy 1 RIC $246.40 million 1 RIC ($246.4 M) None (2),(3) (54) -------------------- Mike Marzolf - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Catherine Stienstra 5 RICs $2.77 billion None None (2) (35) Bond 11 other accounts $6.33 billion - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Catherine Stienstra 5 RICs $1.18 billion None None (2) (34) High Income 11 other accounts $6.33 billion - ------------------------------------------------------------------------------------------------------------------------------------
* RIC refers to a Registered Investment Company; PIV refers to a Pooled Investment Vehicle. ** Effective Aug. 10, 2009, the subadviser/portfolio managers shown in the table are replaced by the following subadviser/portfolio managers; reporting information is provided as of May 31, 2009:
Other Accounts Managed (excluding the fund) --------------------------------------------------------- Potential APPROXIMATE Ownership Conflicts NUMBER AND TYPE TOTAL NET PERFORMANCE BASED of Fund of Structure of FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(a) Shares Interest Compensation - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------------ Partners Small Michael J. Alpert 1 RIC $35.63 million None Cap Growth 0 PIVs $0 None 12 other accounts $378.43 (2) (55) million(d) -------------------------------------------------------------------------------------------- Stephan B. Yost 1 RIC $35.63 million None 0 PIVs $0 None 12 other accounts $378.43 million(d) - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Partners Small Neil T. Eigen 7 RICs $587.6 million None Cap Equity 1 PIV $113.71 million None 64 other accounts $2.59 (2) (33) billion(d) -------------------------------------------------------------------------------------------- Richard S. Rosen 7 RICs $587.6 million None 1 PIV $113.71 million None 64 other accounts $2.59 billion(d) - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCT. 31 - ------------------------------------------------------------------------------------------------------------------------------------ Partners COLUMBIA WAM: 2 RICs $3.43 billion None None (19) (46) International P. Zachary Egan 0 PIVs $0 Small Cap 4 other accounts $1.09 million --------------------------------------------------------- Louis J. Mendes III 3 RICs $4.53 billion 0 PIVs $0 5 other accounts $1.86 million - ------------------------------------------------------------------------------------------------------------------------------------
(a) Number of accounts for which the advisory fee paid is based in part or wholly on performance and the aggregate net assets in those accounts. (b) Mr. Bergene has overall accountability for the group that monitors the subadvisers for the funds and for making recommendations to the Boards of Directors on changes to those subadvisers. (c) Ms. Keeley, who serves as Executive Vice President -- Equity and Fixed Income for RiverSource Investments, and Mr. Truscott, who serves as Chief Investment Officer for RiverSource Investments, oversee the portfolio managers who manage other accounts for RiverSource Statement of Additional Information - July 30, 2009 Page 115 Investments, including the underlying funds in which the Funds-of-Funds invest, and other accounts managed by RiverSource Investments and its affiliates including institutional assets, proprietary assets and hedge funds. (d) Reflects each wrap program strategy as a single client, rather than counting each participant in the program as a separate client. (e) Wrap accounts have been counted at the sponsor level. (f) Neither Christopher Davis nor Kenneth Feinberg own any shares of RiverSource Partners Fundamental Value Fund. However, both portfolio managers have over $1 million invested in the Davis Funds, which are managed in a similar style. (g) Other accounts exclude the assets and number of accounts in wrap fee programs that are managed using model portfolios. (h) Mr. Mullman only manages a portion of the accounts subject to a performance fee. The total assets shown reflect the portion of those accounts managed by Mr. Mullman. (i) Michael T. Smith does not own any shares of RiverSource Partners Small Cap Equity Fund. However, he invests in the Lord Abbett Small Cap Blend Fund, which is managed in a similar style. (j) The fund is available for sale only in the U.S. The portfolio managers do not reside in the U.S. and therefore do not hold any shares of the fund. (k) The portfolio manager began managing the fund after its last fiscal year end; therefore reporting information is as of Sept. 30, 2008. (l) The portfolio manager began managing the fund after its last fiscal year end; reporting information is as of Oct. 31, 2008. (m) The portfolio manager began managing the fund after its last fiscal year end; reporting information is provided as of Jan. 31, 2009. (n) The portfolio manager began managing the fund after its last fiscal year end; reporting information is provided as of Nov. 17, 2008. (o) The portfolio manager began managing the fund after its last fiscal year end; reporting information is provided as of May 31, 2009. (p) The portfolio manager began managing the fund after its last fiscal year end; reporting information is provided as of June 29, 2009. POTENTIAL CONFLICTS OF INTEREST (1) RIVERSOURCE: Management of Funds-of-Funds differs from that of the other funds. The portfolio management process is set forth generally below and in more detail in the funds' prospectus. Management of the portfolios is based on initial asset class guidance provided by the Capital Markets Committee, a group of RiverSource Investments investment professionals, and subsequent allocation determinations by the Asset Allocation Committee and Fund Selection Committee within established guidelines set forth in the prospectus. The Asset Allocation Committee, comprised of portfolio managers Joy, Keeley and Truscott, determines each funds-of-fund's allocation among the three main asset classes (equity, fixed income and cash) and allocation among investment categories within each asset class. The Fund Selection Committee, comprised portfolio managers Bergene, Joy, Keeley and Truscott, determines each funds-of-fund's allocation among the underlying funds. These allocation determinations are reviewed by the Asset Allocation Committee and Fund Selection Committee at least quarterly. Because of the structure of the funds-of-funds, the potential conflicts of interest for the portfolio managers may be different than the potential conflicts of interest for portfolio managers who manage other funds. These potential conflicts of interest include - The portfolio managers of the underlying funds are under the supervision of portfolio managers Keeley and Truscott. Keeley and Truscott may have influence over the management of the underlying funds through their supervision of the underlying funds' portfolio managers and/or through their ability, as part of the Asset Allocation Committee and Fund Selection Committee, to influence the allocation of funds-of-funds assets to or away from the underlying funds. - Portfolio managers Joy, Keeley and Truscott also serve as members of the Capital Markets Committee. As described above, the Capital Markets Committee provides initial guidance with respect to asset allocation, and its view may play a significant role in the asset class determinations made by the Asset Allocation Committee and, as a result, in the underlying fund determinations made by the Fund Selection Committee. In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager has in place a Code of Ethics that is designed to address conflicts and that, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts. Statement of Additional Information - July 30, 2009 Page 116 (2) RIVERSOURCE: RiverSource Investments portfolio managers may manage one or more mutual funds as well as other types of accounts, including hedge funds, proprietary accounts, separate accounts for institutions and individuals, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. A portfolio manager may manage another account whose fees may be materially greater than the management fees paid by the Fund and may include a performance-based fee. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, competing investment decisions made for different accounts and the aggregation and allocation of trades. In addition, RiverSource Investments monitors a variety of areas (e.g., allocation of investment opportunities) and compliance with the firm's Code of Ethics, and places additional investment restrictions on portfolio managers who manage hedge funds and certain other accounts. RiverSource Investments has a fiduciary responsibility to all of the clients for which it manages accounts. RiverSource Investments seeks to provide best execution of all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and equitable basis over time. RiverSource Investments has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager's Code of Ethics is designed to address conflicts and, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts. (3) RIVERSOURCE: The portfolio manager's responsibilities also include working as a securities analyst. This dual role may give rise to conflicts with respect to making investment decisions for accounts that the portfolio manager manages versus communicating his or her analyses to other portfolio managers concerning securities that he or she follows as an analyst. (4) UBS: The management of a portfolio and other accounts by a portfolio manager could result in potential conflicts of interest if the portfolio and other accounts have different objectives, benchmarks and fees because the portfolio manager and his team must allocate time and investment expertise across multiple accounts, including the portfolio. The portfolio manager and his team manage the portfolio and other accounts utilizing a model portfolio approach that groups similar accounts within a model portfolio. UBS Global Asset Management (Americas) Inc. manages accounts according to the appropriate model portfolio, including where possible, those accounts that have specific investment restrictions. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across accounts, which may minimize the potential for conflicts of interest. If a portfolio manager identifies a limited investment opportunity that may be suitable for more than one account or model portfolio, the portfolio may not be able to take full advantage of that opportunity due to an allocation or filled purchase or sale orders across all eligible model portfolios and accounts. To deal with these situations, UBS Global Asset Management (Americas) Inc. has adopted procedures for allocating portfolio trades among multiple accounts to provide fair treatment to all accounts. The management of personal accounts by a portfolio manager may also give rise to potential conflicts of interest. UBS Global Asset Management (Americas) Inc. has adopted Codes of Ethics that govern such personal trading, but there is no assurance that the Codes will adequately address all such conflicts. (5) TURNER: As is typical for many money managers, potential conflicts of interest may arise related to Turner's management of accounts including the fund where not all accounts are able to participate in a desired IPO, or other limited opportunity, relating to use of soft dollars and other brokerage practices, related to the voting of proxies, employee personal securities trading, and relating to a variety of other circumstances. In all cases, however, Turner believes it has written policies and procedures in place reasonably designed to prevent violations of the federal securities laws and to prevent material conflicts of interest from arising. Please also see Turner's Form ADV, Part II for a description of some of its policies and procedures in this regard. (6) ESSEX: Potential conflicts of interest may be presented in connection with the Portfolio Manager's management of the Fund's investments, on the one hand, and the investments of other accounts, on the other, such as conflicts of interest related to the aggregation of trades, the allocation of investment opportunities, contrary client positions and employee securities trading. Essex has established written policies and procedures relating to its investment management and trading practices that are designed to prevent such conflicts of interest. On occasion, employees of Essex may purchase or sell, for their own accounts, securities also invested in by clients or recommended to clients. Essex maintains a code of ethics that is designed to prevent the conflicts of interest presented by employees' personal securities transactions. (7) MDTA: As a general matter, certain conflicts of interest may arise in connection with a portfolio manager's management of a fund's investments, on the one hand, and the investments of other accounts for which the portfolio manager is responsible, on the other. For example, it is possible that the various accounts managed could have different investment strategies that, at times, might conflict with one another to the possible detriment of the Fund. Alternatively, to the extent Statement of Additional Information - July 30, 2009 Page 117 that the same investment opportunities might be desirable for more than one account, possible conflicts could arise in determining how to allocate them. Other potential conflicts might include conflicts created by specific portfolio manager compensation arrangements, and conflicts relating to selection of brokers or dealers to execute fund portfolio trades and/or specific uses of commissions from Fund portfolio trades (for example, research, or "soft dollars"). The Adviser has structured the portfolio managers' compensation in a manner, and the Fund has adopted policies and procedures, reasonably designed to safeguard the Fund from being negatively affected as a result of any such potential conflicts. (8) RIVERSOURCE: Management of the Income Builder and Retirement Plus Funds- of-Funds differs from that of the other funds. The portfolio management process is set forth generally below and in more detail in the funds' prospectus. Management of the portfolios is based on proprietary, quantitative techniques and qualitative review of the quantitative output. Using these methodologies, a group of RiverSource investment professionals allocates each fund's assets within and across different asset classes in an effort to achieve the fund's objective of providing a high level of current income and growth of capital. After the initial allocation, the fund will be rebalanced monthly in an effort to maximize the level of income and capital growth, incorporating various measures of relative value subject to constraints that set minimum or maximum exposure within asset classes, as set forth in the prospectus. Within the equity and fixed income asset classes, the quantitative model establishes allocations for the funds, seeking to achieve each fund's objective by investing in defined investment categories. The target allocation range constraints are intended, in part, to promote diversification within the asset classes. Because of the structure of the funds-of-funds, the potential conflicts of interest for the portfolio managers may be different than the potential conflicts of interest for portfolio managers who manage other funds. These potential conflicts of interest include: - In certain cases, the portfolio managers of the underlying funds are the same as the portfolio managers of the Income Builder and Retirement Plus Funds-of-Funds, and could influence the allocation of funds-of-funds assets to or away from the underlying funds that they manage. - RiverSource Investments, LLC and its affiliates may receive higher compensation as a result of allocations to underlying funds with higher fees. - RiverSource Investments, LLC monitors the performance of the underlying funds and may, from time to time, recommend to the board of directors of the funds a change in portfolio management or fund strategy or the closure or merger of an underlying fund. In addition, RiverSource Investments, LLC may believe that certain funds may benefit from additional assets or could be harmed by redemptions. All of these factors may also influence decisions in connection with the allocation of funds-of-funds assets to or away from certain underlying funds. In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager has in place a Code of Ethics that is designed to address conflicts and that, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts. (9) AMERICAN CENTURY: Certain conflicts of interest may arise in connection with the management of multiple portfolios. Potential conflicts include, for example, conflicts among investment strategies and conflicts in the allocation of investment opportunities. American Century has adopted policies and procedures that are designed to minimize the effects of these conflicts. Responsibility for managing American Century client portfolios is organized according to investment discipline. Investment disciplines include, for example, quantitative equity, small- and mid-cap growth, large-cap growth, value, international, fixed income, asset allocation, and sector funds. Within each discipline are one or more portfolio teams responsible for managing specific client portfolios. Generally, client portfolios with similar strategies are managed by the same team using the same objective, approach, and philosophy. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar portfolios, which minimizes the potential for conflicts of interest. For each investment strategy, one portfolio is generally designated as the "policy portfolio." Other portfolios with similar investment objectives, guidelines and restrictions are referred to as "tracking portfolios." When managing policy and tracking portfolios, a portfolio team typically purchases and sells securities across all portfolios that the team manages. American Century's trading systems include various order entry programs that assist in the management of multiple portfolios, such as the ability to purchase or sell the same relative amount of one security across several funds. In some cases a tracking portfolio may have additional restrictions or limitations that cause it to be managed separately from the policy portfolio. Portfolio managers make purchase and sale decisions for such portfolios alongside the policy portfolio to the extent the overlap is appropriate, and separately, if the overlap is not. Statement of Additional Information - July 30, 2009 Page 118 American Century may aggregate orders to purchase or sell the same security for multiple portfolios when it believes such aggregation is consistent with its duty to seek best execution on behalf of its clients. Orders of certain client portfolios may, by investment restriction or otherwise, be determined not available for aggregation. American Century has adopted policies and procedures to minimize the risk that a client portfolio could be systematically advantaged or disadvantaged in connection with the aggregation of orders. To the extent equity trades are aggregated, shares purchased or sold are generally allocated to the participating portfolios pro rata based on order size. Because initial public offerings (IPOs) are usually available in limited supply and in amounts too small to permit across- the-board pro rata allocations, American Century has adopted special procedures designed to promote a fair and equitable allocation of IPO securities among clients over time. Fixed income securities transactions are not executed through a centralized trading desk. Instead, portfolio teams are responsible for executing trades with broker/dealers in a predominantly dealer marketplace. Trade allocation decisions are made by the portfolio manager at the time of trade execution and orders entered on the fixed income order management system. Finally, investment of American Century's corporate assets in proprietary accounts may raise additional conflicts of interest. To mitigate these potential conflicts of interest, American Century has adopted policies and procedures intended to provide that trading in proprietary accounts is performed in a manner that does not give improper advantage to American Century to the detriment of client portfolios. (10) MONDRIAN: Mondrian does not foresee any material conflicts of interest that may arise in the management of the funds and any other accounts managed with similar investment guidelines. Mondrian acts solely as an investment manager and does not engage in any other business activities. The following is a list of some potential conflicts of interest that can arise in the course of normal investment management business activities. Mondrian maintains and operates various policies and procedures which are designed to prevent or manage any of the conflicts identified below so that the interests of its clients are always put ahead of Mondrian's own interests or those of its employees and directors: Allocation of aggregated trades Mondrian may from time to time aggregate trades for a number of its clients. Mondrian's policy requires that all allocations of aggregated trades must be fair between clients. Transactions involving commingled orders are allocated in a manner deemed equitable to each account. When a combined order is executed in a series of transactions, at different prices, each account participating in the order may be allocated an average price obtained from the broker/dealer. When a trade can be allocated in a cost efficient manner to our clients, it will be prorated across all participating accounts. Mondrian may randomly allocate purchases or sales among participating accounts when the amounts involved are too small to be evenly proportioned in a cost efficient manner. In performing random allocations, Mondrian will consider consistency of strategy implementation among participating accounts. Allocation of investment opportunities Mondrian is an investment manager of multiple client portfolios. As such, it has to ensure that investment opportunities are allocated fairly between clients. There is a potential risk that Mondrian may favor one client over another client in making allocations of investment opportunities. Mondrian makes security selection decisions at committee level. Those securities identified as investment opportunities are added to a list of approved securities; portfolios will hold only such approved securities. All portfolios governed by the same or a similar mandate will be structured similarly (that is, will hold the same or comparable stocks), and will exhibit similar characteristics. Sale and purchase opportunities identified at regular investment meetings will be applied to portfolios across the board, subject to the requirements of individual client mandates. See also "Side-by-side management of hedge funds" below. Allocation of IPO opportunities Initial Public Offerings ("IPO's") present a potential conflict of interest when they are priced at a discount to the anticipated secondary market price and the issuer has restricted or scaled back its allocation due to market demand. In such instances, the IPO allocation could be divided among a small select group of clients with others not receiving the allocation they would otherwise be entitled to. Mondrian clients with relevant mandates are given an equal opportunity, proportionate to the size of their portfolio, to participate in IPO trades. All IPO purchases are allocated on a strict pro-rata basis. Dealing in investments as principal in connections with the provision of seed capital A conflict of interest exists when a portfolio management firm manages its own money alongside client money. Mondrian generally does not trade for its own account. However, Mondrian and its affiliates have provided the seed capital to certain investment vehicles that have been established by Mondrian group entities. Mondrian serves as the investment manager to these investment vehicles. Statement of Additional Information - July 30, 2009 Page 119 Mondrian operates dealing policies designed to ensure the fair and equal treatment of all clients e.g. the allocation of aggregated trades among clients. These policies ensure that any portfolios in which Mondrian has an investment interest do not receive favorable treatment relative to other client portfolios. Directorships and external arrangements Certain Mondrian staff may hold positions in external organizations. There is a potential risk that Mondrian personnel may place their own interests (resulting from outside employment/directorships) ahead of the interests of Mondrian clients. Before accepting an executive or non-executive directorship or any other appointment in another company, employees, including executive directors, must obtain the prior approval of the Chief Executive Officer. The Chief Compliance Officer must also be informed of all such appointments and changes. The CEO and CCO will only permit appointments that would not present a conflict of interest with the individual's responsibilities to Mondrian clients. Dual agency Dual Agency (also known as Cross Trading) concerns those transactions where Mondrian may act as agent for both the buyer and seller. In such circumstances there is a potential conflict of interest as it may be possible to favor one client over another when establishing the execution price and/or commission rate. Although it rarely does so, Mondrian may act as agent for both buying and selling parties with respect to transactions in investments. If Mondrian proposes to act in such capacity, the Portfolio Manager will first obtain approval from the Chief Compliance Officer. The CCO has an obligation to ensure that both parties are treated fairly in any such trade. Employee personal account dealing There are a number of potential conflicts when staff of an investment firm engage in buying and selling securities for their personal account. Mondrian has arrangements in place to ensure that none of its directors, officers or employees (or persons connected to them by way of a business or domestic relationship) effects any transaction on their own account which conflicts with client interests. Mondrian's rules which govern personal account dealing and general ethical standards are set out in the Mondrian Investment Partners Code of Ethics. Gifts and entertainment (received) In the normal course of business Mondrian employees may receive gifts and entertainment from third parties e.g. brokers and other service providers. This results in a potential conflict of interest when selecting third parties to provide services to Mondrian and its clients. Mondrian has a policy which requires that gifts and entertainment received are reported to the Chief Compliance Officer (any items in excess of L100 require pre-approval). All gifts and entertainment are reviewed to ensure that they are not inappropriate and that staff have not been unduly influenced by them. Gifts and entertainment (given) In the normal course of business, Mondrian employees may provide gifts and entertainment to third parties. Excessively lavish gifts and entertainment would be inappropriate. Mondrian has a policy which requires that any gifts and entertainment provided are reported to the Chief Compliance Officer (any items in excess of L200 require pre-approval). All gifts and entertainment are reviewed to ensure that they are not inappropriate and that staff have not attempted to obtain undue influence from them. Performance fees Where an investment firm has clients with a performance fee arrangement there is a risk that those clients could be favored over clients without performance fees. Mondrian charges fees as a proportion of assets under management. In a very limited number of situations, in addition to this fee basis, certain accounts also include a performance fee basis. The potential conflict of interest arising from these fee arrangements is addressed by Mondrian's procedures for the allocation of aggregated trades among clients. Investment opportunities are allocated totally independently of fee arrangements. Side-by-side management of hedge funds (Mondrian Alpha Funds) Where an investment manager has responsibility for managing long only portfolios alongside portfolios that can take short positions there is potential for a conflict of interest to arise between the two types of portfolio. Statement of Additional Information - July 30, 2009 Page 120 Mondrian acts as investment manager for two Fixed Income Alpha and one Equity Alpha fund. The Alpha Funds are permitted to take short positions and are also permitted to invest in some or all of the same securities that Mondrian manages for other clients. Mondrian is satisfied that the investment styles of these different products significantly reduce the likelihood of a conflict of interest arising. However, Mondrian has a number of policies and procedures in place that are designed to ensure that any potential conflicts are correctly managed and monitored so that all clients are treated fairly. Soft dollar arrangements Where an investment manager has soft dollar arrangements in place with a broker/dealer there is a potential conflict of interest as trading volumes through that broker/dealer are usually important in ensuring that soft dollar targets are met. As is typical in the investment management industry, Mondrian client funds are used to pay brokerage commissions for the execution of transactions in the client's portfolio. As part of that execution service, brokers generally provide proprietary research to their clients as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing of analyses and reports concerning issuers, securities or industries; and providing information on economic factors and trends. Proprietary research may be used by Mondrian in connection with its investment decision-making process with respect to one or more accounts managed by it, and it may or may not be used, or used exclusively, with respect to the account generating the brokerage. With the exception of the receipt of proprietary research, Mondrian has no other soft dollar or commission sharing arrangements in place with brokers. (11) JENNISON: In managing other portfolios (including affiliated accounts), certain potential conflicts of interest may arise. Potential conflicts include, for example, conflicts among investment strategies, conflicts in the allocation of investment opportunities, or conflicts due to different fees. As part of its compliance program, Jennison has adopted policies and procedures that seek to address and minimize the effects of these conflicts. Jennison's portfolio managers typically manage multiple accounts. These accounts may include, among others, mutual funds, separately managed advisory accounts (assets managed on behalf of institutions such as pension funds, colleges and universities, foundations), commingled trust accounts, other types of unregistered commingled accounts (including hedge funds), affiliated single client and commingled insurance separate accounts, model nondiscretionary portfolios, and model portfolios used for wrap fee programs. Portfolio managers make investment decisions for each portfolio based on the investment objectives, policies, practices and other relevant investment considerations that the managers believe are applicable to that portfolio. Consequently, portfolio managers may recommend the purchase (or sale) of certain securities for one portfolio and not another portfolio. Securities purchased in one portfolio may perform better than the securities purchased for another portfolio. Similarly, securities sold from one portfolio may result in better performance if the value of that security declines. Generally, however, portfolios in a particular product strategy (e.g., large cap growth equity) with similar objectives are managed similarly. Accordingly, portfolio holdings and industry and sector exposure tend to be similar across a group of accounts in a strategy that have similar objectives, which tends to minimize the potential for conflicts of interest. While these accounts have many similarities, the investment performance of each account will be different primarily due to differences in guidelines, timing of investments, fees, expenses and cash flows. Furthermore, certain accounts (including affiliated accounts) in certain investment strategies may buy or sell securities while accounts in other strategies may take the same or differing, including potentially opposite, position. For example, certain strategies may short securities that may be held long in other strategies. The strategies that sell a security short held long by another strategy could lower the price for the security held long. Similarly, if a strategy is purchasing a security that is held short in other strategies, the strategies purchasing the security could increase the price of the security held short. Jennison has policies and procedures that seek to mitigate, monitor and manage this conflict. In addition, Jennison has adopted trade aggregation and allocation procedures that seek to treat all clients (including affiliated accounts) fairly and equitably. These policies and procedures address the allocation of limited investment opportunities, such as IPOs and the allocation of transactions across multiple accounts. Some accounts have higher fees, including performance fees, than others. Fees charged to clients may differ depending upon a number of factors including, but not limited to, the particular strategy, the size of the portfolio being managed, the relationship with the client, the service requirements and the asset class involved. Fees may also differ based on the account type (e.g., commingled accounts, trust accounts, insurance company separate accounts or corporate, bank or trust-owned life insurance products). Some accounts, such as hedge funds and alternative strategies, have higher fees, including performance fees, than others. Based on these factors, a client may pay higher fees than another client in the same strategy. Also, clients with larger assets under management generate more revenue for Jennison than smaller accounts. Statement of Additional Information - July 30, 2009 Page 121 These differences may give rise to a potential conflict that a portfolio manager may favor the higher fee-paying account over the other or allocate more time to the management of one account over another. Furthermore, if a greater proportion of a portfolio manager's compensation could be derived from an account or group of accounts, which include hedge fund or alternative strategies, than other accounts under the portfolio manager's management, there could be an incentive for the portfolio manager to favor the accounts that could have a greater impact on the portfolio manager's compensation. While Jennison does not monitor the specific amount of time that a portfolio manager spends on a single portfolio, senior Jennison personnel periodically review the performance of Jennison's portfolio managers as well as periodically assess whether the portfolio manager has adequate resources to effectively manage the accounts assigned to that portfolio manager. Jennison also believes that its compensation structure tends to mitigate this conflict. (12) DAVIS: Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one portfolio or other account. More specifically, portfolio managers who manage multiple portfolios and/or other accounts are presented with the following potential conflicts: - The management of multiple portfolios and/or other accounts may result in a portfolio manager devoting unequal time and attention to the management of each portfolio and/or other account. Davis Advisors seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the portfolios. - If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one portfolio or other account, a portfolio may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible portfolios and other accounts. To deal with these situations, Davis Advisors has adopted procedures for allocating portfolio transactions across multiple accounts. - With respect to securities transactions for the portfolios, Davis Advisors determines which broker to use to execute each order, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts (such as mutual funds, other pooled investment vehicles that are not registered mutual funds, and other accounts managed for organizations and individuals), Davis Advisors may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Davis Advisors may place separate, non- simultaneous, transactions for a portfolio and another account which may temporarily affect the market price of the security or the execution of the transaction, or both, to the detriment of the portfolio or the other account. - Finally, substantial investment of Davis Advisor or Davis Family assets in certain mutual funds may lead to conflicts of interest. To mitigate these potential conflicts of interest, Davis Advisors has adopted policies and procedures intended to ensure that all clients are treated fairly over time. Davis Advisors does not receive an incentive based fee on any account. (13) LORD, ABBETT: Conflicts of interest may arise in connection with the investment manager's management of the investments of the relevant fund and the investments of the other accounts. Such conflicts may arise with respect to the allocation of investment opportunities among the relevant fund and other accounts Conflicts of interest may arise in connection with the portfolio managers' management of the investments of the relevant fund and the investments of the other accounts included in the table above. Such conflicts may arise with respect to the allocation of investment opportunities among the relevant fund and other accounts with similar investment objectives and policies. A portfolio manager potentially could use information concerning the relevant fund's transactions to the advantage of other accounts and to the detriment of the relevant fund. To address these potential conflicts of interest, Lord Abbett has adopted and implemented a number of policies and procedures. Lord Abbett has adopted Policies and Procedures for Evaluating Best Execution of Equity Transactions, as well as Trading Practices/Best Execution Procedures. The objective of these policies and procedures is to ensure the fair and equitable treatment of transactions and allocation of investment opportunities on behalf of all accounts managed by Lord Abbett. In addition, Lord Abbett's Code of Ethics sets forth general principles for the conduct of employee personal securities transactions in a manner that avoids any actual or potential conflicts of interest with the interests of Lord Abbett's clients including the relevant fund. Moreover, Lord Abbett's Statement of Policy and Procedures on Receipt and Use of Inside Information sets forth procedures for personnel to follow when they have inside information. Lord Abbett is not affiliated with a full service broker-dealer and therefore does not execute any portfolio transactions through such an entity, a structure that could give rise to additional conflicts. Lord Abbett does not conduct any investment bank functions and does not manage any hedge funds. Lord Abbett does not believe that any material conflicts of interest exist in connection with the portfolio managers' management of the investments of the relevant fund and the investments of the other accounts referenced in the table above. Statement of Additional Information - July 30, 2009 Page 122 (14) DONALD SMITH: Donald Smith & Co., Inc. is very sensitive to conflicts of interest that could possibly arise in its capacity of serving as an investment adviser. It remains committed to resolving any and all conflicts in the best interest of its clients. Donald Smith & Co., Inc. is an independent investment advisor with no parent or subsidiary organizations. Additionally, it has no affiliated organizations, brokerage, nor any investment banking activities. Clients include mutual funds, public and corporate pension plans, endowments and foundations, and other separate accounts. Donald Smith & Co., Inc. has put in place systems, policies and procedures, which have been designed to maintain fairness in portfolio management across all clients. Potential conflicts between funds or with other types of accounts are managed via allocation policies and procedures, internal review processes, and direct oversight by Donald G. Smith, President. (15) TRADEWINDS: Tradewinds recognizes that actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one account. More specifically, Tradewinds, because it manages multiple accounts is presented with several potential conflicts and it seeks to manage these conflicts as follows: - The management of multiple accounts may result in a portfolio manager devoting unequal time and attention to the management of each account. Tradewinds seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most accounts managed by a portfolio manager in a particular investment strategy are managed using the same investment models. - If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one account, an account may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible accounts. To deal with these situations, Tradewinds has adopted procedures for fairly allocating portfolio transactions across multiple accounts. - With respect to many of its clients' accounts, Tradewinds determines which broker to use to execute transaction orders, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts, Tradewinds may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Tradewinds may place separate, non-simultaneous, transactions for a Fund and other accounts which may temporarily affect the market price of the security or the execution of the transaction, or both, to the detriment of the Fund or the other accounts. - Some clients are subject to different regulations. As a consequence of this difference in regulatory requirements, some clients may not be permitted to engage in all the investment techniques or transactions (e.g., short selling) or to engage in these transactions to the same extent as the other accounts managed by the portfolio manager. Finally, the appearance of a conflict of interest may arise where Tradewinds has an incentive, such as a performance-based management fee, which relates to the management of some accounts, with respect to which a portfolio manager has day-to-day management responsibilities. Tradewinds has adopted certain compliance procedures which are designed to address these types of conflicts common among investment managers. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises. (16) BHMS: Actual or potential conflicts of interest may arise when a portfolio manager has management responsibilities to more than one account (including the Fund). BHMS manages potential conflicts between funds or with other types of accounts through allocation policies and procedures, internal review processes and oversight by directors and independent third parties to ensure that no client, regardless of type or fee structure, is intentionally favored at the expense of another. Allocation policies are designed to address potential conflicts in situations where two or more funds or accounts participate in investment decisions involving the same securities. (17) METWEST: Certain conflicts of interest may arise in connection with the management of multiple portfolios and investment strategies. Potential conflicts include the allocation of investment opportunities across client accounts and the allocation of similar investments across different strategies. MetWest Capital has adopted policies and procedures designed to minimize the effects of these conflicts. Responsibility for managing MetWest Capital client portfolios is organized according to investment strategy. All accounts in each strategy are managed to a model portfolio, as specified by the investment team. The investment team implements the model consistently across client portfolios. Consequently, position sizes and industry and sector allocations are similar across our clients' portfolios. Typically, no positions differ from portfolio to portfolio, except in the case of client-imposed restrictions. For such a portfolio, the investment team determines the position(s) that comply with client requirements. This process minimizes the potential for conflicts of interest. MetWest Capital's allocation policy allocates all investment opportunities among clients in the fairest possible way, taking into account clients' best interests. We have adopted policies and procedures designed to ensure that allocations Statement of Additional Information - July 30, 2009 Page 123 do not involve a practice of favoring or disfavoring any strategy, client or group of clients. Account and strategy performance is never a factor in trade allocations. When necessary, we address known conflicts of interests in our trading practices by disclosure to clients and/or in our Form ADV or other appropriate action. The decision to buy or sell a position in the model portfolio is based on the direction of the investment team. Once the decision is made, traders prepare the trade "blocks." All participating strategies and client portfolios (those without pending cash flows or prohibited transactions) are block-traded together, typically grouped either by custodian or trade broker according to best-execution practices. Orders are placed to ensure random fills so that no one strategy, client or group of clients is favored or disfavored on a systematic basis. Each portfolio/relationship manager is responsible for reviewing the blocks and implementing all buy and sell orders for his/her accounts, taking into consideration client-specific factors. A committee, comprised of the Chief Investment Officer and portfolio/relationship managers, reviews trade reports for all accounts on a daily basis. (18) THREADNEEDLE: Threadneedle Investments portfolio managers may manage one or more mutual funds as well as other types of accounts, including proprietary accounts, separate accounts for institutions, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. A portfolio manager may manage a separate account or other pooled investment vehicle whose fees may be materially greater than the management fees paid by the Fund and may include a performance-based fee. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. In addition, the portfolio manager's responsibilities at Threadneedle Investments include working as a securities analyst. This dual role may give rise to conflicts with respect to making investment decisions for accounts that he/she manages versus communicating his/her analyses to other portfolio managers concerning securities that he/she follows as an analyst. Threadneedle Investments has a fiduciary responsibility to all of the clients for which it manages accounts. Threadneedle Investments seeks to provide best execution of all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and timely manner. Threadneedle Investments has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. (19) COLUMBIA WAM: Like other investment professionals with multiple clients, a Fund's portfolio manager(s) may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The Advisor and the Funds have adopted compliance policies and procedures that attempt to address certain of the potential conflicts that portfolio managers face in this regard. Certain of these conflicts of interest are summarized below. The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance (performance fee accounts), if any, may raise potential conflicts of interest for a portfolio manager by creating an incentive to favor higher fee accounts. Potential conflicts of interest also may arise when a portfolio manager has personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to the Advisor's Code of Ethics and certain limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Funds. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. The effects of this potential conflict may be more pronounced where funds and/or accounts managed by a particular portfolio manager have different investment strategies. A portfolio manager may be able to select or influence the selection of the broker/dealers that are used to execute securities transactions for the Funds. A portfolio manager's decision as to the selection of broker/dealers could produce disproportionate costs and benefits among the Funds and the other accounts the portfolio manager manages. A potential conflict of interest may arise when a portfolio manager buys or sells the same securities for a Fund and other accounts. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent consistent with applicable laws and regulations, aggregate the securities to be sold or bought in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if a portfolio manager favors one account over another in allocating the securities bought or sold. "Cross trades," in which a portfolio manager sells a particular security held by a Fund to another account (potentially saving transaction costs for both accounts), could involve a potential conflict of interest if, for example, a portfolio Statement of Additional Information - July 30, 2009 Page 124 manager is permitted to sell a security from one account to another account at a higher price than an independent third party would pay. The Advisor and the Funds have adopted compliance procedures that provide that any transactions between the Fund and another account managed by the Advisor are to be made at an independent current market price, consistent with applicable laws and regulation. Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts managed by its portfolio manager(s). Depending on another account's objectives and other factors, a portfolio manager may give advice to and make decisions for a Fund that may differ from advice given, or the timing or nature of decisions made, with respect to another account. A portfolio manager's investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a portfolio manager may buy or sell a particular security for certain accounts, and not for a Fund, even though it could have been bought or sold for the Fund at the same time. A portfolio manager also may buy a particular security for one or more accounts when one or more other accounts are selling the security (including short sales). There may be circumstances when a portfolio manager's purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts, including the Funds. A Fund's portfolio manager(s) also may have other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both the Fund and other accounts. Many of the potential conflicts of interest to which the Advisor's portfolio managers are subject are essentially the same as or similar to the potential conflicts of interest related to the investment management activities of the Advisor and its affiliates. (20) PRINCIPAL: Principal Global Investors provides investment advisory services to numerous clients other than the Fund. The investment objectives and policies of these accounts may differ from those of the Fund. Based on these differing circumstances, potential conflicts of interest may arise because the subadviser may be required to pursue different investment strategies on behalf of the Fund and other client accounts. For example, a subadviser may be required to consider an individual client's existing positions, personal tax situation, suitability, personal biases and investment time horizon, which considerations would not affect his investment decisions on behalf of the Fund. This means that research on securities to determine the merits of including them in the Fund's portfolio are similar, but not identical, to those employed in building private client portfolios. As a result, there may be instances in which a subadviser purchases or sells an investment for one or more private accounts and not for the Fund, or vice versa. To the extent the Fund and other clients seek to acquire the same security at about the same time, the Fund may not be able to acquire as large a position in such security as it desires or it may have to pay a higher price for the security. Similarly, the Fund may not be able to obtain as large an execution of an order to sell or as high a price for any particular security if the subadviser desires to sell the same portfolio security at the same time on behalf of other clients. On the other hand, if the same securities are bought or sold at the same time by more than one client, the resulting participation in volume transactions could produce better executions for the Fund. (21) ALLIANCEBERNSTEIN: As an investment adviser and fiduciary, AllianceBernstein owes its clients and shareholders an undivided duty of loyalty. We recognize that conflicts of interest are inherent in our business and accordingly have developed policies and procedures (including oversight monitoring) reasonably designed to detect, manage and mitigate the effects of actual or potential conflicts of interest in the area of employee personal trading, managing multiple accounts for multiple clients, including AllianceBernstein Mutual Funds, and allocating investment opportunities. Investment professionals, including portfolio managers and research analysts, are subject to the above- mentioned policies and oversight monitoring to ensure that all clients are treated equitably. We place the interests of our clients first and expect all of our employees to meet their fiduciary duties. Employee Personal Trading AllianceBernstein has adopted a Code of Business Conduct and Ethics that is designed to detect and prevent conflicts of interest when investment professionals and other personnel of AllianceBernstein own, buy or sell securities which may be owned by, or bought or sold for, clients. Personal securities transactions by an employee may raise a potential conflict of interest when an employee owns or trades in a security that is owned or considered for purchase or sale by a client, or recommended for purchase or sale by an employee to a client. Subject to the reporting requirements and other limitations of its Code of Business Conduct and Ethics, AllianceBernstein permits its employees to engage in personal securities transactions, and also allows them to acquire investments in the AllianceBernstein Mutual Funds through direct purchase, 401K/profit sharing plan investment and/or notionally in connection with deferred incentive compensation awards. AllianceBernstein's Code of Ethics and Business Conduct requires disclosure of all personal accounts and maintenance of brokerage accounts with designated broker-dealers approved by AllianceBernstein. The Code also requires preclearance of all securities transactions and imposes a one-year holding period for securities purchased by employees to discourage short-term trading. Statement of Additional Information - July 30, 2009 Page 125 Managing Multiple Accounts for Multiple Clients AllianceBernstein has compliance policies and oversight monitoring in place to address conflicts of interest relating to the management of multiple accounts for multiple clients. Conflicts of interest may arise when an investment professional has responsibilities for the investments of more than one account because the investment professional may be unable to devote equal time and attention to each account. The investment professional or investment professional teams for each client may have responsibilities for managing all or a portion of the investments of multiple accounts with a common investment strategy, including other registered investment companies, unregistered investment vehicles, such as hedge funds, pension plans, separate accounts, collective trusts and charitable foundations. Among other things, AllianceBernstein's policies and procedures provide for the prompt dissemination to investment professionals of initial or changed investment recommendations by analysts so that investment professionals are better able to develop investment strategies for all accounts they manage. In addition, investment decisions by investment professionals are reviewed for the purpose of maintaining uniformity among similar accounts and ensuring that accounts are treated equitably. No investment professional that manages client accounts carrying performance fees is compensated directly or specifically for the performance of those accounts. Investment professional compensation reflects a broad contribution in multiple dimensions to long-term investment success for our clients and is not tied specifically to the performance of any particular client's account, nor is it directly tied to the level or change in the level of assets under management. Allocating Investment Opportunities AllianceBernstein has policies and procedures intended to address conflicts of interest relating to the allocation of investment opportunities. These policies and procedures are designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The investment professionals at AllianceBernstein routinely are required to select and allocate investment opportunities among accounts. Portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar accounts, which minimizes the potential for conflicts of interest relating to the allocation of investment opportunities. Nevertheless, investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons. AllianceBernstein's procedures are also designed to prevent potential conflicts of interest that may arise when AllianceBernstein has a particular financial incentive, such as a performance-based management fee, relating to an account. An investment professional may perceive that he or she has an incentive to devote more time to developing and analyzing investment strategies and opportunities or allocating securities preferentially to accounts for which AllianceBernstein could share in investment gains. To address these conflicts of interest, AllianceBernstein's policies and procedures require, among other things, the prompt dissemination to investment professionals of any initial or changed investment recommendations by analysts; the aggregation of orders to facilitate best execution for all accounts; price averaging for all aggregated orders; objective allocation for limited investment opportunities (e.g., on a rotational basis) to ensure fair and equitable allocation among accounts; and limitations on short sales of securities. These procedures also require documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. (22) AIGGIC: AIG Global Investment Corp. ("AIGGIC") aims to conduct its activities in such a manner that permits it to deal fairly with each of its clients on an overall basis in accordance with applicable securities laws and fiduciary obligations. In that regard, AIGGIC has adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, which AIGGIC believes address the conflicts associated with managing multiple accounts for multiple clients (including affiliated clients). AIGGIC also monitors a variety of areas, including compliance with guidelines of the Fund and other accounts it manages and compliance with AIGGIC's Code of Ethics. Furthermore, AIGGIC's management periodically reviews the performance of a portfolio manager. Although AIGGIC does not track the time a portfolio manager spends on a single portfolio, AIGGIC does periodically assess whether a portfolio manager has adequate time and resources to effectively manage all of such portfolio manager's accounts. (23) BATTERYMARCH: Batterymarch recognizes that actual or potential conflicts may arise in managing multiple client accounts. A brief description of some of the potential conflicts of interest and compliance factors that may arise as a result is included below. We do not believe any of these potential conflicts of interest and compliance factors pose significant risk to any client account. Statement of Additional Information - July 30, 2009 Page 126 Allocation of Limited Investment Opportunities If an investment team identifies a limited investment opportunity (including initial public offerings) that may be suitable for multiple client accounts, each account may not be able to take full advantage of that opportunity due to liquidity constraints or other factors. Batterymarch has adopted policies and procedures designed to ensure that allocations of limited investment opportunities are conducted in a fair and equitable manner between client accounts. Although Batterymarch strives to ensure that client accounts managed under similar investment mandates have similar portfolio characteristics, Batterymarch does not "clone" client accounts (i.e., assemble multiple client accounts with identical portfolios of securities). As a result, the portfolio of securities held in any single client account may perform better or worse than the portfolio of securities held in another similarly managed client account. Allocation of Partially-Filled Transactions in Securities Batterymarch often aggregates for execution as a single transaction orders for the purchase or sale of a particular security for multiple client accounts. If Batterymarch is unable to fill an aggregated order completely, but receives a partial fill, Batterymarch will typically allocate the transactions relating to the partially filled order to clients on a pro-rata basis with a minimum fill size. Batterymarch may make exceptions from this general policy from time to time based on factors such as the availability of cash, country/regional/sector allocation decisions, investment guidelines and restrictions, and the costs for minimal allocation actions. Opposite (i.e., Contradictory) Transactions in Securities Batterymarch provides investment advisory services for various clients and under various investment mandates and may give advice, and take action, with respect to any of those clients that may differ from the advice given, or the timing or nature of action taken, with respect to any other individual client account. In the course of providing advisory services, Batterymarch may simultaneously recommend the sale of a particular security for one client account while recommending the purchase of the same or a similar security for another account. This may occur for a variety of reasons. For example, in order to raise cash to handle a redemption/withdrawal from a client account, Batterymarch may be forced to sell a security that is ranked a "buy" by its stock selection model. Certain Batterymarch portfolio managers that manage long-only portfolios also manage portfolios that sell securities short. As such, Batterymarch may purchase or sell a security in one or more of its long-only portfolios under management during the same day it executes an opposite transaction in the same or a similar security for one or more of its portfolios under management that hold securities short, and certain Batterymarch client account portfolios may contain securities sold short that are simultaneously held as long positions in certain of the long- only portfolios managed by Batterymarch. The stock selection model(s), risk controls and portfolio construction rules used by Batterymarch to manage its clients' long-only portfolios differ from the model and rules that are used to manage client account portfolios that hold securities short. Because different stock selection models, risk controls and portfolio construction rules are used, it is possible that the same or similar securities may be ranked differently for different mandates and that the timing of trading in such securities may differ. Batterymarch has created certain compliance policies and procedures designed to minimize harm from such contradictory activities/events. Selection of Brokers/Dealers In selecting a broker or dealer, Batterymarch may choose a broker whose commission rate is in excess of that which another broker might have charged for the same transaction, based upon Batterymarch's judgment of that broker's superior execution capabilities and/or as a result of Batterymarch's perceived value of the broker's research services. Although Batterymarch does not participate in any traditional soft dollar arrangements whereby a broker purchases research from a third party on Batterymarch's behalf, Batterymarch does receive proprietary research services from brokers. Batterymarch generally seeks to achieve trade executions with brokers of the highest quality and at the lowest possible cost, although there can be no assurance that this objective will always be achieved. Batterymarch does not enter into any arrangements with brokers, formal or otherwise, regarding order flow as a result of research received. Clients should consider that there is a potential conflict of interest between their interests in obtaining best execution and an investment adviser's receipt of research from brokers selected by the investment adviser for trade executions. The proprietary research services which Batterymarch obtains from brokers may be used to service all of Batterymarch's clients and not just those clients paying commissions to brokers providing those research services, and not all proprietary research may be used by Batterymarch for the benefit of the one or more client accounts which paid commissions to a broker providing such research. Personal Securities Transactions Batterymarch allows its employees to trade in securities that it recommends to advisory clients. Batterymarch's supervised persons, to the extent not prohibited by Batterymarch's Code of Ethics, may buy, hold or sell securities or investment products (including interests in partnerships and investment companies) at or about the same time that Statement of Additional Information - July 30, 2009 Page 127 Batterymarch is purchasing, holding or selling the same or similar securities or investment products for client account portfolios and the actions taken by such persons on a personal basis may be, or may be deemed to be, inconsistent with the actions taken by Batterymarch for its client accounts. Clients should understand that these activities may create a conflict of interest between Batterymarch, its supervised persons and its clients. Batterymarch employees may also invest in mutual funds that are managed by Batterymarch. This may result in a potential conflict of interest since Batterymarch employees have knowledge of such funds' investment holdings, which is non-public information. To address this, Batterymarch has adopted a written Code of Ethics designed to prevent and detect personal trading activities that may interfere or conflict with client interests (including shareholders' interests in funds managed by Batterymarch). Batterymarch and certain Batterymarch employees may also have ownership interests in certain other client accounts, including pooled investment vehicles, that invest in long and short positions. Firm and employee ownership of such accounts may create additional potential conflicts of interest for Batterymarch. Performance-Based Fee Arrangements Batterymarch manages some accounts under performance-based fee arrangements. Batterymarch recognizes that this type of incentive compensation creates the risk for potential conflicts of interest. This structure may create an incentive to allocate investments having a greater potential for higher returns to accounts of those clients paying the higher performance fee. To prevent conflicts of interest, Batterymarch generally requires portfolio decisions to be made on a product specific basis. Additionally, Batterymarch requires average pricing of all aggregated orders. Lastly, the investment performance on specific accounts is not a factor in determining the portfolio managers' compensation; performance analysis is reviewed on an aggregate product basis. Although Batterymarch believes that its policies and procedures are appropriate to prevent, eliminate or minimize the harm of many potential conflicts of interest between Batterymarch, its related persons and clients, clients should be aware that no set of policies and procedures can possibly anticipate or relieve all potential conflicts of interest. Moreover, it is possible that additional potential conflicts of interest may exist that Batterymarch has not identified in the summary above. Batterymarch's CCO conducts a review of the firm's potential conflicts of interest and a risk assessment on an annual basis. (24) SYSTEMATIC: Systematic Financial Management, L.P. (Systematic) is an affiliated firm of Affiliated Managers Group, Inc. (AMG). The AMG Affiliates do not formulate advice for Systematic's clients and do not, in Systematic's view, present any potential conflict of interest with Systematic's clients. From time to time, potential conflicts of interest may arise between a portfolio manager's management of the investments of the Funds, on the one hand, and the management of other accounts, on the other. The portfolio managers oversee the investment of various types of accounts in the same strategy, such as mutual funds, pooled investment vehicles and separate accounts for individuals and institutions. Investment decisions generally are applied to all accounts utilizing that particular strategy, taking into consideration client restrictions, instructions and individual needs. A portfolio manager may manage an account whose fees may be higher or lower than the fee charged to a Fund to provide for varying client circumstances. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of client trades. Additionally, the management of the Funds and other accounts may result in a portfolio manager devoting unequal time and attention to the management of the Funds or other accounts. However, Systematic has a variety of internal controls in place that are reasonably designed to detect such conflicts and protect the interest of its clients. During the normal course of managing assets for multiple clients of varying types and asset levels, the portfolio managers may encounter conflicts of interest that could, if not properly addressed, be harmful to one or more of our clients. Those of a material nature that are encountered most frequently involve security selection, employee personal securities trading, proxy voting and the allocation of securities. To mitigate these conflicts and ensure its clients are not impacted negatively by the adverse actions of Systematic or its employees, Systematic has implemented a series of policies and procedures including, but not limited to, its Code of Ethics, which addresses personal securities trading, Proxy Voting Policy and Trade Error Policy, designed to prevent and detect conflicts when they occur. Systematic reasonably believes that these and other policies combined with the periodic review and testing performed by its compliance professionals adequately protects the interest of its clients. A portfolio manager may also face other potential conflicts of interest in managing the Funds, and the description above is not a complete description of every conflict of interest that could be deemed to exist in managing both the Fund and the other accounts listed above. (25) WEDGE: During the normal course of managing assets for multiple clients of varying types and asset levels, WEDGE will inevitably encounter conflicts of interest that could, if not properly addressed, be harmful to one or more of its Statement of Additional Information - July 30, 2009 Page 128 clients. Those of a material nature that are encountered most frequently surround security selection, brokerage selection, employee personal securities trading, proxy voting and the allocation of securities. WEDGE is therefore forced to consider the possible personal conflicts that occur for an analyst and portfolio manager as well as those for the firm when a security is recommended for purchase or sale. When trading securities, WEDGE must address the issues surrounding the selection of brokers to execute trades considering the personal conflicts of the trader and the firm's conflict to obtain best execution of client transactions versus offsetting the cost of research or enhancing its relationship with a broker for potential future gain. And finally, WEDGE must consider the implications that a limited supply or demand for a particular security poses on the allocation of that security across accounts. To mitigate these conflicts and ensure its clients are not negatively impacted by the adverse actions of WEDGE or its employees, WEDGE has implemented a series of policies including its Personal Security Trading Policy, Proxy Voting Policy, Equity Trading Policy, Trading Error Policy, and others designed to prevent and detect conflicts when they occur. WEDGE reasonably believes that these and other policies combined with the periodic review and testing performed by its compliance professionals adequately protects the interests of its clients. STRUCTURE OF COMPENSATION (26) RIVERSOURCE: Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, and (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus and equity incentive awards are paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. Funding for the bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, and by the short term (typically one-year) and long-term (typically three-year, five-year and ten-year) performance of those accounts in relation to the relevant peer group universe. Funding for the bonus pool would also include a percentage of any performance fees earned on long/short mutual funds managed by the Team. With respect to hedge funds and separately managed accounts that follow a hedge fund mandate, funding for the bonus pool is a percentage of performance fees earned on the hedge funds or accounts managed by the portfolio managers. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. In addition, where portfolio managers invest in a hedge fund managed by the investment manager, they receive a cash reimbursement for the investment management fees charged on their hedge fund investments. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (27) RIVERSOURCE: The compensation of RiverSource Investments employees consists of (i) a base salary, (ii) an annual cash bonus, and (iii) equity incentive awards in the form of stock options and/or restricted stock. The annual cash bonus is based on management's assessment of the employee's performance relative to individual and business unit goals and objectives which, for portfolio managers Joy, Keeley and Truscott, may be based, in part, on achieving certain investment performance goals and retaining and attracting assets under management, and for portfolio manager Bergene, on developing competitive products, managing existing products, and selecting and monitoring subadvisers for funds. In addition, subject to certain vesting requirements, the compensation of portfolio managers Joy, Keeley and Truscott, includes an annual award based on the performance of Ameriprise Financial over rolling three-year periods. This program is being discontinued and the final award under this plan covers the three-year period that started in January 2007 and ends in December 2009. RiverSource Investments' portfolio managers are provided with a benefit package including life insurance, health insurance and participation in the company's 401(k) plan comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments' portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (28) RIVERSOURCE: Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, and (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus and equity incentive awards are paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. With the exception of Mr. Spitz, the bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, plus, where applicable, a percentage of the assets of the funds they support as research analysts, and by the short term (typically one-year) and Statement of Additional Information - July 30, 2009 Page 129 long-term (typically three-year and five-year) performance of those accounts in relation to the relevant peer group universe. Mr. Spitz receives a bonus based on management fees on one product and asset retention efforts associated with other products managed by the team. Funding for the bonus pool may also include a percentage of any performance fees earned on long/short mutual funds managed by the Team. One member of the team does not participate in the pool but instead receives a bonus based on management fees on one product and asset retention efforts associated with other products managed by the team. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (29) UBS: The compensation received by the portfolio managers at UBS Global Asset Management, including the Funds' portfolio managers, includes a fixed component, a variable cash compensation component and a variable equity component, as detailed below. UBS Global Asset Management's compensation and benefits programs are designed to provide its investment professionals with incentives to excel, and to promote an entrepreneurial, risk measured, performance-oriented culture. Overall compensation can be grouped into three categories: - A fixed component -- base salary and benefit -- reflecting an individual's skills and experience, - Variable cash compensation, which is determined annually on a discretionary basis and is correlated with the performance of UBS, UBS Global Asset Management, the respective asset class, investment strategy, function and an individual's (financial and non-financial) contribution to UBS Global Asset Management's results, and - A variable equity component that reinforces the critical importance of creating long-term business value whilst serving as an effective retention tool as shares typically vest over a number of years. UBS Global Asset Management strongly believes that tying portfolio managers' variable compensation to both the short-term and longer-term performance of their portfolios closely aligns the investment professionals' interests with those of the firm's clients. The total variable compensation available will depend on the firm's overall profitability. The allocation of the variable compensation pool to each portfolio manager in Equities and Fixed Income is based on an equal weighting of their investment performance (relative to a suitable index benchmark) over one, two and three year periods to the latest year end. This has the effect of putting greater emphasis on the most recent year, while keeping the longer-term in focus. In Global Investment Solutions (GIS), a similar method is applied but over a five year timescale. UBS is committed to the principle of employee share ownership, believing accountability for decisions and actions is encouraged through equity- based awards that vest and/or become unrestricted over time. Positions with a large scope of responsibility and a significant potential impact on the firm have higher equity exposure. UBS also has stringent share ownership requirements for senior executives. A number of equity ownership plans are available to UBS employees, which vary by rank, performance and location. These plan rules may be amended from time to time in all or some jurisdictions. Some of these plans include: EQUITY PLUS PLAN (EQUITY PLUS): Equity Plus is a voluntary plan that provides employees with an opportunity to purchase UBS shares at fair market value and generally receive, at no additional cost, two UBS options for each share purchased, up to a maximum annual limit. Shares purchased under Equity Plus are restricted from sale for two years from the date of purchase and the options are forfeitable in certain circumstances. The options have a strike price equal to the fair market value of a UBS share on the date the option is granted, a two-year vesting period and generally expire ten years from the date of grant. EQUITY OWNERSHIP PLAN (EOP): Selected employees receive between 10% and 45% of their annual performance-related compensation in UBS shares or notional shares instead of cash on a mandatory basis. A small proportion of EOP awards is granted over Alternative Investment Vehicles (AIVs) to reflect the performance of certain funds. EOP awards generally vest in one-third increments over a three year vesting period and are forfeitable in certain circumstances. KEY EMPLOYEE STOCK APPRECIATION RIGHTS PLAN (KESAP) AND KEY EMPLOYEE STOCK OPTION PLAN (KESOP): Key and high potential employees are granted discretionary UBS options or stock appreciation rights with a strike price not less than the fair market value of a UBS share on the date the option or stock appreciation right is granted. The options or stock appreciation rights have a three-year vesting period, are forfeitable in certain circumstances and generally expire ten years from the date of grant. Statement of Additional Information - July 30, 2009 Page 130 (30) TURNER: Turner's investment professionals receive a base salary commensurate with their level of experience. Turner's goal is to maintain competitive base salaries through review of industry standards, market conditions, and salary surveys. Bonus compensation, which is a multiple of base salary, is based on the performance of each individual's sector and portfolio assignments relative to appropriate market benchmarks. In addition, each employee is eligible for equity awards. Turner believes this compensation provides incentive to attract and retain highly qualified people. The objective performance criteria noted above accounts for 90% of the bonus calculation. The remaining 10% is based upon subjective, "good will" factors including teamwork, interpersonal relations, the individual's contribution to overall success of the firm, media and client relations, presentation skills, and professional development. Portfolio managers/analysts are reviewed on an annual basis. The Chief Investment Officer, Robert E. Turner, CFA, is responsible for setting base salaries, bonus targets, and making all subjective judgments related to an investment professionals' compensation. (31) ESSEX: The professionals at Essex are compensated by a three-tiered approach. First, all of the investment professionals have industry- competitive base salaries and receive a percentage of the firm's profits through a profit-sharing/pension plan. Second, Essex's professionals receive a year-end bonus based on their personal performance and Essex's composite performance relative to our peers and benchmark. Third, Essex offers a competitive benefits package including comprehensive family health coverage. Essex's yearly investment performance drives the portfolio managers' incentive portion ("bonus") of their compensation package. The portfolio managers' bonus is based on their respective portfolios' absolute, relative, and risk-adjusted performance. Eighty percent of the evaluation is based on the performance of the portfolios and twenty percent is based on teamwork, communication, and other subjective criteria. We also incent them on their one, two and three-year performance track record. As an added retention mechanism, Essex offers ownership to both existing and prospective employees. The current ownership structure allows Essex to capitalize a portion of its free cash flow each year and transform it into stock ownership. Essex envisions granting ownership as an additional incentive to the employees who contribute the greatest to the firm's future success. Finally, Essex is committed to using a fundamental team approach and culture that encourages continuity among its investment professionals and makes a conscious effort to reward its team members accordingly. (32) MDTA: The portfolio managers are paid a fixed base salary and a variable annual incentive. Base salary is determined within a market competitive position-specific salary range, based on experience and performance. For purposes of calculating the annual incentive amount, each mutual fund and institutional account managed by MDTA is categorized as reflecting one of several designated "Strategies." The annual incentive amount is based on current calendar year asset-weighted composite investment performance of each Strategy, which is measured on a total return basis gross of fees and expenses vs. the Strategy's designated benchmark (i.e., with respect to the Fund's Strategy, Russell 2000 Value Index). The portfolio managers are also part of investment teams for other accounts in addition to the Fund. Such other accounts may be categorized as reflecting different Strategies, which may have different benchmarks. Although the performance of each Strategy composite is considered in calculating the annual incentive amount, their relative weightings differ. The performance of one of the other Strategies (which does not include the Fund in its composite performance) represents a significant portion of the calculation. The remaining Strategies are divided into two groups, with each Strategy within a group receiving equal weighting. The Strategy to which the Fund is assigned and the other Strategies in the same group receive higher weighting than Strategies in the other group. As a separate matter, pursuant to the terms of a business acquisition agreement, the portfolio managers may receive additional consideration based on the achievement of specified revenue targets. In addition, Daniel Mahr was awarded a grant of restricted Federated stock. Awards of restricted stock are discretionary and are made in variable amounts based on the subjective judgment of MDTA's senior management. (33) RIVERSOURCE: Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus and (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus and equity incentive awards are paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. Funding for the bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, and by the short term (typically one-year) and long-term (typically three-year and five-year) performance of those accounts in relation to the relevant peer group universe. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by Statement of Additional Information - July 30, 2009 Page 131 other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (34) RIVERSOURCE: Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus is paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. The bonus pool is determined by the aggregate market competitive bonus targets for the teams of which the portfolio manager is a member and by the short-term (typically one-year) and long-term (typically three-year) performance of those accounts in relation to applicable benchmarks or the relevant peer group universe. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (35) AMERICAN CENTURY: The compensation of American Century's portfolio managers is structured to align the interests of portfolio managers with those of the shareholders whose assets they manage. For the fiscal year ended May 31, 2009, it included the components described below, each of which is determined with reference to a number of factors, such as overall performance, market competition, and internal equity. Compensation is not directly tied to the value of assets held in client portfolios. Base Salary Portfolio managers receive base pay in the form of a fixed annual salary. Bonus A significant portion of portfolio manager compensation takes the form of an annual incentive bonus tied to performance. Bonus payments are determined by a combination of factors. One factor is fund investment performance. For most American Century mutual funds, investment performance is measured by a combination of one- and three- year pre-tax performance relative to various benchmarks and/or internally-customized peer groups. The performance comparison periods may be adjusted based on a fund's inception date or a portfolio manager's tenure on the fund. Custom peer groups are constructed using all the funds in appropriate Lipper or Morningstar categories as a starting point. Funds are then eliminated from the peer group that is both more stable over the long- term (i.e., has less peer turnover) and that more closely represents the fund's true peers based on internal investment mandates. In 2008, American Century Investments began placing increased emphasis on long- term performance and is phasing in five year performance periods. Portfolio managers may have responsibility for multiple American Century mutual funds. In such cases, the performance of each is assigned a percentage weight appropriate for the portfolio manager's relative levels of responsibility. Portfolio managers also may have responsibility for portfolios that are managed in a fashion similar to that of other American Century mutual funds. This is the case for the Partners Small Cap Equity and Partners Aggressive Growth Funds. If the performance of a similarly managed account is considered for purposes of compensation, it is either measured in the same way as a comparable American Century mutual fund (i.e., relative to the performance of a benchmark and/or peer group) or relative to the performance of such mutual fund. Performance of Partners Small Cap Equity Fund is measured relative to the performance of a comparable American Century mutual fund. Performance of Partners Aggressive Growth Fund is not separately considered in determining portfolio manager compensation. A second factor in the bonus calculation relates to the performance of all American Century funds managed according to a particular investment style, such as U.S. growth, U.S. value, international, quantitative or fixed income. Performance is measured for each product individually as described above and then combined to create an overall composite for the product group. These composites may measure one-year performance (equal weighted) or a combination of one- and three-year performance (asset weighted) depending on the portfolio manager's responsibilities and products managed. This Statement of Additional Information - July 30, 2009 Page 132 feature is designed to encourage effective teamwork among portfolio management teams in achieving long-term investment success for similarly styled portfolios. A portion of some portfolio managers' bonuses may be tied to individual performance goals, such as research projects and the development of new products. Restricted Stock Plans Portfolio managers are eligible for grants of restricted stock of ACC. These grants are discretionary, and eligibility and availability can vary from year to year. The size of an individual's grant is determined by individual and product performance as well as other product-specific considerations. Grants can appreciate/depreciate in value based on the performance of the ACC stock during the restriction period (generally three to four years). Deferred Compensation Plans Portfolio managers are eligible for grants of deferred compensation. These grants are used in very limited situations, primarily for retention purposes. Grants are fixed and can appreciate/depreciate in value based on the performance of the American Century mutual funds in which the portfolio manager chooses to invest them. (36) DAVIS: Kenneth Feinberg's compensation as a Davis Advisors employee consists of (i) a base salary, (ii) an annual bonus equal to a percentage of growth in Davis Advisors' profits, (iii) awards of equity ("Units") in Davis Advisors including Units, options on Units, and/or phantom Units, and (iv) an incentive plan whereby Davis Advisors purchases shares in selected funds managed by Davis Advisors. At the end of specified periods, generally five years following the date of purchase, some, all, or none of the fund shares will be registered in the employee's name based on fund performance after expenses on a pre- tax basis versus the S&P 500 Index and versus peer groups as defined by Morningstar or Lipper. Davis Advisors' portfolio managers are provided benefits packages including life insurance, health insurance, and participation in company 401(k) plan comparable to that received by other company employees. Christopher Davis's annual compensation as an employee of Davis Advisors consists of a base salary. Davis Advisors' portfolio managers are provided benefits packages including life insurance, health insurance, and participation in company 401(k) plan comparable to that received by other company employees. (37) SYSTEMATIC: Ron Mushock and Kevin McCreesh are limited partners of the firm and Co-Portfolio Managers for the strategy. As Partners, their compensation consists of a combination of a fixed base salary, and a share of Systematic's profits based upon each Partner's respective individual ownership position in Systematic. Although total compensation is influenced by Systematic's overall profitability and therefore is based in part on the aggregate performance of all of Systematic's portfolios, including the Fund. Compensation is not based on performance of the Fund individually. The Partners are provided with a benefits package, including health insurance, and participation in a company 401(k) plan, comparable to that received by other Systematic employees. The Portfolio Managers are not compensated based solely on the performance of, or the value of assets held in, the Fund or any other individual portfolio managed by Systematic. (38) WEDGE: WEDGE's incentive compensation has been structured to reward all professionals for their contribution to the overall growth and profitability of the firm. Compensation is not directly tied to fund performance or growth in assets for any fund or other account managed by a portfolio manager. General Partners are compensated via a percentage of the firm's net profitability following a peer review, which focuses on performance in their specific area of responsibility, as well as their contribution to the general management of the firm, and their importance to the firm in the future. Other investment professionals receive a competitive salary and bonus based on the firm's investment and business success and their specific contribution to that record. (39) JENNISON: Jennison seeks to maintain a highly competitive compensation program designed to attract and retain outstanding investment professionals, which include portfolio managers and research analysts, and to align the interests of its investment professionals with those of its clients and overall firm results. Overall firm profitability determines the total amount of incentive compensation pool that is available for investment professionals. Investment professionals are compensated with a combination of base salary and cash bonus. In general, the cash bonus comprises the majority of the compensation for investment professionals. Additionally, senior investment professionals, including portfolio managers and senior research analysts, are eligible to participate in a deferred compensation program where all or a portion of the cash bonus can be invested in a variety of predominantly Jennison-managed investment strategies on a tax-deferred basis. Investment professionals' total compensation is determined through a subjective process that evaluates numerous qualitative and quantitative factors. There is no particular weighting or formula for considering the factors. Some portfolio managers may manage or contribute ideas to more than one product strategy and are evaluated accordingly. Statement of Additional Information - July 30, 2009 Page 133 The factors reviewed for the portfolio managers are listed below in order of importance. The following primary quantitative factor is reviewed for the portfolio managers: - One and three year pre-tax investment performance of groupings of accounts (a "Composite") relative to market conditions, pre-determined passive indices, such as the Russell 2000 Index, and industry peer group data for the product strategy (e.g., large cap growth, large cap value) for which the portfolio manager is responsible; The qualitative factors reviewed for the portfolio managers may include: - Historical and long-term business potential of the product strategies; - Qualitative factors such as teamwork and responsiveness; and - Other individual factors such as experience and other responsibilities such as being a team leader or supervisor may also affect an investment professional's total compensation. (40) LORD, ABBETT: Lord Abbett compensates its portfolio managers on the basis of salary, bonus and profit sharing plan contributions. The level of compensation takes into account the portfolio manager's experience, reputation and competitive market rates. Fiscal year-end bonuses, which can be a substantial percentage of base level compensation, are determined after an evaluation of various factors. These factors include the portfolio manager's investment results and style consistency, the dispersion among funds with similar objectives, the risk taken to achieve the fund returns, and similar factors. Investment results are evaluated based on an assessment of the portfolio manager's three- and five-year investment returns on a pre-tax basis vs. both the appropriate style benchmarks and the appropriate peer group rankings. Finally, there is a component of the bonus that reflects leadership and management of the investment team. The evaluation does not follow a formulaic approach, but rather is reached following a review of these factors. No part of the bonus payment is based on the portfolio manager's assets under management, the revenues generated by those assets, or the profitability of the portfolio manager's unit. Lord Abbett does not manage hedge funds. Lord Abbett may designate a bonus payment of a manager for participation in the firm's senior incentive compensation plan, which provides for a deferred payout over a five-year period. The plan's earnings are based on the overall asset growth of the firm as a whole. Lord Abbett believes this incentive focuses portfolio managers on the impact their fund's performance has on the overall reputation of the firm as a whole and encourages exchanges of investment ideas among investment professionals managing different mandates. Lord Abbett provides a 401(k) profit-sharing plan for all eligible employees. Contributions to a portfolio manager's profit-sharing account are based on a percentage of the portfolio manager's total base and bonus paid during the fiscal year, subject to a specified maximum amount. The assets of this profit-sharing plan are entirely invested in Lord Abbett-sponsored funds. (41) DONALD SMITH: All employees at Donald Smith & Co., Inc. are compensated on incentive plans. The compensation for portfolio managers, analysts and traders at Donald Smith consists of a base salary, a partnership interest in the firm's profits, and possibly an additional, discretionary bonus. This discretionary bonus can exceed 100% of the base salary if performance for clients exceeds established benchmarks. The current benchmark utilized is the Russell 2000 Value Index. Additional distribution of firm ownership is a strong motivation for continued employment at Donald Smith & Co., Inc. Administrative personnel are also given a bonus as a function of their contribution and the profitability of the firm. (42) BHMS: In addition to base salary, all portfolio managers and analysts at BHMS share in a bonus pool that is distributed semi- annually. Analysts and portfolio managers are rated on their value added to the team- oriented investment process. Overall compensation applies with respect to all accounts managed and compensation does not differ with respect to distinct accounts managed by a portfolio manager. Compensation is not tied to a published or private benchmark. It is important to understand that contributions to the overall investment process may include not recommending securities in an analyst's sector if there are no compelling opportunities in the industries covered by that analyst. The compensation of portfolio managers is not directly tied to fund performance or growth in assets for any fund or other account managed by a portfolio manager and portfolio managers are not compensated for bringing in new business. Of course, growth in assets from the appreciation of existing assets and/or growth in new assets will increase revenues and profit. The consistent, long-term growth in assets at any investment firm is to a great extent, dependent upon the success of the portfolio management team. The compensation of the portfolio management team at the Adviser will increase over time, if and when assets continue to grow through competitive performance. (43) METWEST: MetWest Capital's compensation system is designed not only to attract and retain experienced, highly qualified investment personnel, but also to closely align employees' interests with clients' interests. Compensation for investment professionals consists of a base salary, bonus, and generous benefits. Benefits include a comprehensive insurance benefits program (medical, vision and dental), 401(k) plan with an employer-matched contribution. A material Statement of Additional Information - July 30, 2009 Page 134 portion of each such professional's annual compensation is in the form of a bonus tied to results relative to clients' benchmarks and overall client satisfaction. Bonuses may range from 20% to over 100% of salary. MetWest Capital's compensation system is not determined on an account- specific basis. Rather, bonuses are tied to overall firm profitability and composite performance relative to the benchmark. The primary benchmark for the Small Cap Intrinsic Value strategy is the Russell 2000 Value Index. To reinforce long-term focus, performance is measured over MetWest Capital's investment horizon (typically two to four years). Analysts are encouraged to maintain a long-term focus and are not compensated for the number of their recommendations that are purchased in the portfolio. Rather, their bonuses are tied to overall strategy performance. Mr. Lisenbee is an owner of MetWest Capital. As such, his compensation consists of a fixed salary and participation in the firm's profits. (44) RIVERSOURCE: Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus is paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. Funding for the bonus pool is based upon a percentage of profits generated by the institutional portfolios they manage. Lynn Hopton and Yvonne Stevens may also be paid from a bonus pool based upon the performance of the mutual fund(s) they manage. Funding for this bonus pool is determined by a percentage of the aggregate assets under management in the mutual fund(s) they manage, and by the short term (typically one-year) and long-term (typically three- year) performance of the mutual fund(s) in relation to the relevant peer group universe. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the bonus pool related to mutual funds and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. Senior management of RiverSource Investments does not have discretion over the size of the bonus pool related to institutional portfolios. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (45) RIVERSOURCE: Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus, and in some instances the base salary, are paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. The bonus pool is determined by a percentage of the management fees on the accounts managed by the portfolio managers, including the fund. The percentage of management fees that fund the bonus pool is based on the short term (typically one-year) and long-term (typically three-year and five-year) performance of those accounts in relation to the relevant peer group universe. Funding for the bonus pool may also include a percentage of any performance fees earned on long/short mutual funds managed by the Team. With respect to hedge funds and separately managed accounts that follow a hedge fund mandate, funding for the bonus pool is a percentage of performance fees earned on the hedge funds or accounts managed by the portfolio managers. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (46) COLUMBIA WAM: As of December 31, 2008, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management. P. Zachary Egan and Louis J. Mendes each received compensation in the form of salary and incentive compensation. Typically, a high proportion of an analyst's or portfolio manager's bonus is paid in cash with a smaller proportion going into two separate incentive plans. The first plan is a notional investment based on the performance of certain Columbia Funds, including the Columbia Acorn Funds. The second plan consists of Bank of America restricted stock and/or options. For 2008, investments in the second plan were made through a deferred cash program. Both plans vest over three years from the date of issuance. The CWAM total incentive compensation pool, including cash and the two incentive plans, is based on formulas, with investment performance of individual portfolio managers and certain analysts, plus firm-wide investment performance, as primary drivers. Analysts and portfolio managers are positioned in a number of compensation tiers based on cumulative performance of the portfolios they manage. Performance of each Fund for purposes of portfolio manager compensation is measured Statement of Additional Information - July 30, 2009 Page 135 relative to its primary benchmark. One and three year performance periods primarily drive incentive levels. Excellent performance results in advancement to a higher tier until the highest tier is reached. Higher tiers have higher base compensation levels and wider incentive compensation ranges. While cumulative performance places analysts and managers in tiers, current year performance drives changes in incentive compensation levels. Incentive compensation varies by tier, and can range between a fraction of base pay to several times base pay; the objective being to provide very competitive total compensation for high performing analysts and portfolio managers. If a fund's performance declines, the compensation incentives available to its analysts and portfolio manager(s) also declines. (47) PRINCIPAL: Principal Global Investors offers all employees a competitive salary and incentive compensation plan that is evaluated annually. Percentages of base salary versus performance bonus vary by position but are based on nationally competitive market data and are consistent with industry standards. Total cash compensation is targeted at the median of the market and benefits are targeted slightly above median. The investment staff is compensated under a base salary plus variable annual bonus (incentive compensation). The incentive compensation plan for equity portfolio managers is 90% weighted to investment performance and 10% weighted to Principal Global Investors annual performance score. The incentive bonus for equity portfolio managers ranges from 150% to 300% of actual base earnings, depending on job level. - Investment performance is based on gross performance versus a benchmark, peer group or both, depending on the client mandate. - Performance versus peers is measured for a period up to three years (shorter if the portfolio manager has managed the respective portfolio for a period less than three years). - Versus the peer group, incentive payout starts at 54th percentile and reaches 100% at the 25th percentile for the 1, 2, and 3-year periods. 3.33% of incentive payout is achieved at 54th percentile. No payout is realized if performance is at or below 55th percentile. As a wholly owned subsidiary of Principal Financial Group, all Principal Global employees are eligible to participate in our Employee Stock Purchase Plan that allows them to purchase company stock at a 15% discount each quarter. In addition, through our 401(k) plan, employees are able to contribute to an Employee Stock Ownership Plan (ESOP) through which they can buy additional company stock. (48) ALLIANCEBERNSTEIN: AllianceBernstein's compensation program for investment professionals is designed to be competitive and effective in order to attract and retain the highest caliber employees. The compensation program for investment professionals is designed to reflect their ability to generate long-term investment success for our clients, including shareholders of the AllianceBernstein Mutual Funds. Investment professionals do not receive any direct compensation based upon the investment returns of any individual client account, nor is compensation tied directly to the level or change in the level of assets under management. Investment professionals' annual compensation is comprised of the following: (i) Fixed base salary: This is generally the smallest portion of compensation. The base salary is a relatively low, fixed salary within a similar range for all investment professionals. The base salary (determined at the outset of employment based on level of experience), does not change significantly from year-to-year, and hence, is not particularly sensitive to performance. (ii) Discretionary incentive compensation in the form of an annual cash bonus: AllianceBernstein's overall profitability determines the total amount of incentive compensation available to investment professionals. This portion of compensation is determined subjectively based on qualitative and quantitative factors. In evaluating this component of an investment professional's compensation, AllianceBernstein considers the contribution to his/her team or discipline as it relates to that team's overall contribution to the long-term investment success, business results and strategy of AllianceBernstein. Quantitative factors considered include, among other things, relative investment performance (e.g., by comparison to competitor or peer group funds or similar styles of investments, and appropriate, broad-based or specific market indices), and consistency of performance. There are no specific formulas used to determine this part of an investment professional's compensation and the compensation is not tied to any pre-determined or specified level of performance. AllianceBernstein also considers qualitative factors such as the complexity and risk of investment strategies involved in the style or type of assets managed by the investment professional; success of marketing/business development efforts and client servicing; seniority/length of service with the firm; management and supervisory responsibilities; and fulfillment of AllianceBernstein's leadership criteria. (iii) Discretionary incentive compensation in the form of awards under AllianceBernstein's Partners Compensation Plan ("deferred awards"): AllianceBernstein's overall profitability determines the total amount of deferred awards available to investment professionals. The deferred awards are allocated among investment professionals based on criteria similar to those used to determine the annual cash bonus. There is no fixed formula for determining these amounts. Deferred awards, for which there are various investment options, vest over a four-year period and are generally forfeited if the employee resigns or AllianceBernstein terminates his/her employment. Investment options under the deferred awards plan include many of the same AllianceBernstein Mutual Funds offered to mutual fund investors, thereby creating a close alignment between the financial interests of the investment professionals and those of AllianceBernstein's clients Statement of Additional Information - July 30, 2009 Page 136 and mutual fund shareholders with respect to the performance of those mutual funds. AllianceBernstein also permits deferred award recipients to allocate up to 50% of their award to investments in AllianceBernstein's publicly traded equity securities (prior to 2002, investment professional compensation also included discretionary long-term incentive in the form of restricted grants of AllianceBernstein's Master Limited Partnership Units). (iv) Contributions under AllianceBernstein's Profit Sharing/401(k) Plan: The contributions are based on AllianceBernstein's overall profitability. The amount and allocation of the contributions are determined at the sole discretion of AllianceBernstein. (49) MONDRIAN: Mondrian has the following programs in place to retain key investment staff: 1. Competitive Salary -- All investment professionals are remunerated with a competitive base salary. 2. Profit Sharing Bonus Pool -- All Mondrian staff, including portfolio managers and senior officers, qualify for participation in an annual profit sharing pool determined by the company's profitability (approximately 30% of profits). 3. Equity Ownership -- Mondrian is ultimately controlled by a partnership of senior management and private equity funds sponsored by Hellman & Friedman LLC, an independent private equity firm. Mondrian is currently 61% owned by approximately 70 of its senior employees, including the majority of investment professionals, senior client service officers, and senior operations personnel, and 39% owned by private equity funds sponsored by Hellman & Friedman, LLC. The private equity funds sponsored by Hellman & Friedman LLC are passive, non-controlling minority investors in Mondrian and do not have day-to-day involvement in the management of Mondrian. Incentives (Bonus and Equity Programs) focus on the key areas of research quality, long-term and short-term stock performance, teamwork, client service and marketing. As an individual's ability to influence these factors depends on that individual's position and seniority within the firm, so the allocation of participation in these programs will reflect this. At Mondrian, the investment management of particular portfolios is not "star manager" based but uses a team system. This means that Mondrian's investment professionals are primarily assessed on their contribution to the team's effort and results, though with an important element of their assessment being focused on the quality of their individual research contribution. Compensation Committee In determining the amount of bonuses and equity awarded, Mondrian's Board of Directors consults with the company's Compensation Committee, who will make recommendations based on a number of factors including investment research, organization management, team work, client servicing and marketing. Defined Contribution Pension Plan All portfolio managers are members of the Mondrian defined contribution pension plan where Mondrian pays a regular monthly contribution and the member may pay additional voluntary contributions if they wish. The Plan is governed by Trustees who have responsibility for the trust fund and payments of benefits to members. In addition, the Plan provides death benefits for death in service and a spouse's or dependant's pension may also be payable. Mondrian believes that this compensation structure, coupled with the opportunities that exist within a successful and growing business, are adequate to attract and retain high caliber employees. (50) TRADEWINDS: Tradewinds offers a highly competitive compensation structure with the purpose of attracting and retaining the most talented investment professionals. These professionals are rewarded through a combination of cash and long-term incentive compensation as determined by the firm's executive committee. Total cash compensation (TCC) consists of both a base salary and an annual bonus that can be a multiple of the base salary. The firm annually benchmarks TCC to prevailing industry norms with the objective of achieving competitive levels for all contributing professionals. Available bonus pool compensation is primarily a function of the firm's overall annual profitability. Individual bonuses are based primarily on the following: - Overall performance of client portfolios; - Objective review of stock recommendations and the quality of primary research; - Subjective review of the professional's contributions to portfolio strategy, teamwork, collaboration and work ethic. To further strengthen our incentive compensation package and to create an even stronger alignment to the long-term success of the firm, Tradewinds has made available to most investment professionals equity participation opportunities, the values of which are determined by the increase in profitability of Tradewinds over time. Finally, some of our investment professionals have received additional remuneration as consideration for signing employment agreements. These agreements range from retention agreements to long-term employment contracts with significant non-solicitation and, in some cases, non- compete clauses. (51) AIGGIC: Compensation for AIGGIC portfolio managers has both a salary and a bonus component. The salary component is a fixed base salary, which is generally based upon several factors, including experience and market levels of salary for such position. The bonus component is based both on a portfolio manager's individual performance and the organizational performance of AIGGIC. The bonus component is generally calculated as follows: (1) 60% is linked to the management of a portfolio manager's funds; (2) 20% is based on AIGGIC's profitability; and (3) 20% is determined on a discretionary basis (including individual qualitative goals). For the 60% component, the measures for a portfolio manager may vary according to the day-to-day responsibilities of a particular portfolio manager. The measures Statement of Additional Information - July 30, 2009 Page 137 comprise any combination of (a) total return measures, (b) benchmark measures and (c) peer group measures. Any long-term compensation may include stock options and restricted stock units, both having vesting schedules. (52) BATTERYMARCH: In addition to customary employee benefits (e.g., medical coverage), Batterymarch's compensation for investment professionals includes a combination of base salary, annual bonus and long-term incentive compensation, as well as a generous benefits package made available to all Batterymarch employees on a non-discretionary basis. Specifically, the package includes: - competitive base salaries; - individual performance-based bonuses based on the investment professionals' added value to the portfolios for which they are responsible measured on a one-, three- and five-year basis versus benchmarks and peer universes as well as their contributions to research, client service and new business development; - corporate profit-sharing; and - annual contribution to a non-qualified deferred compensation plan that has a cliff-vesting requirement (i.e., they must remain employed with the firm for at least 31 months to receive payment). Performance is evaluated on an aggregate product basis that the portfolio manager is responsible for and is generally not analyzed by any individual client portfolios. Portfolio manager compensation is not tied to, nor increased or decreased as the result of, any performance fees that may be earned by Batterymarch. Lastly, portfolio managers do not receive a percentage of the revenue earned on any of Batterymarch's client portfolios. (53) To align the interests of our investment staff with those of our clients the remuneration plan for senior individuals comprises basic salary, an annual profit share (linked to individual performance and the profitability of the company) and a Long Term Incentive Plan known as the Equity Incentive Plan ("EIP") linked to measures of Threadneedle's corporate success. Threadneedle believes this encourages longevity of service. The split between each component varies between investment professionals and will be dependent on performance and the type of funds they manage. The split of the profit share focuses on three key areas of success: - Performance of own funds and research recommendations, - Performance of all portfolios in the individual's team, - Broader contribution to the wider thinking of the investment team, e.g. idea generation, interaction with colleagues and commitment for example to assisting the sales effort. Consideration of the individual's general contribution is designed to encourage fund managers to think beyond personal portfolio performance and considers contributions made in: - Inter-team discussions, including asset allocation, global sector themes and weekly investment meetings, - Intra-team discussion, stock research and investment insights, - Marketing support, including written material and presentations. It is important to appreciate that in order to maximize an individual's rating and hence their profit share, they need to score well in all areas. It is not sufficient to produce good personal fund performance without contributing effectively to the team and wider investment department. This structure is closely aligned with the Threadneedle's investment principles of sharing ideas and effective communication. (54) RIVERSOURCE: Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, and (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus and equity incentive awards are paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. The bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, plus, where applicable, a percentage of the assets of the funds they support as research analysts, and by the short term (typically one-year) and long-term (typically three-year) performance of those accounts in relation to the relevant peer group universe. Funding for the bonus pool may also include a percentage of any performance fees earned on long/short mutual funds managed by the Team. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (55) RIVERSOURCE: Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus and (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus and equity incentive awards are paid from a team bonus pool that is based on the performance of the accounts managed by the Statement of Additional Information - July 30, 2009 Page 138 portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. Funding for the bonus pool is determined by the short term (typically one-year) and long-term (typically three-year and five-year) performance of the accounts managed by the portfolio managers, including the fund, in relation to the relevant peer group universe. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. Statement of Additional Information - July 30, 2009 Page 139 ADMINISTRATIVE SERVICES Each fund listed in the table below has an Administrative Services Agreement with Ameriprise Financial. Under this agreement, the fund pays Ameriprise Financial for providing administration and accounting services. The fee is calculated as follows: TABLE 20. ADMINISTRATIVE SERVICES AGREEMENT FEE SCHEDULE
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ------------------------------------------------------------------------------------------ $500,000,001 - $1,000,000,001 - $3,000,000,001 - FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 $12,000,000,000 12,000,000,001 + - ------------------------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity 0.080% 0.075% 0.070% 0.060% 0.050% Absolute Return Currency and Income Disciplined International Equity Disciplined Small Cap Value Emerging Markets Bond Global Bond Partners International Select Growth Partners International Select Value Partners International Small Cap Partners Small Cap Equity Partners Small Cap Growth Partners Small Cap Value Small Cap Advantage Small Company Index Strategic Allocation Threadneedle Emerging Markets Threadneedle European Equity Threadneedle Global Equity Threadneedle Global Equity Income Threadneedle Global Extended Alpha Threadneedle International Opportunity - ------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040% Diversified Bond Floating Rate High Yield Bond Income Opportunities Inflation Protected Intermediate Tax-Exempt Limited Duration Bond Minnesota Tax-Exempt New York Tax-Exempt Short Duration U.S. Government Strategic Income Allocation Tax-Exempt Bond Tax-Exempt High Income U.S. Government Mortgage - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 140
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ------------------------------------------------------------------------------------------ $500,000,001 - $1,000,000,001 - $3,000,000,001 - FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 $12,000,000,000 12,000,000,001 + - ------------------------------------------------------------------------------------------------------------------------------ Balanced 0.060% 0.055% 0.050% 0.040% 0.030% Cash Management Disciplined Equity Disciplined Large Cap Growth Disciplined Large Cap Value Disciplined Small and Mid Cap Equity Diversified Equity Income Dividend Opportunity Equity Value Global Technology Growth Large Cap Equity Large Cap Value Mid Cap Growth Mid Cap Value Partners Aggressive Growth Partners Fundamental Value Partners Select Value Precious Metals and Mining Real Estate Recovery and Infrastructure Tax-Exempt Money Market - ------------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 0.020% 0.020% 0.020% 0.020% 0.020% Income Builder Enhanced Income Income Builder Moderate Income Portfolio Builder Aggressive Portfolio Builder Conservative Portfolio Builder Moderate Portfolio Builder Moderate Aggressive Portfolio Builder Moderate Conservative Portfolio Builder Total Equity Retirement Plus 2010 Retirement Plus 2015 Retirement Plus 2020 Retirement Plus 2025 Retirement Plus 2030 Retirement Plus 2035 Retirement Plus 2040 Retirement Plus 2045 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 141 The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding day. Fees paid in each of the last three fiscal periods are shown in the table below. The table also shows the daily rate applied to each fund's net assets as of the last day of the most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 21. ADMINISTRATIVE FEES
- ---------------------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE - --------------------------------------------------------------------------------------------------- APPLIED TO FUND 2009 2008 2007 FUND ASSETS - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ----------------------------------------------------------------------------------------------------------------- Income Builder Basic Income $ 56,956 $ 38,041(a) $ 25,671 0.020% - ----------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 54,275 45,848(a) 37,153 0.020 - ----------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 108,149 82,229(a) 58,560 0.020 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 96,644 110,897 86,301 0.020 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 36,929 26,665 24,051 0.020 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 193,553 183,783 138,034 0.020 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 205,250 223,400 172,602 0.020 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 72,830 62,617 50,763 0.020 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 84,413 101,924 76,312 0.020 - ----------------------------------------------------------------------------------------------------------------- S&P 500 Index 101,230 158,059 153,231 0.060 - ----------------------------------------------------------------------------------------------------------------- Small Company Index 446,427 738,676 867,030 0.080 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ----------------------------------------------------------------------------------------------------------------- Equity Value 448,794 680,124 674,042 0.060 - ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 105,946 159,051 173,239 0.080 - ----------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 64,531 77,686 67,215 0.060 - ----------------------------------------------------------------------------------------------------------------- Small Cap Advantage 164,551 363,599 534,163 0.080 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ----------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 31,071 13,416(b) N/A 0.080 - ----------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure 4,214(c) N/A N/A 0.060 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 2,441 3,623 1,779(d) 0.020 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 4,449 5,483 1,861(d) 0.020 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 4,871 7,572 2,961(d) 0.020 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 5,145 7,280 2,293(d) 0.020 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 5,001 7,160 2,579(d) 0.020 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 3,258 4,249 1,548(d) 0.020 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 2,051 4,915 2,928(d) 0.020 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 1,726 1,670 586(d) 0.020 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ----------------------------------------------------------------------------------------------------------------- High Yield Bond 722,190 1,069,014 1,259,292 0.066 - ----------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 232,850 350,088 334,364 0.060 - ----------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 374,303 594,407 645,012 0.060 - ----------------------------------------------------------------------------------------------------------------- Partners Select Value 172,308 300,721 355,085 0.060 - ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 119,853 208,114 267,622 0.080 - ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 277,260 565,329 754,675 0.080 - ----------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 521,265 541,748 623,283 0.069 - ----------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 252,478 285,601 196,713 0.070 - ----------------------------------------------------------------------------------------------------------------- 2008 2007 2006 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ----------------------------------------------------------------------------------------------------------------- Dividend Opportunity 1,033,158 884,333 658,242 0.055 - ----------------------------------------------------------------------------------------------------------------- Real Estate 132,646 153,117 91,341 0.060 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 142
- ---------------------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE - --------------------------------------------------------------------------------------------------- APPLIED TO FUND 2008 2007 2006 FUND ASSETS - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------------------- Cash Management $2,507,729 $2,141,669 $1,741,492 0.048% - ----------------------------------------------------------------------------------------------------------------- Disciplined Equity 1,701,542 1,224,572 496,810 0.053 - ----------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 38,114 24,904 1,143(e) 0.060 - ----------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 30,592 20,681 4,615(f) 0.080 - ----------------------------------------------------------------------------------------------------------------- Floating Rate 398,924 378,190 46,916(f) 0.070 - ----------------------------------------------------------------------------------------------------------------- Growth 1,477,804 1,763,087 1,791,547 0.053 - ----------------------------------------------------------------------------------------------------------------- Income Opportunities 202,872 242,883 253,936 0.070 - ----------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 399,972 209,028 169,778 0.068 - ----------------------------------------------------------------------------------------------------------------- Large Cap Equity 2,524,199 3,245,953 2,119,930 0.049 - ----------------------------------------------------------------------------------------------------------------- Large Cap Value 45,929 60,574 78,248 0.060 - ----------------------------------------------------------------------------------------------------------------- Limited Duration Bond 115,529 105,993 133,102 0.070 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------------------- California Tax-Exempt(g) 122,235 122,586 149,235 0.070 - ----------------------------------------------------------------------------------------------------------------- Diversified Bond 2,012,548 1,752,212 1,698,244 0.060 - ----------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt(g) 215,249 234,353 286,050 0.070 - ----------------------------------------------------------------------------------------------------------------- New York Tax-Exempt(g) 41,455 47,710 57,973 0.070 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------- Balanced 519,542 623,784 697,753 0.059 - ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 101,276 11,405(h) N/A 0.060 - ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 662(i) N/A N/A 0.060 - ----------------------------------------------------------------------------------------------------------------- Diversified Equity Income 3,272,256 3,449,519 2,960,505 0.047 - ----------------------------------------------------------------------------------------------------------------- Mid Cap Value 1,335,281 1,196,773 854,082 0.053 - ----------------------------------------------------------------------------------------------------------------- Strategic Allocation 1,505,894 1,340,234 948,662 0.074 - ----------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 115,139 21,493(h) N/A 0.070 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 373,454 79,761 15,823(j) 0.079 - ----------------------------------------------------------------------------------------------------------------- Disciplined International Equity 549,173 209,295 14,739(k) 0.080 - ----------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 131,334 78,549 21,248(l) 0.080 - ----------------------------------------------------------------------------------------------------------------- Global Bond 572,976 388,646 412,783 0.079 - ----------------------------------------------------------------------------------------------------------------- Global Technology 83,820 103,335 101,197 0.060 - ----------------------------------------------------------------------------------------------------------------- Partners International Select Growth 511,522 490,174 347,819 0.080 - ----------------------------------------------------------------------------------------------------------------- Partners International Select Value 1,395,090 1,759,221 1,306,775 0.078 - ----------------------------------------------------------------------------------------------------------------- Partners International Small Cap 79,183 92,062 83,383 0.080 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 498,019 503,279 406,991 0.080 - ----------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 96,107 105,886 89,350 0.080 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 549,601 611,621 532,772 0.080 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 1,528(m) N/A N/A 0.080 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 1,256(m) N/A N/A 0.080 - ----------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 460,205 540,718 470,847 0.080 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ----------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 52,367 57,618 74,912 0.070 - ----------------------------------------------------------------------------------------------------------------- Mid Cap Growth 471,791 652,889 946,943 0.060 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 463,150 525,515 544,894 0.069 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 1,603,416 1,823,812 2,064,819 0.063 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 143
- ---------------------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE - --------------------------------------------------------------------------------------------------- APPLIED TO FUND 2008 2007 2006 FUND ASSETS - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market $ 84,396 $ 73,957 $ 69,922 0.060% - -----------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from Feb. 19, 2009 (when shares became publicly available) to April 30, 2009. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June 30. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (k) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (l) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Third parties with which Ameriprise Financial contracts to provide services for the fund or its shareholders may pay a fee to Ameriprise Financial to help defray the cost of providing administrative and accounting services. The amount of any such fee is negotiated separately with each service provider and does not constitute compensation for investment advisory, distribution, or other services. Payment of any such fee neither increases nor reduces fees or expenses paid by shareholders of the fund. TRANSFER AGENCY SERVICES Each fund has a Transfer Agency Agreement with RiverSource Service Corporation (the "transfer agent") located at 734 Ameriprise Financial Center, Minneapolis, MN 55474. This agreement governs RiverSource Service Corporation's responsibility for administering and/or performing transfer agent functions, for acting as service agent in connection with dividend and distribution functions and for performing shareholder account administration agent functions in connection with the issuance, exchange and redemption or repurchase of the fund's shares. CLASS A, CLASS B, CLASS C AND CLASS D. For Class A, Class B, Class C and Class D, RiverSource Service Corporation will earn a fee from the fund determined by multiplying the number of shareholder accounts at the end of the day by a rate determined for each class per year and dividing by the number of days in the year. The fund will pay on the basis of the relative percentage of net assets of each class of shares, first allocating the base fee (equal to Class A shares) across share classes, and then allocating the incremental per share class fee, based on the number of shareholder accounts. The fee varies depending on the investment category of the fund. You can find your fund's investment category in Table 1. BALANCED, EQUITY, FUNDS-OF-FUNDS - EQUITY FUNDS The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows:
Class A Class B Class C Class D ------- ------- ------- ------- $19.50 $20.50 $20.00 $19.50
FUNDS-OF-FUNDS - FIXED INCOME, STATE TAX-EXEMPT FIXED INCOME, TAXABLE FIXED INCOME, TAX-EXEMPT FIXED INCOME FUNDS The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows:
Class A Class B Class C ------- ------- ------- $20.50 $21.50 $21.00
Statement of Additional Information - July 30, 2009 Page 144 MONEY MARKET FUNDS For Cash Management Fund and Tax-Exempt Money Market Fund, the annual per account fee accrued daily and payable monthly, for the applicable classes is as follows. The fee for Tax-Exempt Money Market Fund, which does not have separate classes of shares, is the same as that applicable to Class A:
Class A Class B Class C ------- ------- ------- $22.00 $23.00 $22.50
CLASS E, CLASS R2, CLASS R3, CLASS R4, CLASS R5, CLASS W AND CLASS Y. For Class E, Class R2, Class R3, Class R4, Class R5, Class W and Class Y, RiverSource Service Corporation will earn a fee from the fund, accrued daily and payable monthly, determined by multiplying the average daily net assets of the applicable class by the annual rate shown below:
Class E Class R2 Class R3 Class R4 Class R5 Class W Class Y - ------- -------- -------- -------- -------- ------- ------- 0.05% 0.05% 0.05% 0.05% 0.05% 0.20% 0.05%
In addition, an annual closed-account fee of $5.00 per inactive account is charged on a pro rata basis for 12 months from the date the account becomes inactive. The fees paid to RiverSource Service Corporation may be changed by the Board without shareholder approval. PLAN ADMINISTRATION SERVICES The funds* have a Plan Administration Services Agreement with the transfer agent. Under the agreement the fund pays for plan administration services, including services such as implementation and conversion services, account set- up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts (HSAs). The fee for services is equal on an annual basis to the following percentage of the average daily net assets of the fund attributable to the applicable class:
Class E Class R2 Class R3 Class R4 Class Y ------- -------- -------- -------- ------- 0.15% 0.25% 0.25% 0.25% 0.15%
The fees paid to the transfer agent may be changed by the Board without shareholder approval. * Currently, tax-exempt and state tax-exempt funds do not have classes of shares that are subject to this fee. DISTRIBUTION SERVICES RiverSource Fund Distributors, Inc., an indirect wholly-owned subsidiary of RiverSource Investments, LLC (the "distributor"), 50611 Ameriprise Financial Center, Minneapolis, MN 55474, serves as the funds' principal underwriter. Prior to June 2009, RiverSource Distributors, Inc. also served as principal underwriter and distributor to the funds. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as principal underwriter and distributor to the funds. The fund's shares are offered on a continuous basis. Under a Distribution Agreement, sales charges deducted for distributing fund shares are paid to the distributor daily. The following table shows the sales charges paid to the distributor and the amount retained by the distributor after paying commissions and other expenses for each of the last three fiscal periods. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 22. SALES CHARGES PAID TO DISTRIBUTOR
- ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES - ----------------------------------------------------------------------------------------------------------------------------------- FUND 2009 2008 2007 2009 2008 2007 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income $ 466,216 $ 688,587(a)$ 1,155,448 $ (21,562) $ (56,086)(a)$ 6,089 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 296,977 831,981(a) 1,678,918 (533) 176,661(a) 287,006 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 654,937 1,279,681(a) 2,955,938 77,641 34,001(a) 435,561 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 2,081,242 2,848,037 3,260,693 552,795 799,417 1,029,231 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 528,590 384,348 455,765 16,829 4,989 94,296 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 3,277,766 3,944,827 4,127,743 661,689 702,939 1,084,978 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 4,181,445 5,635,597 6,845,238 1,125,393 1,613,677 2,326,266 Aggressive - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 982,012 1,088,559 1,084,727 153,386 140,630 252,979 Conservative - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 1,561,130 2,257,735 2,414,356 319,114 471,536 594,766 - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 145
- ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES - ----------------------------------------------------------------------------------------------------------------------------------- FUND 2009 2008 2007 2009 2008 2007 - ----------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index N/A N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Small Company Index $ 365,094 $ 563,878 $ 973,579 $ 317,088 $ 117,897 $ 220,620 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ----------------------------------------------------------------------------------------------------------------------------------- Equity Value 374,068 496,313 928,630 65,246 16,594 86,064 - ----------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 110,096 174,193 265,315 13,222 25,734 52,127 - ----------------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 159,379 192,503 178,460 55,468 50,572 33,944 - ----------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 171,109 285,044 569,430 25,294 30,185 100,405 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ----------------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 57,137 149,480(b) N/A 5,429 46,196(b) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure 221,190(c) N/A N/A (7,085)(c) N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 7,536 32,694 2,283(d) 1,465 11,266 (6,048)(d) - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 17,354 70,298 35,493(d) 5,173 50,360 27,942(d) - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 26,015 41,850 35,121(d) 12,539 21,519 23,828(d) - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 21,208 49,187 38,880(d) 7,872 25,003 25,335(d) - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 19,999 51,530 29,205(d) 9,336 28,063 15,221(d) - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 14,670 31,469 21,303(d) 6,101 19,162 13,718(d) - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 17,700 39,332 14,822(d) 8,815 21,208 7,670(d) - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 16,697 23,890 10,606(d) 6,510 12,087 5,832(d) - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ----------------------------------------------------------------------------------------------------------------------------------- High Yield Bond 974,983 882,107 1,787,813 108,896 41,174 139,630 - ----------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 243,591 390,356 359,329 59,181 83,271 63,452 - ----------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 494,967 766,263 1,266,023 43,220 58,252 158,689 - ----------------------------------------------------------------------------------------------------------------------------------- Partners Select Value 187,112 314,511 518,110 15,783 25,291 61,797 - ----------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 114,800 184,740 309,112 26,375 48,448 95,646 - ----------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 287,969 607,350 1,147,620 38,780 117,005 249,915 - ----------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 530,165 660,354 962,025 107,433 (152,827) (85,482) - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 101,207 136,891 252,402 (70,344) (116,397) (67,241) - ----------------------------------------------------------------------------------------------------------------------------------- 2008 2007 2006 2008 2007 2006 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ----------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 1,648,530 2,653,148 1,665,096 206,622 266,495 207,486 - ----------------------------------------------------------------------------------------------------------------------------------- Real Estate 211,915 813,437 598,431 63,306 218,298 180,632 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------------------------------------- Cash Management 339,219 437,392 718,247 339,111 423,832 714,638 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 412,821 661,751 322,731 85,890 140,529 67,609 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap 26,228 55,865 1,760(e) 7,923 9,445 852(e) Equity - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 6,647 15,644 6,304(f) 1,943 1,960 1,708(f) - ----------------------------------------------------------------------------------------------------------------------------------- Floating Rate 380,143 1,282,342 364,914(f) (174,369) (554,729) (118,354)(f) - ----------------------------------------------------------------------------------------------------------------------------------- Growth 2,003,496 3,028,179 4,553,722 372,658 548,978 955,528 - ----------------------------------------------------------------------------------------------------------------------------------- Income Opportunities 135,655 320,351 486,593 (11,090) (6,952) 108,764 - ----------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 407,706 105,703 326,780 51,044 18,732 47,098 - ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 3,342,608 4,596,427 3,400,059 610,479 641,330 629,348 - ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Value 64,134 102,472 123,212 20,999 26,452 37,908 - ----------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 92,255 136,687 220,446 9,475 28,890 28,711 - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 146
- ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES - ----------------------------------------------------------------------------------------------------------------------------------- FUND 2008 2007 2006 2008 2007 2006 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt $ 91,928 $ 150,760 $ 212,157(g) $ 5,945 $ 46,117 $ 77,373(g) - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Bond 1,992,222 2,340,251 2,757,988 176,513 419,415 788,192 - ----------------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 463,447 338,160 480,402(g) 37,217 12,594 102,088(g) - ----------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 29,401 43,518 89,560(g) 8,217 6,984 19,641(g) - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------------------------- Balanced 287,586 474,702 400,884 36,359 32,524 59,347 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 87,685 20,834(h) N/A 30,621 5,197(h) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0(i) N/A N/A 0(i) N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 6,331,545 9,553,810 12,904,884 1,204,186 1,407,616 2,114,315 - ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 2,444,490 3,538,910 4,477,119 898,395 862,120 1,010,224 - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 5,371,458 8,570,846 3,667,041 1,321,113 1,738,063 739,852 - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 400,285 267,319(h) N/A 28,302 26,129(h) N/A - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and 288,047 10,519 0(j) 52,383 3,448 0(j) Income - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined International 168,692 130,761 4,700(k) 36,899 14,894 434(k) Equity - ----------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 41,906 25,743 11,348(l) 10,486 1,421 2,036(l) - ----------------------------------------------------------------------------------------------------------------------------------- Global Bond 391,577 314,002 447,007 118,930 215,442 320,724 - ----------------------------------------------------------------------------------------------------------------------------------- Global Technology 190,722 212,774 242,177 39,408 16,670 29,861 - ----------------------------------------------------------------------------------------------------------------------------------- Partners International Select 560,302 885,940 810,514 118,125 226,007 234,619 Growth - ----------------------------------------------------------------------------------------------------------------------------------- Partners International Select 1,584,444 4,085,674 3,895,267 235,164 641,699 815,331 Value - ----------------------------------------------------------------------------------------------------------------------------------- Partners International Small 88,479 164,026 173,659 20,053 19,649 37,954 Cap - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 780,872 886,062 1,075,586 (4,109,358) (7,004,024) (9,848,080) - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 124,828 226,464 107,816 35,391 90,745 29,463 - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 800,774 896,578 1,272,084 114,011 99,098 218,974 - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 18,558(m) N/A N/A 4,340(m) N/A N/A Income - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended 1,795(m) N/A N/A 307(m) N/A N/A Alpha - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle International 319,850 501,090 563,174 49,744 56,669 107,305 Opportunity - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ----------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 59,348 62,985 115,280 (792) (10,183) 29,590 - ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 360,393 608,683 1,388,577 59,123 115,052 346,497 - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 319,831 313,115 346,932 64,831 (19,725) 79,024 - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 1,042,555 1,182,244 1,485,792 151,444 181,059 389,650 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market N/A N/A N/A N/A N/A N/A - -----------------------------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from Feb. 19, 2009 (when shares became publicly available) to April 30, 2009. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June 30. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (k) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (l) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - July 30, 2009 Page 147 Part of the sales charge may be paid to selling dealers who have agreements with the distributor. The distributor will retain the balance of the sales charge. At times the entire sales charge may be paid to selling dealers. PLAN AND AGREEMENT OF DISTRIBUTION To help defray the cost of distribution and servicing not covered by the sales charges received under the Distribution Agreement, each fund listed in Table 24. 12b-1 Fees, approved a Plan of Distribution (the "Plan") and entered into an agreement under the Plan pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, of the type known as a reimbursement plan, the fund pays the distributor a fee up to actual expenses incurred at an annual rate as follows: FOR FUNDS OTHER THAN MONEY MARKET FUNDS: The fee is equal on an annual basis to the following percentage of the average daily net assets of the fund attributable to the applicable class:
Class A Class B Class C Class D Class R2 Class R3 Class W - ------- ------- ------- ------- -------- -------- ------- 0.25% 1.00% 1.00% 0.25% 0.50% 0.25% 0.25%
For Class B and Class C, of the 1.00% fee, up to 0.75% is reimbursed for distribution expenses. Up to an additional 0.25% of the 1.00% fee is paid to the distributor to reimburse certain expenses incurred in connection with providing services to fund shareholders. For Class R2 and Class R3, up to the entire amount of the fee shall be reimbursed for distribution expenses. Of that amount, for Class R2, up to 0.25% of the 0.50% fee may be reimbursed for shareholder servicing expenses. FOR MONEY MARKET FUNDS: The fee for services is equal on an annual basis to the following percentage of the average daily net assets of the fund attributable to the applicable class. The fee for Tax-Exempt Money Market, which does not have separate classes of shares, is the same as that applicable to Class A:
Class A Class B Class C Class W - ------- ------- ------- ------- 0.10% 0.85% 0.75% 0.10%
For Class B, of the 0.85% fee, up to 0.75% is reimbursed for distribution expenses. Up to an additional 0.10% of the 0.85% fee is paid to the distributor to reimburse certain expenses incurred in connection with providing services to fund shareholders. The distributor has currently agreed not to be reimbursed by the Fund for distribution (12b-1) fees equal to 0.10% of the 0.85% fee for Class B. FOR ALL FUNDS: Distribution and shareholder servicing expenses include payment of distribution and shareholder servicing fees to financial institutions that sell shares of the fund. Financial institutions may compensate their financial advisors with the distribution and shareholder servicing fees paid to them by the distributor. Payments under the Plan are intended to result in an increase in fund assets and thus potentially result in economies of scale and lower costs for all shareholders. Each class has exclusive voting rights on the Plan as it applies to that class. In addition, because Class B shares convert to Class A shares, Class B shareholders have the right to vote on any material increase to expenses charged under the Class A plan. Distribution expenses covered under this Plan include commissions to financial intermediaries, printing prospectuses and reports used for sales purposes, the preparation, printing and distribution of advertising and sales literature, personnel, travel, office expense and equipment, and other distribution-related expenses. Shareholder service expenses include costs of establishing and maintaining shareholder accounts and records, assisting with purchase, redemption and exchange requests, arranging for bank wires, monitoring dividend payments from the funds on behalf of shareholders, forwarding certain shareholder communications from funds to shareholders, receiving and responding to inquiries and answering questions regarding the funds, aiding in maintaining the investment of shareholders in the funds and other service-related expenses. A substantial portion of the expenses are not specifically identified to any one of the funds. The fee is not allocated to any one service (such as advertising, compensation to financial intermediaries, or other uses). However, a significant portion of the fee is generally used for sales and promotional expenses. The Plan must be approved annually by the Board, including a majority of the disinterested Board members, if it is to continue for more than a year. At least quarterly, the Board reviews written reports concerning the amounts expended under the Plan and the purposes for which such expenditures were made. The Plan and any agreement related to it may be Statement of Additional Information - July 30, 2009 Page 148 terminated at any time by vote of a majority of Board members who are not interested persons of the fund and have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan, or by vote of a majority of the outstanding voting securities of the relevant class of shares or by the distributor. Any agreement related to the Plan will terminate in the event of its assignment, as that term is defined in the 1940 Act. The Plan may not be amended to increase the amount to be spent for distribution without shareholder approval, and all material amendments to the Plan must be approved by a majority of the Board members, including a majority of the Board members who are not interested persons of the fund and who do not have a financial interest in the operation of the Plan or any agreement related to it. The selection and nomination of disinterested Board members is the responsibility of the other disinterested Board members. No Board member who is not an interested person has any direct or indirect financial interest in the operation of the Plan or any related agreement. For its most recent fiscal period, each fund paid 12b-1 fees as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 23. 12B-1 FEES
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income $ 593,211 $ 362,603 $ 112,193 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Income Builder Enhanced 580,823 278,815 110,421 N/A N/A N/A N/A Income - ------------------------------------------------------------------------------------------------------------------ Income Builder Moderate 1,158,585 587,094 185,812 N/A N/A N/A N/A Income - ------------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive 969,765 809,179 142,465 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Portfolio Builder 328,254 434,092 99,134 N/A N/A N/A N/A Conservative - ------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 1,870,904 1,818,537 374,530 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 2,048,240 1,742,740 319,656 N/A N/A N/A N/A Aggressive - ------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 687,072 724,001 168,921 N/A N/A N/A N/A Conservative - ------------------------------------------------------------------------------------------------------------------ Portfolio Builder Total 850,481 691,958 125,500 N/A N/A N/A N/A Equity - ------------------------------------------------------------------------------------------------------------------ S&P 500 Index N/A N/A N/A $91,928 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Small Company Index 1,166,038 914,171 N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------ Equity Value 1,688,097 830,333 44,669 N/A $ 18 $ 353 $ 9 - ------------------------------------------------------------------------------------------------------------------ Partners Small Cap Growth 160,344 205,641 25,972 N/A 15 8 N/A - ------------------------------------------------------------------------------------------------------------------ Precious Metals and Mining 229,611 135,038 20,903 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Small Cap Advantage 419,255 344,561 34,805 N/A 12 6 N/A - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity 78,294 18,994 10,617 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Recovery and 9,478 3,157 1,947 N/A 9 5 N/A Infrastructure(a) - ------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 8,900 N/A N/A N/A 18 9 N/A - ------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 13,407 N/A N/A N/A 18 9 N/A - ------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 8,463 N/A N/A N/A 19 9 N/A - ------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 5,737 N/A N/A N/A 20 9 N/A - ------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 8,216 N/A N/A N/A 21 10 N/A - ------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 3,286 N/A N/A N/A 17 9 N/A - ------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 3,151 N/A N/A N/A 18 11 N/A - ------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 2,870 N/A N/A N/A 17 9 N/A - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------ High Yield Bond $ 2,194,454 $1,126,604 $ 154,385 N/A $ 47 $ 1,124 $ 32,692 - ------------------------------------------------------------------------------------------------------------------ Partners Aggressive Growth 637,734 400,332 20,799 N/A 367 16 N/A - ------------------------------------------------------------------------------------------------------------------ Partners Fundamental Value 1,016,187 892,153 98,358 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Partners Select Value 524,683 439,515 44,376 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Partners Small Cap Equity 326,818 153,089 14,814 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Partners Small Cap Value 587,080 760,649 67,562 N/A 1,288 28 N/A - ------------------------------------------------------------------------------------------------------------------ Short Duration U.S. 1,393,600 1,284,921 111,382 N/A N/A N/A 11 Government - ------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 213,851 267,370 40,318 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 149
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------ Dividend Opportunity $ 3,563,045 $2,220,149 $ 257,746 N/A N/A N/A $ 13 - ------------------------------------------------------------------------------------------------------------------ Real Estate 276,727 189,408 17,500 N/A N/A N/A 9 - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------ Cash Management 4,969,177 714,712 45,638 N/A N/A N/A 154,441 - ------------------------------------------------------------------------------------------------------------------ Disciplined Equity 3,199,228 550,860 31,395 N/A $ 22 $ 11 3,483,017 - ------------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid 44,049 12,319 1,632 N/A N/A N/A 54,372 Cap Equity - ------------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 31,837 4,226 546 N/A 20 11 N/A - ------------------------------------------------------------------------------------------------------------------ Floating Rate 795,373 357,536 206,462 N/A N/A N/A 11 - ------------------------------------------------------------------------------------------------------------------ Growth 5,186,203 3,166,050 179,547 N/A 24 12 12 - ------------------------------------------------------------------------------------------------------------------ Income Opportunities 389,032 363,715 41,252 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Inflation Protected 319,398 259,775 51,658 N/A N/A N/A 205,664 Securities - ------------------------------------------------------------------------------------------------------------------ Large Cap Equity 10,775,702 7,098,566 270,367 N/A 22 11 N/A - ------------------------------------------------------------------------------------------------------------------ Large Cap Value 123,733 118,887 8,842 N/A 19 9 N/A - ------------------------------------------------------------------------------------------------------------------ Limited Duration Bond 155,586 94,180 16,366 N/A N/A N/A 14 - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 417,044 57,189 20,845 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Diversified Bond 4,896,633 3,027,276 237,190 N/A 36 18 1,101,584 - ------------------------------------------------------------------------------------------------------------------ Minnesota Tax-Exempt 705,661 176,620 75,716 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ New York Tax-Exempt 135,961 41,064 7,302 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------ Balanced 1,987,290 415,034 46,083 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Disciplined Large Cap Growth 35,017 16,268 10,920 N/A 47 24 2 - ------------------------------------------------------------------------------------------------------------------ Disciplined Large Cap 32 29 16 N/A 8 4 4 Value(b) - ------------------------------------------------------------------------------------------------------------------ Diversified Equity Income 14,226,095 9,229,184 1,111,495 N/A 25,252 280,029 11 - ------------------------------------------------------------------------------------------------------------------ Mid Cap Value 4,837,635 2,497,777 514,655 N/A 27,209 40,679 11 - ------------------------------------------------------------------------------------------------------------------ Strategic Allocation 4,342,136 2,269,489 693,509 N/A 24 12 N/A - ------------------------------------------------------------------------------------------------------------------ Strategic Income Allocation 362,627 149,282 45,011 N/A 5 2 N/A - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and $ 268,339 $ 11,267 $ 58,825 N/A N/A N/A $ 368,846 Income - ------------------------------------------------------------------------------------------------------------------ Disciplined International 188,884 135,656 14,024 N/A $ 6 $ 3 1,073,689 Equity - ------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond 21,289 14,432 2,267 N/A N/A N/A 125,465 - ------------------------------------------------------------------------------------------------------------------ Global Bond 704,343 522,781 40,466 N/A N/A N/A 442,005 - ------------------------------------------------------------------------------------------------------------------ Global Technology 266,728 297,356 31,112 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Partners International 850,640 586,365 55,865 N/A N/A N/A N/A Select Growth - ------------------------------------------------------------------------------------------------------------------ Partners International 3,573,831 2,701,274 272,384 N/A N/A N/A N/A Select Value - ------------------------------------------------------------------------------------------------------------------ Partners International Small 157,129 124,919 9,633 N/A N/A N/A N/A Cap - ------------------------------------------------------------------------------------------------------------------ Threadneedle Emerging 1,283,814 701,567 62,513 N/A N/A N/A N/A Markets - ------------------------------------------------------------------------------------------------------------------ Threadneedle European Equity 239,284 225,941 17,814 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity 1,507,084 814,247 73,244 N/A 25 13 13 - ------------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity 1,812 818 157 N/A 11 6 N/A Income(c) - ------------------------------------------------------------------------------------------------------------------ Threadneedle Global Extended 1,067 508 207 N/A 11 5 N/A Alpha(c) - ------------------------------------------------------------------------------------------------------------------ Threadneedle International 1,036,236 541,184 30,802 N/A 25 12 N/A Opportunity - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 166,850 57,473 23,235 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Mid Cap Growth 1,589,639 958,780 48,434 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 1,613,863 236,766 50,563 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 6,157,145 713,646 137,909 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 150
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W - ------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market $ 140,660 N/A N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------
(a) For the period from Feb. 19, 2009 (when shares became publicly available) to April 30, 2009. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (c) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - July 30, 2009 Page 151 FOR FUNDS WITH CLASS B AND CLASS C SHARES: The following table provides the amount of distribution expenses, as a dollar amount and as a percentage of net assets, incurred by the distributor and not yet reimbursed ("unreimbursed expense") for Class B and Class C shares. These amounts are based on the most recent information available as of April 30, 2009 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. TABLE 24. UNREIMBURSED DISTRIBUTION EXPENSES
PERCENTAGE OF PERCENTAGE OF CLASS B CLASS C FUND CLASS B NET ASSETS CLASS C NET ASSETS - ------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity $ 76,000 4.73% $ 14,000 1.06% - ------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 187,000 4.59% 54,000 0.50% - ------------------------------------------------------------------------------------------------------- Balanced 790,000 4.23% 31,000 1.16% - ------------------------------------------------------------------------------------------------------- California Tax-Exempt 95,000 2.40% 16,000 0.67% - ------------------------------------------------------------------------------------------------------- Cash Management 7,863,000 6.58% 89,000 0.90% - ------------------------------------------------------------------------------------------------------- Disciplined Equity 744,000 3.85% 25,000 1.33% - ------------------------------------------------------------------------------------------------------- Disciplined International Equity 388,000 5.25% 12,000 1.29% - ------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 178,000 5.21% 14,000 1.10% - ------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 7,000 7.67% -- 0.00% - ------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 59,000 5.48% 4,000 1.48% - ------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 17,000 5.29% 1,000 1.50% - ------------------------------------------------------------------------------------------------------- Diversified Bond 7,929,000 3.30% 279,000 0.68% - ------------------------------------------------------------------------------------------------------- Diversified Equity Income 18,306,000 4.53% 711,000 1.13% - ------------------------------------------------------------------------------------------------------- Dividend Opportunity 3,647,000 4.16% 172,000 1.28% - ------------------------------------------------------------------------------------------------------- Emerging Markets Bond 65,000 4.46% 18,000 8.09% - ------------------------------------------------------------------------------------------------------- Equity Value 1,664,000 3.05% 46,000 1.34% - ------------------------------------------------------------------------------------------------------- Floating Rate 975,000 6.22% 105,000 0.73% - ------------------------------------------------------------------------------------------------------- Global Bond 1,204,000 3.28% 36,000 0.87% - ------------------------------------------------------------------------------------------------------- Global Technology 467,000 3.02% 28,000 1.26% - ------------------------------------------------------------------------------------------------------- Growth 4,387,000 4.32% 112,000 1.62% - ------------------------------------------------------------------------------------------------------- High Yield Bond 3,625,000 3.55% 185,000 0.98% - ------------------------------------------------------------------------------------------------------- Income Builder Basic Income 1,839,000 6.40% 59,000 0.61% - ------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 1,264,000 6.72% 51,000 0.64% - ------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 2,497,000 6.16% 81,000 0.59% - ------------------------------------------------------------------------------------------------------- Income Opportunities 1,187,000 4.20% 208,000 1.10% - ------------------------------------------------------------------------------------------------------- Inflation Protected Securities 1,276,000 3.90% 73,000 0.68% - ------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 125,000 2.62% 41,000 1.10% - ------------------------------------------------------------------------------------------------------- Large Cap Equity 11,130,000 4.81% 173,000 1.51% - ------------------------------------------------------------------------------------------------------- Large Cap Value 194,000 4.51% 7,000 1.26% - ------------------------------------------------------------------------------------------------------- Limited Duration Bond 314,000 4.16% 17,000 0.77% - ------------------------------------------------------------------------------------------------------- Mid Cap Growth 1,712,000 3.31% 32,000 0.94% - ------------------------------------------------------------------------------------------------------- Mid Cap Value 4,992,000 4.81% 291,000 0.84% - ------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 255,000 1.94% 80,000 0.83% - ------------------------------------------------------------------------------------------------------- New York Tax-Exempt 65,000 1.93% 7,000 0.97% - ------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 926,000 3.09% 22,000 1.28% - ------------------------------------------------------------------------------------------------------- Partners Fundamental Value 2,745,000 4.19% 102,000 1.30% - ------------------------------------------------------------------------------------------------------- Partners International Select Growth 1,043,000 4.45% 37,000 1.40% - ------------------------------------------------------------------------------------------------------- Partners International Select Value 4,198,000 4.88% 138,000 1.38% - ------------------------------------------------------------------------------------------------------- Partners International Small Cap 225,000 5.70% 5,000 1.43% - ------------------------------------------------------------------------------------------------------- Partners Select Value 1,402,000 4.23% 41,000 1.15% - -------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 152
PERCENTAGE OF PERCENTAGE OF CLASS B CLASS C FUND CLASS B NET ASSETS CLASS C NET ASSETS - ------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 499,000 4.25% 19,000 1.50% - ------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 472,000 3.72% 24,000 1.34% - ------------------------------------------------------------------------------------------------------- Partners Small Cap Value 2,066,000 3.39% 73,000 1.27% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 3,302,000 5.41% 136,000 1.04% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 2,254,000 5.09% 120,000 0.94% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 8,012,000 5.20% 356,000 0.94% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 7,105,000 5.23% 295,000 1.00% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 3,297,000 5.17% 165,000 0.92% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 2,819,000 5.72% 120,000 1.12% - ------------------------------------------------------------------------------------------------------- Precious Metals and Mining 414,000 3.45% 17,000 0.76% - ------------------------------------------------------------------------------------------------------- Real Estate 445,000 7.12% 13,000 1.58% - ------------------------------------------------------------------------------------------------------- Recovery and Infrastructure 87,000 2.23% 18,000 0.68% - ------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 4,253,000 3.65% 121,000 0.96% - ------------------------------------------------------------------------------------------------------- Small Cap Advantage 816,000 3.77% 30,000 1.16% - ------------------------------------------------------------------------------------------------------- Small Company Index 1,709,000 3.23% N/A N/A - ------------------------------------------------------------------------------------------------------- Strategic Allocation 7,137,000 5.72% 384,000 0.87% - ------------------------------------------------------------------------------------------------------- Strategic Income Allocation 992,000 4.41% 55,000 0.72% - ------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 453,000 2.12% 54,000 0.78% - ------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 1,140,000 2.12% 131,000 0.98% - ------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 981,000 3.49% 44,000 1.16% - ------------------------------------------------------------------------------------------------------- Threadneedle European Equity 193,000 2.28% 12,000 1.33% - ------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 1,532,000 4.25% 63,000 1.46% - ------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 102,000 5.22% 5,000 1.92% - ------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 27,000 8.72% 1,000 0.97% - ------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 857,000 3.87% 31,000 1.70% - ------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 1,009,000 4.12% 36,000 0.87% - -------------------------------------------------------------------------------------------------------
PAYMENTS TO FINANCIAL INTERMEDIARIES The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the funds) to financial intermediaries, including payment to affiliated broker- dealers, in connection with agreements between the distributor and financial intermediaries pursuant to which these financial intermediaries sell fund shares and provide services to their clients who are shareholders of the funds. These payments do not change the price paid by investors and fund shareholders for the purchase or ownership of shares of the funds, and these payments are not reflected in the fees and expenses of the funds, as they are not paid by the funds. These payments are in addition to fees paid by the funds to the distributor under 12b-1 plans, which fees may be used to compensate financial intermediaries for the distribution of fund shares and the servicing of fund shareholders, or paid by the funds to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial intermediaries for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial intermediary to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the funds. These payments are typically made pursuant to an agreement between the distributor and the financial intermediary, and are typically made in support of marketing and sales support efforts or program and shareholder servicing, as further described below. These payments are usually calculated based on a percentage of fund assets owned through the financial intermediary and/or as a percentage of fund sales attributable to the financial intermediary. Certain financial intermediaries require flat fees instead of or in addition to these asset-based fees as compensation for including or maintaining funds on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial intermediary charges its representatives for effecting transactions in the funds. The amount of payment varies by financial intermediary,and often is Statement of Additional Information - July 30, 2009 Page 153 significant. In addition, the amount of payments may differ based upon the type of fund sold or maintained; for instance, the amount of payments for an equity fund may differ from payments for a money-market or fixed income fund. Asset- based payments generally will be made in a range of up to 0.25% of assets or 0.25% of sales or some combination thereof. Exceptions to these general ranges will be considered on a case-by-case basis. Flat fees or annual minimum fees required by a financial intermediary in addition to such asset-based fees, are considered on a case-by-case basis. MARKETING AND SALES SUPPORT Payments may be paid in support of retail, institutional, plan or other fee- based advisory program distribution efforts. These payments are typically made by the distributor in its efforts to advertise to and/or educate the financial intermediary's personnel, including its registered representatives, about the fund. As a result of these payments, the distributor may obtain a higher profile and greater visibility for the fund within the financial intermediary's organization, including placement of the fund on the financial intermediary's preferred or recommended list. The distributor may also obtain greater access to sales meetings, sales representatives, and management representatives of the financial intermediary, including potentially having increased opportunity for fund representatives to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and their clients and other events sponsored by the financial intermediary. PROGRAM AND SHAREHOLDER SERVICING Payments may be made in support of recordkeeping, reporting, transaction processing, and other plan administration services provided by a financial intermediary to or through retirement plans, 529 plans, Health Savings Account plans, or other plans or fee-based advisory programs but may also be made in support of certain retail advisory programs, including wrap programs. A financial intermediary may perform program services itself or may arrange with a third party to perform program services. These payments may also include services rendered in connection with fund selection and monitoring, employee enrollment and education, plan balance rollover or separation, or other similar services. OTHER PAYMENTS The distributor and its affiliates may separately pay financial intermediaries in order to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other financial intermediary employees, client and investor events and other financial intermediary-sponsored events, and for travel expenses, including lodging incurred by registered representatives and other employees in connection with prospecting, asset retention and due diligence trips. The amount of these payments varies depending upon the nature of the event. The distributor and its affiliates make payments for such events as they deem appropriate, subject to internal guidelines and applicable law. From time to time, to the extent permitted by SEC and NASD rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payment to financial intermediaries or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial intermediaries and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial intermediary to the extent the cost of such services was less than the actual expense of the service. FINANCIAL INTERMEDIARY ARRANGEMENTS The financial intermediary through which you are purchasing or own shares of funds has been authorized directly or indirectly by the distributor to sell funds and/or to provide services to you as a shareholder of funds. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial intermediary may receive from the distributor or its affiliates related to your purchase or ownership of funds, please contact your financial intermediary. CUSTODIAN SERVICES The funds' securities and cash are held pursuant to a custodian agreement with JPMorgan Chase Bank, N.A. (JPMorgan), 1 Chase Manhattan Plaza, 19th Floor, New York, NY 10005. The custodian is permitted to deposit some or all of their securities in central depository systems as allowed by federal law. For its services, each fund pays its custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses. As part of this arrangement, securities purchased outside the United States are maintained in the custody of various foreign branches of JPMorgan or in other financial institutions as permitted by law and by the fund's custodian agreement. Statement of Additional Information - July 30, 2009 Page 154 BOARD SERVICES CORPORATION The funds have an agreement with Board Services Corporation (Board Services) located at 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402. This agreement sets forth the terms of Board Services' responsibility to serve as an agent of the funds for purposes of administering the payment of compensation to each independent Board member, to provide office space for use by the funds and their boards, and to provide any other services to the boards or the independent members, as may be reasonably requested. ORGANIZATIONAL INFORMATION Each fund is an open-end management investment company. The fund's headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268. SHARES The shares of a fund represent an interest in that fund's assets only (and profits or losses), and, in the event of liquidation, each share of a fund would have the same rights to dividends and assets as every other share of that fund. VOTING RIGHTS As a shareholder in a fund, you have voting rights over the fund's management and fundamental policies. You are entitled to vote based on your total dollar interest in the fund. Each class, if applicable, has exclusive voting rights with respect to matters for which separate class voting is appropriate under applicable law. All shares have cumulative voting rights with respect to the election of Board members. This means that you have as many votes as the dollar amount you own, including the fractional amount, multiplied by the number of members to be elected. DIVIDEND RIGHTS Dividends paid by a fund, if any, with respect to each applicable class of shares will be calculated in the same manner, at the same time, on the same day, and will be in the same amount, except for differences resulting from differences in fee structures. SHAREHOLDER LIABILITY For funds organized as Massachusetts business trusts, under Massachusetts law, shareholders of a Massachusetts business trust may, under certain circumstances, be held personally liable as partners for its obligation. However, the Declaration of Trust that establishes a trust, a copy of which, together with all amendments thereto (the "Declaration of Trust"), is on file with the office of the Secretary of the Commonwealth of Massachusetts for each applicable fund, contains an express disclaimer of shareholder liability for acts or obligations of the Trust, or of any fund in the Trust. The Declaration of Trust provides that, if any shareholder (or former shareholder) of a fund in the Trust is charged or held to be personally liable for any obligation or liability of the Trust, or of any fund in the Trust, solely by reason of being or having been a shareholder and not because of such shareholder's acts or omissions or for some other reason, the Trust (upon request of the shareholder) shall assume the defense against such charge and satisfy any judgment thereon, and the shareholder or former shareholder (or the heirs, executors, administrators or other legal representatives thereof, or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled (but solely out of the assets of the fund of which such shareholder or former shareholder is or was the holder of shares) to be held harmless from and indemnified against all loss and expense arising from such liability. The Declaration of Trust also provides that the Trust may maintain appropriate insurance (for example, fidelity bond and errors and omissions insurance) for the protection of the Trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was unable to meet its obligations. The Declaration of Trust further provides that obligations of the Trust are not binding upon the Trustees individually, but only upon the assets and property of the Trust, and that the Trustees will not be liable for any action or failure to act, errors of judgment, or mistakes of fact or law, but nothing in the Declaration of Trust or other agreement with a Trustee protects a Trustee against any liability to which he or she would otherwise be subject by reason of his or her willful bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. By becoming a shareholder of the Statement of Additional Information - July 30, 2009 Page 155 fund, each shareholder shall be expressly held to have assented to and agreed to be bound by the provisions of the Declaration of Trust. TABLE 25. FUND HISTORY TABLE FOR RIVERSOURCE FAMILY OF FUNDS
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE BOND SERIES, 4/29/81, 4/8/86(1) Corporation NV/MN 7/31 INC.(2) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Floating Rate 2/16/06 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Income 6/19/03 Yes Opportunities Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Inflation 3/4/04 No Protected Securities Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Limited Duration 6/19/03 Yes Bond Fund - ---------------------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-EXEMPT TRUST 4/7/86 Business Trust MA 8/31(10) - ---------------------------------------------------------------------------------------------------------------------- RiverSource California Tax- 8/18/86 No Exempt Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE DIMENSIONS SERIES, 2/20/68, 4/8/86(1) Corporation NV/MN 7/31 INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined Small 5/18/06 Yes and Mid Cap Equity Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined Small 2/16/06 Yes Cap Value Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED INCOME 6/27/74, 4/8/86(1) Corporation NV/MN 8/31 SERIES, INC.(2) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Diversified Bond 10/3/74 Yes Fund(3) - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE EQUITY SERIES, 3/18/57, 4/8/86(1) Corporation NV/MN 11/30 INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Mid Cap Growth 6/4/57 Yes Fund(4) - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE GLOBAL SERIES, 10/28/88 Corporation MN 10/31 INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Absolute Return 6/15/06 Yes Currency and Income Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Emerging Markets 2/16/06 No Bond Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Global Bond Fund 3/20/89 No - ---------------------------------------------------------------------------------------------------------------------- RiverSource Global Technology 11/13/96 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 11/13/96 Yes Fund(4),(5),(11) - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 5/29/90 Yes Fund(5),(6),(11) - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 8/1/08 Yes Income Fund - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended 8/1/08 Yes Alpha Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE GOVERNMENT INCOME 3/12/85 Corporation MN 5/31 SERIES, INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Short Duration 8/19/85 Yes U.S. Government Fund(3) - ---------------------------------------------------------------------------------------------------------------------- RiverSource U.S. Government 2/14/02 Yes Mortgage Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD INCOME 8/17/83 Corporation MN 5/31 SERIES, INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource High Yield Bond 12/8/83 Yes Fund(3) - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INCOME SERIES, 2/10/45; 4/8/86(1) Corporation NV/MN 1/31(7) INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder 2/16/06 Yes Basic Income Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder 2/16/06 Yes Enhanced Income Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder 2/16/06 Yes Moderate Income Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INTERNATIONAL 5/9/01 Corporation MN 10/31 MANAGERS SERIES, INC.(2) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners 9/28/01 Yes International Select Growth Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners 9/28/01 Yes International Select Value Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners 10/3/02 Yes International Small Cap Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INTERNATIONAL 7/18/84 Corporation MN 10/31 SERIES, INC.(2) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined 5/18/06 Yes International Equity Fund - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Asia Pacific 7/15/09 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 6/26/00 Yes Fund(5),(11) - ---------------------------------------------------------------------------------------------------------------------- Threadneedle International 11/15/84 Yes Opportunity Fund(4),(5),(11) - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 156
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INVESTMENT SERIES, 1/18/40; 4/8/86(1) Corporation NV/MN 9/30 INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Balanced Fund(4) 4/16/40 Yes - ---------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined Large 5/17/07 Yes Cap Growth Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined Large 8/1/08 Yes Cap Value Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Diversified 10/15/90 Yes Equity Income Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Mid Cap Value 2/14/02 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP SERIES, 5/21/70, 4/8/86(1) Corporation NV/MN 7/31 INC.(2) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined 4/24/03 Yes Equity Fund(4) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Growth Fund 3/1/72 Yes - ---------------------------------------------------------------------------------------------------------------------- RiverSource Large Cap Equity 3/28/02 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Large Cap Value 6/27/02 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE MANAGERS SERIES, 3/20/01 Corporation MN 5/31 INC.(2) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners 4/24/03 Yes Aggressive Growth Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners 6/18/01 Yes Fundamental Value Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners Select 3/8/02 Yes Value Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners Small 3/8/02 Yes Cap Equity Fund(4),(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners Small 6/18/01 Yes Cap Value Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE MARKET ADVANTAGE 8/25/89 Corporation MN 1/31 SERIES, INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Conservative Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Moderate Conservative Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Moderate Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Moderate Aggressive Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Aggressive Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Total Equity Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource S&P 500 Index 10/25/99 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Small Company 8/19/96 Yes Index Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE MONEY MARKET 8/22/75; 4/8/86(1) Corporation NV/MN 7/31 SERIES, INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Cash Management 10/6/75 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SECTOR SERIES, 3/25/88 Corporation MN 6/30 INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Dividend 8/1/88 Yes Opportunity Fund(8) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Real Estate Fund 3/4/04 No - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SELECTED SERIES, 10/5/84 Corporation MN 3/31 INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Precious Metals 4/22/85 No and Mining Fund(9) - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SERIES TRUST(14) 1/27/06 Business Trust MA 4/30 - ---------------------------------------------------------------------------------------------------------------------- RiverSource 120/20 Contrarian 10/18/07 Yes Equity Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Recovery and 2/19/09 No Infrastructure Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 Yes 2010 Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 Yes 2015 Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 Yes 2020 Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 Yes 2025 Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 Yes 2030 Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 Yes 2035 Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 Yes 2040 Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 Yes 2045 Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SHORT TERM 4/23/68, 4/8/86(1) Corporation NV/MN 7/31 INVESTMENTS SERIES, INC.(15) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Short-Term Cash 9/26/06 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SPECIAL TAX-EXEMPT 4/7/86 Business Trust MA 8/31(10) SERIES TRUST - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 157
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ---------------------------------------------------------------------------------------------------------------------- RiverSource Minnesota Tax- 8/18/86 No Exempt Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource New York Tax- 8/18/86 No Exempt Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE STRATEGIC 10/9/84 Corporation MN 9/30 ALLOCATION SERIES, INC.(2) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Strategic 1/23/85 Yes Allocation Fund(4) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Strategic Income 5/17/07 Yes Allocation Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE STRATEGY SERIES, 1/24/84 Corporation MN 3/31 INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Equity Value Fund 5/14/84 Yes - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners Small 1/24/01 Yes Cap Growth Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Small Cap 5/4/99 Yes Advantage Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE TAX-EXEMPT INCOME 12/21/78; 4/8/86(1) Corporation NV/MN 11/30 SERIES, INC.(2) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Tax-Exempt High 5/7/79 Yes Income Fund(4) - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE TAX-EXEMPT MONEY 2/29/80, 4/8/86(1) Corporation NV/MN 12/31 MARKET SERIES, INC.(2) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Tax-Exempt Money 8/5/80 Yes Market Fund(4) - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE TAX-EXEMPT SERIES, 9/30/76, 4/8/86(1) Corporation NV/MN 11/30 INC. - ---------------------------------------------------------------------------------------------------------------------- RiverSource Intermediate Tax- 11/13/96 Yes Exempt Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Tax-Exempt Bond 11/24/76 Yes Fund - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE VARIABLE SERIES 9/11/07 Business Trust MA 12/31 TRUST(12) - ---------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Aggressive - ---------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Conservative - ---------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Moderate - ---------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Moderately Aggressive - ---------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Moderately Conservative - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners Variable 5/1/06 Yes Portfolio - Fundamental Value Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners Variable 2/4/04 Yes Portfolio - Select Value Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Partners Variable 8/14/01 Yes Portfolio - Small Cap Value Fund(11) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 4/30/86 Yes Portfolio - Balanced Fund(4) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 10/31/81 Yes Portfolio - Cash Management Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/10/04 Yes Portfolio - Core Equity Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 10/13/81 Yes Portfolio - Diversified Bond Fund(3) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/15/99 Yes Portfolio - Diversified Equity Income Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 10/13/81 Yes Portfolio - Dynamic Equity Fund(5),(16) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/1/96 No Portfolio - Global Bond Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/13/04 No Portfolio - Global Inflation Protected Securities Fund(13) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/1/96 Yes Portfolio - High Yield Bond Fund(3) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 6/1/04 Yes Portfolio - Income Opportunities Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/1/01 Yes Portfolio - Mid Cap Growth Fund(4) - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/2/05 Yes Portfolio - Mid Cap Value Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/1/00 Yes Portfolio - S&P 500 Index Fund - ---------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/15/99 Yes Portfolio - Short Duration U.S. Government Fund(3) - ---------------------------------------------------------------------------------------------------------------------- Seligman Variable 9/15/99 Yes Portfolio - Growth Fund(16) - ---------------------------------------------------------------------------------------------------------------------- Seligman Variable 02/4/04 Yes Portfolio - Larger-Cap Value Fund(16) - ---------------------------------------------------------------------------------------------------------------------- Seligman Variable 9/15/99 Yes Portfolio - Smaller-Cap Value Fund(16) - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Variable 5/1/00 Yes Portfolio - Emerging Markets Fund(4),(5),(11) - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Variable 1/13/92 Yes Portfolio - International Opportunity Fund(4),(5),(11) - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 158 * Effective Oct. 1, 2005 American Express Funds changed its name to RiverSource funds and the names Threadneedle and Partners were removed from fund names. ** If a Non-diversified fund is managed as if it were a diversified fund for a period of three years, its status under the 1940 Act will convert automatically from Non-diversified to diversified. A diversified fund may convert to Non-diversified status only with shareholder approval. (1) Date merged into a Minnesota corporation incorporated on April 8, 1986. (2) Effective April 21, 2006, AXP Discovery Series, Inc. changed its name to RiverSource Bond Series, Inc.; AXP Fixed Income Series, Inc. changed its name to RiverSource Diversified Income Series, Inc.; AXP Growth Series, Inc. changed its name to RiverSource Large Cap Series, Inc.; AXP High Yield Tax-Exempt Series, Inc. changed its name to RiverSource Tax-Exempt Income Series, Inc.; AXP Managed Series, Inc. changed its name to RiverSource Strategic Allocation Series, Inc.; AXP Partners International Series, Inc. changed its name to RiverSource International Managers Series, Inc.; AXP Partners Series, Inc. changed its name to RiverSource Managers Series, Inc.; AXP Tax-Free Money Series, Inc. changed its name to RiverSource Tax-Exempt Money Market Series, Inc.; and for all other corporations and business trusts, AXP was replaced with RiverSource in the registrant name. (3) Effective June 27, 2003, Bond Fund changed its name to Diversified Bond Fund, Federal Income Fund changed its name to Short Duration U.S. Government Fund and Extra Income Fund changed its name to High Yield Bond Fund, Variable Portfolio - Bond Fund changed its name to Variable Portfolio - Diversified Bond Fund, Variable Portfolio - Extra Income Fund changed its name to Variable Portfolio - High Yield Bond Fund and Variable Portfolio - Federal Income Fund changed its name to Variable Portfolio - Short Duration U.S. Government Fund. (4) Effective Oct. 1, 2005, Equity Select Fund changed its name to Mid Cap Growth Fund, High Yield Tax-Exempt Fund changed its name to Tax-Exempt High Income Fund, Managed Allocation Fund changed its name to Strategic Allocation Fund, Mutual changed its name to Balanced Fund, Partners Growth Fund changed its name to Fundamental Growth Fund, Partners International Core Fund changed its name to International Equity Fund, Partners Small Cap Core Fund changed its name to Small Cap Equity Fund, Quantitative Large Cap Equity Fund changed its name to Disciplined Equity Fund, Tax-Free Money Fund changed its name to Tax-Exempt Money Market Fund, and Threadneedle International Fund changed its name to International Opportunity Fund. Variable Portfolio - Equity Select Fund changed its name to Variable Portfolio - Mid Cap Growth Fund, Variable Portfolio - Threadneedle Emerging Markets Fund changed its name to Variable Portfolio - Emerging Markets Fund, Variable Portfolio - Threadneedle International Fund changed its name to Variable Portfolio - International Opportunity Fund, and Variable Portfolio - Managed Fund changed its name to Variable Portfolio - Balanced Fund. (5) Effective July 9, 2004, Emerging Markets Fund changed its name to Threadneedle Emerging Markets Fund, European Equity Fund changed its name to Threadneedle European Equity Fund, Global Equity Fund changed its name to Threadneedle Global Equity Fund, and International Fund changed its name to Threadneedle International Fund, Variable Portfolio - Capital Resource Fund changed its name to Variable Portfolio - Large Cap Equity Fund, Variable Portfolio - Emerging Markets Fund changed its name to Variable Portfolio - Threadneedle Emerging Markets Fund and Variable Portfolio - International Fund changed its name to Variable Portfolio - Threadneedle International Fund. (6) Effective Oct. 20, 2003, Global Growth Fund changed its name to Global Equity Fund. (7) Effective Jan. 31, 2008, the fiscal year end was changed from May 31 to Jan. 31. (8) Effective Feb. 18, 2004, Utilities Fund changed its name to Dividend Opportunity Fund. (9) Effective Nov. 1, 2006, Precious Metals Fund changed its name to Precious Metals and Mining Fund. (10) Effective April 13, 2006, the fiscal year end was changed from June 30 to Aug. 31. (11) Effective March 31, 2008, RiverSource Emerging Markets Fund changed its name to Threadneedle Emerging Markets Fund; RiverSource Global Equity Fund changed its name to Threadneedle Global Equity Fund; RiverSource European Equity Fund changed its name to Threadneedle European Equity Fund; RiverSource International Opportunity Fund changed its name to Threadneedle International Opportunity Fund; RiverSource International Aggressive Growth Fund changed its name to RiverSource Partners International Select Growth Fund; RiverSource International Select Value Fund changed its name to RiverSource Partners International Select Value Fund; RiverSource International Small Cap Fund changed its name to RiverSource Partners International Small Cap Fund; RiverSource Aggressive Growth Fund changed its name to RiverSource Partners Aggressive Growth Fund; RiverSource Fundamental Value Fund changed its name to RiverSource Partners Fundamental Value Fund; RiverSource Select Value Fund changed its name to RiverSource Partners Select Value Fund; RiverSource Small Cap Equity Fund changed its name to RiverSource Partners Small Cap Equity Fund; RiverSource Small Cap Value Fund changed its name to RiverSource Partners Small Cap Value Fund; RiverSource Small Cap Growth Fund changed its name to RiverSource Partners Small Cap Growth Fund; RiverSource Variable Portfolio - Fundamental Value Fund changed its name to RiverSource Partners Variable Portfolio - Fundamental Value Fund; RiverSource Variable Portfolio - Select Value Fund changed its name to RiverSource Partners Variable Portfolio - Select Value Fund; and RiverSource Variable Portfolio - Small Cap Value Fund changed its name to RiverSource Partners Variable Portfolio - Small Cap Value Fund. (12) Prior to January 2008, the assets of the funds in RiverSource Variable Series Trust were held by funds organized under six separate Minnesota Corporations. (13) Effective June 8, 2005, Variable Portfolio - Inflation Protected Securities Fund changed its name to Variable Portfolio - Global Inflation Protected Securities Fund. (14) Prior to September 11, 2007, RiverSource Series Trust was known as RiverSource Retirement Series Trust. (15) Prior to April 21, 2006, RiverSource Short Term Investments Series, Inc. was known as AXP Stock Series, Inc. (16) Effective May 1, 2009, RiverSource Variable Portfolio - Growth Fund changed its name to Seligman Variable Portfolio - Growth Fund, RiverSource Variable Portfolio - Large Cap Equity Fund changed its name to RiverSource Variable Portfolio - Dynamic Equity Fund, RiverSource Variable Portfolio - Large Cap Value Fund changed its name to Seligman Variable Portfolio - Larger-Cap Value Fund, and RiverSource Variable Portfolio - Small Cap Advantage Fund changed its name to Seligman Variable Portfolio - Smaller-Cap Value Fund. Statement of Additional Information - July 30, 2009 Page 159 BOARD MEMBERS AND OFFICERS Shareholders elect a Board that oversees a fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of each fund's Board members. The RiverSource Family of Funds each member oversees consists of 149 funds, which includes 105 RiverSource funds and 44 Seligman funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. TABLE 26. BOARD MEMBERS INDEPENDENT BOARD MEMBERS
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS - ---------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Board member Chief Justice, Minnesota None Board Governance, 901 S. Marquette Ave. since 2006 Supreme Court, 1998-2006; Compliance, Minneapolis, MN 55402 Attorney Investment Review, Age 55 Joint Audit - ---------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, RiverSource Family of None Board Governance, 901 S. Marquette Ave. since 1999 Funds, 1999-2006; former Compliance, Minneapolis, MN 55402 Governor of Minnesota Contracts, Age 74 Executive, Investment Review - ---------------------------------------------------------------------------------------------------------------------- Pamela G. Carlton Board member President, Springboard-Partners None Distribution, 901 S. Marquette Ave. since 2007 in Cross Cultural Leadership Investment Review, Minneapolis, MN 55402 (consulting company) Joint Audit Age 54 - ---------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics None Board Governance, 901 S. Marquette Ave. since 2004 and Management, Bentley Contracts, Minneapolis, MN 55402 College; former Dean, McCallum Investment Review Age 58 Graduate School of Business, Bentley University - ---------------------------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant None Board Governance, 901 S. Marquette Ave. since 1985 Compliance, Minneapolis, MN 55402 Executive, Age 74 Investment Review, Joint Audit - ---------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member Former Managing Director, American Progressive Distribution, 901 S. Marquette Ave. since 2005 Shikiar Asset Management Insurance Executive, Minneapolis, MN 55402 Investment Review, Age 73 Joint Audit - ---------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Chair of the President Emeritus and Valmont Industries, Board Governance, 901 S. Marquette Ave. Board since Professor of Economics, Inc. (manufactures Compliance, Minneapolis, MN 55402 2007, Board Carleton College irrigation systems) Contracts, Age 70 member since Executive, 2002 Investment Review - ---------------------------------------------------------------------------------------------------------------------- John F. Maher Board member Retired President and Chief None Distribution, 901 S. Marquette Ave. since 2008 Executive Officer and former Investment Review, Minneapolis, MN 55402 Director, Great Western Joint Audit Age 66 Financial Corporation (financial services), 1986-1997 - ---------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset None Board Governance, 901 S. Marquette Ave. since 2004 Management, Inc. (private real Compliance, Minneapolis, MN 55402 estate and asset management Contracts, Age 56 company) Executive, Investment Review - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 160
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS - ---------------------------------------------------------------------------------------------------------------------- Leroy C. Richie Board member Counsel, Lewis & Munday, P.C. Digital Ally, Inc. Contracts, 901 S. Marquette Ave. since 2008 since 1987; Vice President and (digital imaging); Distribution, Minneapolis, MN 55402 General Counsel, Automotive Infinity, Inc. (oil Investment Review Age 67 Legal Affairs, Chrysler and gas exploration Corporation, 1990-1997 and production); OGE Energy Corp. (energy and energy services) - ---------------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer and Idera Pharmaceuticals, Contracts, 901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Inc. (biotechnology); Distribution, Minneapolis, MN 55402 2003 (biotechnology); former Healthways, Inc. Executive, Age 65 President, Forester Biotech (health management Investment Review programs) - ----------------------------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION COMMITTEE NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS MEMBERSHIPS - -------------------------------------------------------------------------------------------------------------------------------- William F. Truscott Board member President - U.S. Asset Management and None None 53600 Ameriprise Financial since 2001, Vice Chief Investment Officer, Ameriprise Center President since Financial, Inc. since 2005; President, Minneapolis, MN 55474 2002 Chairman of the Board and Chief Age 48 Investment Officer, RiverSource Investments, LLC since 2001; Director, President and Chief Executive Officer, Ameriprise Certificate Company since 2006; Chairman of the Board and Chief Executive Officer, RiverSource Distributors, Inc. since 2006 and of RiverSource Fund Distributors, Inc. since 2008; and Senior Vice President - Chief Investment Officer, Ameriprise Financial, Inc., 2001-2005 - --------------------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments or Ameriprise Financial. The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the funds' other officers are: TABLE 27. FUND OFFICERS
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------- Patrick T. Bannigan President since Director and Senior Vice President - Asset 172 Ameriprise Financial Center 2006 Management, Products and Marketing, Minneapolis, MN 55474 RiverSource Investments, LLC and Director and Age 43 Vice President - Asset Management, Products and Marketing, RiverSource Distributors, Inc. since 2006 and of RiverSource Fund Distributors, Inc. since 2008; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004 - -------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed 172 Ameriprise Financial Center since 2004 Income, Ameriprise Financial, Inc. and Minneapolis, MN 55474 RiverSource Investments, LLC since 2006; Vice Age 45 President - Investments, Ameriprise Certificate Company since 2003; Senior Vice President - Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 - --------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 161
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------- Amy K. Johnson Vice President Chief Administrative Officer, RiverSource 5228 Ameriprise Financial Center since 2006 Investments, LLC since 2009; Vice Minneapolis, MN 55474 President - Asset Management and Trust Company Age 43 Services, RiverSource Investments, LLC, 2006- 2009; Vice President - Operations and Compliance, RiverSource Investments, LLC, 2004-2006; Director of Product Development - Mutual Funds, Ameriprise Financial, Inc., 2001-2004 - -------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer since Vice President - Investment Accounting, 105 Ameriprise Financial Center 2002 Ameriprise Financial, Inc. since 2002; Chief Minneapolis, MN 55474 Financial Officer, RiverSource Distributors, Age 54 Inc. since 2006 - -------------------------------------------------------------------------------------------------- Scott R. Plummer Vice President, Vice President and Chief Counsel - Asset 5228 Ameriprise Financial Center General Counsel Management, Ameriprise Financial, Inc. since Minneapolis, MN 55474 and Secretary 2005; Chief Counsel, RiverSource Distributors, Age 50 since 2006 Inc. and Chief Legal Officer and Assistant Secretary, RiverSource Investments, LLC since 2006; Chief Counsel, RiverSource Fund Distributors, Inc. since 2008; Vice President, General Counsel and Secretary, Ameriprise Certificate Company since 2005; Vice President - Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002-2004 - -------------------------------------------------------------------------------------------------- Eleanor T.M. Hoagland Chief Compliance Chief Compliance Officer, RiverSource 100 Park Avenue Officer since Investments, LLC, Kenwood Capital Management New York, NY 10010 2009 LLC, Ameriprise Certificate Company, Age 58 RiverSource Service Corporation and Seligman Data Corp. since 2009; Chief Compliance Officer for each of the Seligman funds since 2004 and all funds in the RiverSource Family of Funds since 2009; Anti Money Laundering Prevention Officer and Identity Theft Prevention Officer for each of the Seligman funds since 2008; Managing Director, J. & W. Seligman & Co. Incorporated and Vice-President for each of the Seligman funds, 2004-2008. - -------------------------------------------------------------------------------------------------- Neysa M. Alecu Money Laundering Vice President - Compliance, Ameriprise 2934 Ameriprise Financial Center Prevention Financial, Inc. since 2008; Anti-Money Minneapolis, MN 55474 Officer since Laundering Officer, Ameriprise Financial, Inc. Age 45 2004 since 2004; Compliance Director, Ameriprise Financial, Inc., 2004-2008. - --------------------------------------------------------------------------------------------------
RESPONSIBILITIES OF BOARD WITH RESPECT TO FUND MANAGEMENT The Board initially approves an Investment Management Services Agreement and other contracts with the investment manager and its affiliates, and other service providers. Once the contracts are approved, the Board monitors the level and quality of services including commitments of service providers to achieve expected levels of investment performance and shareholder services. In addition, the Board oversees that processes are in place to assure compliance with applicable rules, regulations and investment policies and addresses possible conflicts of interest. Annually, the Board evaluates the services received under the contracts by receiving reports covering investment performance, shareholder services, marketing, and the investment manager's profitability in order to determine whether to continue existing contracts or negotiate new contracts. SEVERAL COMMITTEES FACILITATE ITS WORK BOARD GOVERNANCE COMMITTEE -- Recommends to the Board the size, structure and composition of the Board and its committees; the compensation to be paid to members of the Board; and a process for evaluating the Board's performance. The committee also reviews candidates for Board membership including candidates recommended by shareholders. To be considered, recommendations must include a curriculum vitae and be mailed to the Chairman of the Board, RiverSource Family of Funds, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. The committee also makes recommendations to the Board regarding responsibilities and duties of the Board, oversees proxy voting and supports the work of the Board Chair in relation to furthering the interests of the Funds and their shareholders on external matters. COMPLIANCE COMMITTEE -- Supports the Funds' maintenance of a strong compliance program by providing a forum for independent Board members to consider compliance matters impacting the Funds or their key service providers; developing and implementing, in coordination with the Funds' Chief Compliance Officer (CCO), a process for the review and Statement of Additional Information - July 30, 2009 Page 162 consideration of compliance reports that are provided to the Boards; and providing a designated forum for the Funds' CCO to meet with independent Board members on a regular basis to discuss compliance matters. CONTRACTS COMMITTEE -- Reviews and oversees the contractual relationships with service providers. Receives and analyzes reports covering the level and quality of services provided under contracts with the fund and advises the Board regarding actions taken on these contracts during the annual review process. DISTRIBUTION COMMITTEE -- Reviews and supports product development, marketing, sales activity and practices related to the funds and will report to the Board as appropriate. EXECUTIVE COMMITTEE -- Acts for the Board between meetings of the Board. INVESTMENT REVIEW COMMITTEE -- Reviews and oversees the management of the Funds' assets. Considers investment management policies and strategies; investment performance; risk management techniques; and securities trading practices and reports areas of concern to the Board. JOINT AUDIT COMMITTEE -- Oversees the accounting and financial reporting processes of the Funds and internal controls over financial reporting. Oversees the quality and integrity of the Funds' financial statements and independent audits as well as the Funds' compliance with legal and regulatory requirements relating to the Funds' accounting and financial reporting, internal controls over financial reporting and independent audits. The committee also makes recommendations regarding the selection of the Funds' independent auditor and reviews and evaluates the qualifications, independence and performance of the auditor. This table shows the number of times the committees met during each fund's most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 28. COMMITTEE MEETINGS
BOARD INVESTMENT JOINT GOVERNANCE COMPLIANCE CONTRACTS DISTRIBUTION EXECUTIVE REVIEW AUDIT FISCAL PERIOD COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 5 6 3 3 5 5 January 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 5 6 3 3 6 6 March 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 5 6 4 4 6 6 April 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 5 6 4 4 6 6 May 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 7 6 7 1 1 6 6 June 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 1 1 5 5 July 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 1 1 5 5 August 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 2 1 5 5 September 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 2 2 5 5 October 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 3 2 5 5 November 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 5 6 3 3 5 5 December 31 - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 163 BOARD MEMBER HOLDINGS The following table shows the Board members' dollar range of equity securities beneficially owned on Dec. 31, 2008 of each individual fund owned by a Board member, and the aggregate dollar range of equity securities of all funds overseen by the Board members. TABLE 29. BOARD MEMBER HOLDINGS Based on net asset values as of Dec. 31, 2008:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(a) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Absolute Return Currency and Income $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Growth $10,001-$50,000 ------------------------------------------------------------------------ Partners Small Cap Value $10,001-$50,000 ------------------------------------------------------------------------ Precious Metals and Mining $10,001-$50,000 ------------------------------------------------------------------------ Real Estate $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle International Opportunity $50,001-$100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Cash Management $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Disciplined Equity $10,001-$50,000 ------------------------------------------------------------------------ Disciplined International Equity $10,001-$50,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Partners International Select Value $0-$10,000 ------------------------------------------------------------------------ Portfolio Builder Moderate $50,001-$100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Pamela G. Carlton Absolute Return Currency and Income $0-$10,000 $50,001-$100,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Short Duration U.S. Government $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 164
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(a) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Growth* $10,001-$50,000 Over $100,000** ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive* $50,001-$100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation* Over $100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $10,001-$50,000 - --------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Disciplined Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Diversified Bond $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Growth $0-$10,000 ------------------------------------------------------------------------ High Yield Bond Over $100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Short Duration U.S. Government Over $100,000 ------------------------------------------------------------------------ Small Company Index Over $100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Global Equity $10,001-$50,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind Cash Management Over $100,000 Over $100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 120/20 Contrarian Equity $10,001-$50,000 Over $100,000** ------------------------------------------------------------------------ Absolute Return Currency and Income $10,001-$50,000 ------------------------------------------------------------------------ Disciplined Large Cap Growth $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Mid Cap Growth $0-$10,000 ------------------------------------------------------------------------ Portfolio Builder Total Equity $10,001-$50,000 ------------------------------------------------------------------------ Seligman Communications and Information $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Global Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle International Opportunity $50,001-$100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 165
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(a) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- John F. Maher Equity Value $0-$10,000 Over $100,000** ------------------------------------------------------------------------ Seligman Capital $10,001-$50,000 ------------------------------------------------------------------------ Seligman Common Stock $0-$10,000 ------------------------------------------------------------------------ Seligman Communications and Information $10,001-$50,000 ------------------------------------------------------------------------ Seligman Core Fixed Income $0-$10,000 ------------------------------------------------------------------------ Seligman Emerging Markets $0-$10,000 ------------------------------------------------------------------------ Seligman Frontier $10,001-$50,000 ------------------------------------------------------------------------ Seligman Global Growth $0-$10,000 ------------------------------------------------------------------------ Seligman Global Smaller Companies $0-$10,000 ------------------------------------------------------------------------ Seligman Global Technology $0-$10,000 ------------------------------------------------------------------------ Seligman Growth $0-$10,000 ------------------------------------------------------------------------ Seligman High-Yield $0-$10,000 ------------------------------------------------------------------------ Seligman Income and Growth $0-$10,000 ------------------------------------------------------------------------ Seligman International Growth $10,001-$50,000 ------------------------------------------------------------------------ Seligman Large-Cap Value $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle Global Real Estate $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman LaSalle Monthly Dividend Real $0-$10,000 Estate ------------------------------------------------------------------------ Seligman National Municipal $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Seligman Smaller-Cap Value $0-$10,000 ------------------------------------------------------------------------ Seligman U.S. Government Securities $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation $50,001-$100,000 - --------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Cash Management Over $100,000 Over $100,000** ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity Over $100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 166
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(a) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Leroy C. Richie Seligman Capital $0-$10,000 Over $100,000 ------------------------------------------------------------------------ Seligman Common Stock $0-$10,000 ------------------------------------------------------------------------ Seligman Communications and Information $0-$10,000 ------------------------------------------------------------------------ Seligman Core Fixed Income $0-$10,000 ------------------------------------------------------------------------ Seligman Emerging Markets $0-$10,000 ------------------------------------------------------------------------ Seligman Frontier $0-$10,000 ------------------------------------------------------------------------ Seligman Global Growth $0-$10,000 ------------------------------------------------------------------------ Seligman Global Smaller Companies $0-$10,000 ------------------------------------------------------------------------ Seligman Global Technology $0-$10,000 ------------------------------------------------------------------------ Seligman Growth $0-$10,000 ------------------------------------------------------------------------ Seligman High-Yield $0-$10,000 ------------------------------------------------------------------------ Seligman Income and Growth $0-$10,000 ------------------------------------------------------------------------ Seligman International Growth $0-$10,000 ------------------------------------------------------------------------ Seligman Large-Cap Value $0-$10,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Michigan Municipal $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Seligman Smaller-Cap Value $0-$10,000 ------------------------------------------------------------------------ Seligman U.S. Government Securities $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation Over $100,000 - --------------------------------------------------------------------------------------------------------------------------------- Alison Taunton Rigby 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Absolute Return Currency and Income $50,001-$100,000 ------------------------------------------------------------------------ Cash Management Over $100,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Growth $50,001-$100,000 ------------------------------------------------------------------------ Income Builder Enhanced Income Over 100,000 ------------------------------------------------------------------------ Mid Cap Value $10,001-$50,000 ------------------------------------------------------------------------ Partners International Select Growth $50,001-$100,000 ------------------------------------------------------------------------ Partners Small Cap Value $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $1-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $1-$10,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $50,001-$100,000 ------------------------------------------------------------------------ Tri Continental Corporation $1-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 167
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(a) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- William F. Truscott 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Absolute Return Currency and Income $50,001-$100,000 ------------------------------------------------------------------------ Cash Management $0-$10,000 ------------------------------------------------------------------------ Disciplined Equity Over $100,000 ------------------------------------------------------------------------ Disciplined International Equity Over $100,000 ------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity $10,001-$50,000 ------------------------------------------------------------------------ Diversified Bond Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity Over $100,000 ------------------------------------------------------------------------ Emerging Markets Bond $10,001-$50,000 ------------------------------------------------------------------------ Floating Rate Over $100,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Global Technology $10,001-$50,000 ------------------------------------------------------------------------ Growth $50,001- $100,000 ------------------------------------------------------------------------ High Yield Bond $10,001-$50,000 ------------------------------------------------------------------------ Income Opportunities $50,001- $100,000 ------------------------------------------------------------------------ Inflation Protected Securities $10,001-$50,000 ------------------------------------------------------------------------ Mid Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Partners International Select Growth Over $100,000 ------------------------------------------------------------------------ Partners International Select Value $10,001-$50,000 ------------------------------------------------------------------------ Partners Small Cap Equity Over $100,000 ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive $50,001-$100,000 ------------------------------------------------------------------------ Retirement Plus 2035 $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Strategic Income Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity Over $100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
* Deferred compensation invested in share equivalents: A. Flynn Growth............................... $10,001-$50,000 Portfolio Builder Moderate $50,001-$100,000 Aggressive........................... Strategic Allocation................. Over $100,000 B. Lewis Absolute Return Currency and Income.. $10,001-$50,000 Disciplined Large Cap Growth......... $10,001-$50,000 Diversified Equity Income............ $50,001-$100,000 Portfolio Builder Total Equity....... $10,001-$50,000 Threadneedle Emerging Markets........ $10,001-$50,000 Threadneedle International $50,001-$100,000 Opportunity..........................
Statement of Additional Information - July 30, 2009 Page 168 C. Maher Equity Value......................... $0-$10,000 Seligman Capital..................... $0-$10,000 Seligman Communications & $10,001-$50,000 Information.......................... Seligman Frontier.................... $10,001-$50,000 Seligman International Growth........ $0-$10,000 Seligman Large-Cap Value............. $10,001-$50,000 Seligman LaSalle Global Real Estate.. $0-$10,000 Tri-Continental Corporation.......... $10,001-$50,000 D. Paglia Threadneedle Global Equity........... Over $100,000
** Total includes deferred compensation invested in share equivalents. This table shows the Board members' dollar range of equity securities beneficially owned on March 31, 2009 of each individual fund owned by a Board member, and the aggregate dollar range of equity securities of all RiverSource funds overseen by the Board member. TABLE 29A. BOARD MEMBER HOLDINGS -- AS OF QUARTER END Based on net asset values as of June 30, 2009:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Blatz, Kathleen RiverSource Dividend Opportunity Fund Over $100,000 Over $100,000 ------------------------------------------------------------------------ RiverSource High Yield Bond Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Income Opportunities Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Partners Small Cap Growth Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Partners Small Cap Value Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Precious Metals and Mining Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Real Estate Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Strategic Allocation Fund Over $100,000 ------------------------------------------------------------------------ Seligman Communications and Information $10,001-$50,000 Fund ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Seligman National Municipal Class $0-$10,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets Fund $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle International Opportunity Fund $50,000-$100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 ------------------------------------------------------------------------ RiverSource Absolute Return Currency and $10,001-$50,000 Income Fund - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 169
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Carlson, Arne H RiverSource Cash Management Fund $0-$10,000 Over $100,000 ------------------------------------------------------------------------ RiverSource Dividend Opportunity Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Portfolio Builder Moderate Fund $50,000-$100,000 ------------------------------------------------------------------------ RiverSource Recovery and Infrastructure $10,001-$50,000 Fund ------------------------------------------------------------------------ RiverSource Strategic Allocation Fund $10,001-$50,000 ------------------------------------------------------------------------ Seligman Communications and Information $10,001-$50,000 Fund ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Seligman National Municipal Class $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Carlton, Pam RiverSource Absolute Return Currency and $0-$10,000 Over $100,000** Income Fund ------------------------------------------------------------------------ RiverSource Diversified Equity Income Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Floating Rate Fund* $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Short Duration U.S. Government $50,000-$100,000 Fund ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Seligman National Municipal Class $0-$10,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets Fund $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity Fund $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Flynn, Patricia RiverSource Growth Fund* $10,001-$50,000 Over $100,000** ------------------------------------------------------------------------ RiverSource Portfolio Builder Moderate $50,000-$100,000 Aggressive Fund* ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Threadneedle International Opportunity $10,001-$50,000 Fund* ------------------------------------------------------------------------ Tri-Continental Corporation $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Strategic Allocation Fund* Over $100,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 170
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Jones, Anne RiverSource Disciplined Equity Fund $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ RiverSource Diversified Bond Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Diversified Equity Income Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Global Bond Fund Over $100,000 ------------------------------------------------------------------------ RiverSource Growth Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource High Yield Bond Fund Over $100,000 ------------------------------------------------------------------------ RiverSource Short Duration U.S. Government Over $100,000 Fund ------------------------------------------------------------------------ RiverSource Small Company Index Fund Over $100,000 ------------------------------------------------------------------------ RiverSource Strategic Allocation Fund $50,000-$100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Seligman National Municipal Class $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity Fund $10,001-$50,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Laikind, Jeffrey RiverSource 120/20 Contrarian Equity Fund $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ RiverSource Cash Management Fund Over $100,000 ------------------------------------------------------------------------ RiverSource Dividend Opportunity Fund $50,000-$100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Seligman National Municipal Class $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 171
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Lewis, Stephen R Jr RiverSource 120/20 Contrarian Equity Fund $10,001-$50,000 Over $100,000** ------------------------------------------------------------------------ RiverSource Absolute Return Currency and $10,001-$50,000 Income Fund* ------------------------------------------------------------------------ RiverSource Disciplined Large Cap Growth $10,001-$50,000 Fund* ------------------------------------------------------------------------ RiverSource Diversified Bond Fund* $50,000-$100,000 ------------------------------------------------------------------------ RiverSource Diversified Equity Income Fund* $50,000-$100,000 ------------------------------------------------------------------------ RiverSource Dividend Opportunity Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Mid Cap Growth Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Strategic Allocation Fund $10,001-$50,000 ------------------------------------------------------------------------ Seligman Communications and Information $50,000-$100,000 Fund* ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Seligman National Municipal Class $0-$10,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets Fund* $50,000-$100,000 ------------------------------------------------------------------------ Threadneedle Global Equity Income Fund $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle International Opportunity $10,001-$50,000 Fund* ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Maher, John F Seligman Communications and Information Over $100,000 Over $100,000** Fund* ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Tri-Continental Corporation $50,000-$100,000 - --------------------------------------------------------------------------------------------------------------------------------- Paglia, Catherine James RiverSource Cash Management Fund $10,001-$50,000 Over $100,000** ------------------------------------------------------------------------ RiverSource Floating Rate Fund* Over $100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 172
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Richie, Leroy C Seligman Capital Fund $0-$10,000 Over $100,000 ------------------------------------------------------------------------ Seligman Common Stock Fund $0-$10,000 ------------------------------------------------------------------------ Seligman Communications and Information $0-$10,000 Fund ------------------------------------------------------------------------ Seligman Core Fixed Income Fund $0-$10,000 ------------------------------------------------------------------------ Seligman Emerging Markets Fund $0-$10,000 ------------------------------------------------------------------------ Seligman Frontier Fund $0-$10,000 ------------------------------------------------------------------------ Seligman Global Growth Fund $0-$10,000 ------------------------------------------------------------------------ Seligman Global Smaller Companies Fund $0-$10,000 ------------------------------------------------------------------------ Seligman Global Technology Fund $0-$10,000 ------------------------------------------------------------------------ Seligman Growth Fund $0-$10,000 ------------------------------------------------------------------------ Seligman High-Yield Fund $0-$10,000 ------------------------------------------------------------------------ Seligman Income and Growth Fund $0-$10,000 ------------------------------------------------------------------------ Seligman International Growth Fund $0-$10,000 ------------------------------------------------------------------------ Seligman Large-Cap Value Fund $0-$10,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Seligman Michigan Municipal Class $0-$10,000 ------------------------------------------------------------------------ Seligman National Municipal Class $0-$10,000 ------------------------------------------------------------------------ Seligman Smaller-Cap Value Fund $0-$10,000 ------------------------------------------------------------------------ Seligman U.S. Government Securities Fund $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation Over $100,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 173
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Taunton-Rigby, Alison RiverSource 120/20 Contrarian Equity Fund $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ RiverSource Absolute Return Currency and $50,000-$100,000 Income Fund ------------------------------------------------------------------------ RiverSource Diversified Equity Income Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Growth Fund $50,000-$100,000 ------------------------------------------------------------------------ RiverSource Income Builder Enhanced Income Over $100,000 Fund ------------------------------------------------------------------------ RiverSource Large Cap Equity Fund $0-$10,000 ------------------------------------------------------------------------ RiverSource Mid Cap Value Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Partners International Select $50,000-$100,000 Growth Fund ------------------------------------------------------------------------ RiverSource Partners Small Cap Value Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Strategic Allocation Fund $50,000-$100,000 ------------------------------------------------------------------------ Seligman Communications and Information $10,001-$50,000 Fund ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Seligman National Municipal Class $0-$10,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets Fund $50,000-$100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Truscott, Ted RiverSource 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ RiverSource Absolute Return Currency and $50,000-$100,000 Income Fund ------------------------------------------------------------------------ RiverSource Disciplined Equity Fund Over $100,000 ------------------------------------------------------------------------ RiverSource Disciplined International Over $100,000 Equity Fund ------------------------------------------------------------------------ RiverSource Disciplined Large Cap Growth $10,001-$50,000 Fund ------------------------------------------------------------------------ RiverSource Disciplined Large Cap Value $10,001-$50,000 Fund ------------------------------------------------------------------------ RiverSource Disciplined Small Cap Equity $10,001-$50,000 Fund ------------------------------------------------------------------------ RiverSource Diversified Bond Fund Over $100,000 ------------------------------------------------------------------------ RiverSource Dividend Opportunity Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Emerging Markets Bond Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Global Bond Fund Over $100,000 ------------------------------------------------------------------------ RiverSource Global Technology Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Growth Fund $50,000-$100,000 ------------------------------------------------------------------------ RiverSource High Yield Bond Fund $50,000-$100,000 ------------------------------------------------------------------------ RiverSource Income Opportunities Fund $50,000-$100,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 174
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- RiverSource Inflation Protected Securities $10,001-$50,000 Fund ------------------------------------------------------------------------ RiverSource Mid Cap Value Fund $50,000-$100,000 ------------------------------------------------------------------------ RiverSource Partners International Select Over $100,000 Growth Fund ------------------------------------------------------------------------ RiverSource Partners International Select $10,001-$50,000 Value Fund ------------------------------------------------------------------------ RiverSource Partners Small Cap Equity Fund Over $100,000 ------------------------------------------------------------------------ RiverSource Portfolio Builder Moderately $50,000-$100,000 Aggressive Fund ------------------------------------------------------------------------ RiverSource Retirement Plus 2035 Fund $10,001-$50,000 ------------------------------------------------------------------------ RiverSource Strategic Allocation Fund Over $100,000 ------------------------------------------------------------------------ RiverSource Strategic Income Allocation Over $100,000 Fund ------------------------------------------------------------------------ Seligman Communications and Information $0-$10,000 Fund ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 Fund ------------------------------------------------------------------------ Seligman National Municipal Class $0-$10,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets Fund $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity Fund Over $100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
* Deferred compensation invested in share equivalents: A. Carlton RiverSource Floating Rate............ $10,000-$50,000 B, Flynn RiverSource Growth................... $10,001-$50,000 RiverSource Portfolio Builder $50,001-$100,000 Moderate Aggressive.................. RiverSource Strategic Allocation..... Over $100,000 Threadneedle International $10,000-$50,000 Opportunity.......................... C. Lewis RiverSource Absolute Return Currency $10,001-$50,000 and Income........................... RiverSource Disciplined Large Cap $10,001-$50,000 Growth............................... RiverSource Diversified Bond......... $50,001-$100,000 RiverSource Diversified Equity $50,001-$100,000 Income............................... Seligman Communications and $10,001-$50,000 Information.......................... Threadneedle Emerging Markets........ $10,001-$50,000 Threadneedle International $10,001-$50,000 Opportunity.......................... D. Maher Seligman Communications and Over $100,000 Information.......................... E. Paglia RiverSource Floating Rate............ Over $100,000
** Total includes deferred compensation invested in share equivalents As of 30 days prior to the date of this SAI, the Board members and officers as a group owned 1.53% of RiverSource Retirement Plus 2035 Fund Class A. The Board members and officers as a group owned less than 1% of the outstanding shares of any class of any other fund in the RiverSource Family of Funds. Statement of Additional Information - July 30, 2009 Page 175 COMPENSATION OF BOARD MEMBERS TOTAL COMPENSATION. The following table shows the total compensation paid to independent Board members from all the funds in the last fiscal period. TABLE 30. BOARD MEMBER COMPENSATION - ALL FUNDS
TOTAL CASH COMPENSATION FROM BOARD MEMBER(a) FUNDS PAID TO BOARD MEMBER - ---------------------------------------------------------------------------------------------- Kathleen Blatz $177,500 - ---------------------------------------------------------------------------------------------- Arne H. Carlson 182,500 - ---------------------------------------------------------------------------------------------- Pamela G. Carlton 165,000(b) - ---------------------------------------------------------------------------------------------- Patricia M. Flynn 170,000(b) - ---------------------------------------------------------------------------------------------- Anne P. Jones 177,500 - ---------------------------------------------------------------------------------------------- Jeffrey Laikind 165,000 - ---------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 400,000(b) - ---------------------------------------------------------------------------------------------- John F. Maher 72,500(b) - ---------------------------------------------------------------------------------------------- Catherine James Paglia 172,500(b) - ---------------------------------------------------------------------------------------------- Leroy Richie 95,417 - ---------------------------------------------------------------------------------------------- Alison Taunton-Rigby 170,000 - ----------------------------------------------------------------------------------------------
(a) Board member compensation is a combination of a base fee and meeting fees, with the exception of the Chair of the Board, who receives a base annual compensation. Payment of compensation is administered by a company providing limited administrative services to the funds and to the Board. (b) Ms. Carlton, Ms. Flynn, Mr. Lewis, Mr. Maher and Ms. Paglia elected to defer a portion of the total cash compensation payable during the period in the amount of $23,833, $70,542, $60,000, $60,875 and $99,583 respectively. Amount deferred by fund is set forth in Table 31. Additional information regarding the deferred compensation plan is described below. The independent Board members determine the amount of compensation that they receive, including the amount paid to the Chair of the Board. In determining compensation for the independent Board members, the independent Board members take into account a variety of factors including, among other things, their collective significant work experience (e.g., in business and finance, government or academia). The independent Board members also recognize that these individuals' advice and counsel are in demand by other organizations, that these individuals may reject other opportunities because the time demands of their duties as independent Board members, and that they undertake significant legal responsibilities. The independent Board members also consider the compensation paid to independent board members of other mutual fund complexes of comparable size. In determining the compensation paid to the Chair, the independent Board members take into account, among other things, the Chair's significant additional responsibilities (e.g., setting the agenda for Board meetings, communicating or meeting regularly with the Funds' Chief Compliance Officer, Counsel to the independent Board members, and the Funds' service providers) which result in a significantly greater time commitment required of the Board Chair. The Chair's compensation, therefore, has generally been set at a level between 2.5 and 3 times the level of compensation paid to other independent Board members. Effective Jan. 1, 2008, independent Board members will be paid an annual retainer of $95,000. Committee and sub- committee Chairs will each receive an additional annual retainer of $5,000. In addition, independent Board members will be paid the following fees for attending Board and committee meetings: $5,000 per day of in-person Board meetings and $2,500 per day of in-person committee or sub-committee meetings (if such meetings are not held on the same day as a Board meeting). Independent Board members are not paid for special telephonic meetings. In 2008, the Board's Chair will receive total annual cash compensation of $400,000. The independent Board members may elect to defer payment of up to 100% of the compensation they receive in accordance with a Deferred Compensation Plan (the Deferred Plan). Under the Deferred Plan, a Board member may elect to have his or her deferred compensation treated as if they had been invested in shares of one or more funds in the RiverSource Family of Funds and the amount paid to the Board member under the Deferred Plan will be determined based on the performance of such investments. Distributions may be taken in a lump sum or over a period of years. The Deferred Plan will remain unfunded for federal income tax purposes under the Internal Revenue Code of 1986, as amended. It is anticipated that deferral of Board member compensation in accordance with the Deferred Plan will have, at most, a negligible impact on Fund assets and liabilities. Statement of Additional Information - July 30, 2009 Page 176 COMPENSATION FROM EACH FUND. The following table shows the compensation paid to independent Board members from each fund during its last fiscal period. TABLE 31. BOARD MEMBER(a) Compensation -- Individual Funds
AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - --------------------------------------------------------------------------------------- Income Builder Basic * * * * * * Income - --------------------------------------------------------------------------------------- Income Builder Enhanced * * * * * * Income - --------------------------------------------------------------------------------------- Income Builder Moderate * * * * * * Income - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Aggressive - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Conservative - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Moderate - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Moderate Aggressive - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Moderate Conservative - --------------------------------------------------------------------------------------- Portfolio Builder Total * * * * * * Equity - --------------------------------------------------------------------------------------- S&P 500 Index -- total $ 391 $ 398 $ 366 $ 375 $ 391 $ 364 Amount deferred 0 0 14 180 0 0 - --------------------------------------------------------------------------------------- Small Company 1,310 1,331 1,225 1,254 1,310 1,220 Index -- total Amount deferred 0 0 44 604 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - --------------------------------------------------------------------------------------- Equity Value -- total 1,924 1,967 1,800 1,855 1,924 1,787 Amount deferred 0 0 129 860 0 0 - --------------------------------------------------------------------------------------- Partners Small Cap 329 336 308 317 329 306 Growth -- total Amount deferred 0 0 21 147 0 0 - --------------------------------------------------------------------------------------- Precious Metals and 270 279 254 265 270 251 Mining -- total Amount deferred 0 0 25 119 0 0 - --------------------------------------------------------------------------------------- Small Cap 505 515 472 486 505 469 Advantage -- total Amount deferred 0 0 32 226 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - --------------------------------------------------------------------------------------- 120/20 Contrarian 100 102 93 96 99 92 Equity -- total Amount deferred 0 0 10 42 0 0 - --------------------------------------------------------------------------------------- Recovery and 29 32 27 30 29 27 Infrastructure -- total Amount deferred 0 0 11 9 0 0 - --------------------------------------------------------------------------------------- Retirement Plus 2010 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2015 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2020 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2025 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2030 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2035 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2040 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2045 * * * * * * - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - --------------------------------------------------------------------------------------- High Yield 2,858 2,939 2,658 2,760 2,858 2,658 Bond -- total Amount deferred 0 0 399 1,153 0 0 - --------------------------------------------------------------------------------------- Partners Aggressive 1,019 1,042 947 978 1,019 947 Growth -- total Amount deferred 0 0 113 424 0 0 - --------------------------------------------------------------------------------------- Partners Fundamental 1,679 1,718 1,561 1,613 1,679 1,561 Value -- total Amount deferred 0 0 189 697 0 0 - --------------------------------------------------------------------------------------- Partners Select 757 775 704 728 756 704 Value -- total Amount deferred 0 0 94 311 0 0 - --------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------- TAUNTON- FUND LEWIS MAHER PAGLIA RICHIE RIGBY - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - --------------------------------------------------------------------------------- Income Builder Basic * * * * * Income - --------------------------------------------------------------------------------- Income Builder Enhanced * * * * * Income - --------------------------------------------------------------------------------- Income Builder Moderate * * * * * Income - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Aggressive - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Conservative - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Moderate - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Moderate Aggressive - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Moderate Conservative - --------------------------------------------------------------------------------- Portfolio Builder Total * * * * * Equity - --------------------------------------------------------------------------------- S&P 500 Index -- total $ 903 $ 58 $ 380 $ 90 $ 371 Amount deferred 138 36 337 0 0 - --------------------------------------------------------------------------------- Small Company 3,024 181 1,273 287 1,241 Index -- total Amount deferred 462 111 1,140 0 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - --------------------------------------------------------------------------------- Equity Value -- total 4,319 428 1,876 621 1,829 Amount deferred 669 322 1,493 0 0 - --------------------------------------------------------------------------------- Partners Small Cap 739 70 319 102 312 Growth -- total Amount deferred 114 53 257 0 0 - --------------------------------------------------------------------------------- Precious Metals and 626 81 265 108 260 Mining -- total Amount deferred 98 63 191 0 0 - --------------------------------------------------------------------------------- Small Cap 1,133 107 490 153 479 Advantage -- total Amount deferred 175 79 396 0 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - --------------------------------------------------------------------------------- 120/20 Contrarian 225 31 97 43 95 Equity -- total Amount deferred 34 26 65 0 0 - --------------------------------------------------------------------------------- Recovery and 67 27 32 30 30 Infrastructure -- total Amount deferred 10 27 0 0 0 - --------------------------------------------------------------------------------- Retirement Plus 2010 * * * * * - --------------------------------------------------------------------------------- Retirement Plus 2015 * * * * * - --------------------------------------------------------------------------------- Retirement Plus 2020 * * * * * - --------------------------------------------------------------------------------- Retirement Plus 2025 * * * * * - --------------------------------------------------------------------------------- Retirement Plus 2030 * * * * * - --------------------------------------------------------------------------------- Retirement Plus 2035 * * * * * - --------------------------------------------------------------------------------- Retirement Plus 2040 * * * * * - --------------------------------------------------------------------------------- Retirement Plus 2045 * * * * * - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - --------------------------------------------------------------------------------- High Yield 6,516 1,161 2,817 1,508 2,738 Bond -- total Amount deferred 990 999 1,609 0 0 - --------------------------------------------------------------------------------- Partners Aggressive 2,273 338 984 461 971 Growth -- total Amount deferred 346 282 638 0 0 - --------------------------------------------------------------------------------- Partners Fundamental 3,739 574 1,635 783 1,600 Value -- total Amount deferred 569 473 1,054 0 0 - --------------------------------------------------------------------------------- Partners Select 1,702 283 739 370 722 Value -- total Amount deferred 259 234 454 0 0 - ---------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 177
AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND - --------------------------------------------------------------------------------------- Partners Small Cap $ 394 $ 403 $ 367 $ 379 $ 394 $ 367 Equity -- total Amount deferred 0 0 45 164 0 0 - --------------------------------------------------------------------------------------- Partners Small Cap 913 935 849 878 913 849 Value -- total Amount deferred 0 0 109 377 0 0 - --------------------------------------------------------------------------------------- Short Duration U.S. Government -- total 2,066 2,127 1,922 2,003 2,066 1,922 Amount deferred 0 0 282 838 0 0 - --------------------------------------------------------------------------------------- U.S. Government Mortgage -- total 959 987 892 929 959 892 Amount deferred 0 0 129 390 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - --------------------------------------------------------------------------------------- Dividend Opportunity -- total 3,796 3,733 3,404 3,690 3,679 3,520 Amount deferred 0 0 0 1,647 0 0 - --------------------------------------------------------------------------------------- Real Estate -- total 441 433 394 428 428 409 Amount deferred 0 0 0 191 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - --------------------------------------------------------------------------------------- Cash 9,805 9,820 9,158 9,484 9,649 9,158 Management -- total Amount deferred 0 0 0 4,371 0 0 - --------------------------------------------------------------------------------------- Disciplined 6,153 6,157 5,746 5,947 6,054 5,746 Equity -- total Amount deferred 0 0 0 2,740 0 0 - --------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity -- total 105 104 99 103 103 99 Amount deferred 0 0 0 45 0 0 - --------------------------------------------------------------------------------------- Disciplined Small Cap 70 70 65 68 69 65 Value -- total Amount deferred 0 0 0 31 0 0 - --------------------------------------------------------------------------------------- Floating Rate -- total 1,044 1,041 976 1,009 1,025 976 Amount deferred 0 0 0 461 0 0 - --------------------------------------------------------------------------------------- Growth -- total 5,085 5,077 4,763 4,936 4,995 4,763 Amount deferred 0 0 0 2,246 0 0 - --------------------------------------------------------------------------------------- Income 528 529 494 511 520 494 Opportunities -- total Amount deferred 0 0 0 234 0 0 - --------------------------------------------------------------------------------------- Inflation Protected 1,126 1,138 1,049 1,085 1,114 1,049 Securities -- total Amount deferred 0 0 0 515 0 0 - --------------------------------------------------------------------------------------- Large Cap 9,660 9,637 9,051 9,370 9,489 9,050 Equity -- total Amount deferred 0 0 0 4,259 0 0 - --------------------------------------------------------------------------------------- Large Cap 136 136 128 132 134 128 Value -- total Amount deferred 0 0 0 60 0 0 - --------------------------------------------------------------------------------------- Limited Duration 307 308 286 296 302 287 Bond -- total Amount deferred 0 0 0 137 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - --------------------------------------------------------------------------------------- California Tax- Exempt -- total 339 340 318 329 335 318 Amount deferred 0 0 0 154 0 0 - --------------------------------------------------------------------------------------- Diversified Bond -- total 6,444 6,465 6,040 6,237 6,356 6,040 Amount deferred 0 0 0 2,931 0 0 - --------------------------------------------------------------------------------------- Minnesota Tax- Exempt -- total 595 596 558 577 586 558 Amount deferred 0 0 0 269 0 0 - --------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------- TAUNTON- FUND LEWIS MAHER PAGLIA RICHIE RIGBY - --------------------------------------------------------------------------------- Partners Small Cap $ 880 $136 $ 383 $ 183 $ 375 Equity -- total Amount deferred 134 112 246 0 0 - --------------------------------------------------------------------------------- Partners Small Cap 2,042 328 891 436 871 Value -- total Amount deferred 311 272 559 0 0 - --------------------------------------------------------------------------------- Short Duration U.S. Government -- total 4,646 846 2,069 1,151 1,983 Amount deferred 709 706 1,201 0 0 - --------------------------------------------------------------------------------- U.S. Government Mortgage -- total 2,156 388 956 523 920 Amount deferred 329 324 559 0 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - --------------------------------------------------------------------------------- Dividend Opportunity -- total 8,773 N/A 3,652 N/A 3,573 Amount deferred 1,990 N/A 3,652 N/A 0 - --------------------------------------------------------------------------------- Real Estate -- total 1,011 N/A 420 N/A 414 Amount deferred 230 N/A 420 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - --------------------------------------------------------------------------------- Cash 25,060 N/A 9,340 N/A 9,328 Management -- total Amount deferred 5,222 N/A 9,340 N/A 0 - --------------------------------------------------------------------------------- Disciplined 15,698 N/A 5,862 N/A 5,849 Equity -- total Amount deferred 3,272 N/A 5,862 N/A 0 - --------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity -- total 275 N/A 101 N/A 100 Amount deferred 65 N/A 101 N/A 0 - --------------------------------------------------------------------------------- Disciplined Small Cap 180 N/A 67 N/A 66 Value -- total Amount deferred 38 N/A 67 N/A 0 - --------------------------------------------------------------------------------- Floating Rate -- total 2,660 N/A 988 N/A 991 Amount deferred 572 N/A 988 N/A 0 - --------------------------------------------------------------------------------- Growth -- total 13,062 N/A 4,879 N/A 4,846 Amount deferred 2,836 N/A 4,879 N/A 0 - --------------------------------------------------------------------------------- Income 1,349 N/A 502 N/A 503 Opportunities -- total Amount deferred 286 N/A 502 N/A 0 - --------------------------------------------------------------------------------- Inflation Protected 2,926 N/A 1,043 N/A 1,073 Securities -- total Amount deferred 549 N/A 1,043 N/A 0 - --------------------------------------------------------------------------------- Large Cap 24,802 N/A 9,269 N/A 9,199 Equity -- total Amount deferred 5,411 N/A 9,269 N/A 0 - --------------------------------------------------------------------------------- Large Cap 351 N/A 131 N/A 130 Value -- total Amount deferred 78 N/A 131 N/A 0 - --------------------------------------------------------------------------------- Limited Duration 787 N/A 290 N/A 292 Bond -- total Amount deferred 161 N/A 290 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - --------------------------------------------------------------------------------- California Tax- Exempt -- total 839 N/A 322 N/A 324 Amount deferred 163 N/A 322 N/A 0 - --------------------------------------------------------------------------------- Diversified Bond -- total 16,009 N/A 6,093 N/A 6,149 Amount deferred 3,064 N/A 6,093 N/A 0 - --------------------------------------------------------------------------------- Minnesota Tax- Exempt -- total 1,470 N/A 566 N/A 568 Amount deferred 289 N/A 566 N/A 0 - ---------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 178
AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND - --------------------------------------------------------------------------------------- New York Tax- $ 114 $ 114 $ 107 $ 110 $ 112 $ 107 Exempt -- total Amount deferred 0 0 0 51 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - --------------------------------------------------------------------------------------- Balanced -- total 1,763 1,761 1,628 1,684 1,734 1,628 Amount deferred 0 0 0 799 0 0 - --------------------------------------------------------------------------------------- Disciplined Large Cap 354 356 327 335 350 327 Growth -- total Amount deferred 0 0 0 162 0 0 - --------------------------------------------------------------------------------------- Disciplined Large Cap 4 3 3 3 4 3 Value -- total Amount deferred 0 0 0 2 0 0 - --------------------------------------------------------------------------------------- Diversified Equity 14,237 14,230 13,153 13,595 14,013 13,153 Income -- total Amount deferred 0 0 0 6,460 0 0 - --------------------------------------------------------------------------------------- Mid Cap Value -- total 5,051 5,051 4,667 4,811 4,979 4,666 Amount deferred 0 0 0 2,296 0 0 - --------------------------------------------------------------------------------------- Strategic 4,049 4,048 3,740 3,865 3,986 3,740 Allocation -- total Amount deferred 0 0 0 1,838 0 0 - --------------------------------------------------------------------------------------- Strategic Income 340 342 314 324 336 314 Allocation -- total Amount deferred 0 0 0 156 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------------- Absolute Return Currency and Income -- total 1,151 1,164 1,080 1,102 1,147 1,080 Amount deferred 0 0 0 544 0 0 - --------------------------------------------------------------------------------------- Disciplined International Equity -- total 1,523 1,530 1,413 1,457 1,504 1,413 Amount deferred 0 0 0 705 0 0 - --------------------------------------------------------------------------------------- Emerging Markets 386 385 360 369 381 360 Bond -- total Amount deferred 0 0 0 178 0 0 - --------------------------------------------------------------------------------------- Global Bond -- total 1,646 1,654 1,532 1,571 1,630 1,531 Amount deferred 0 0 0 765 0 0 - --------------------------------------------------------------------------------------- Global 299 299 278 287 294 278 Technology -- total Amount deferred 0 0 0 137 0 0 - --------------------------------------------------------------------------------------- Partners International Select Growth -- total 1,405 1,405 1,303 1,344 1,384 1,303 Amount deferred 0 0 0 646 0 0 - --------------------------------------------------------------------------------------- Partners International Select Value -- total 3,980 3,969 3,683 3,815 3,909 3,683 Amount deferred 0 0 0 1,821 0 0 - --------------------------------------------------------------------------------------- Partners International Small Cap -- total 210 209 194 201 206 194 Amount deferred 0 0 0 96 0 0 - --------------------------------------------------------------------------------------- Threadneedle Emerging Markets -- total 1,338 1,337 1,239 1,280 1,317 1,238 Amount deferred 0 0 0 0 0 0 - --------------------------------------------------------------------------------------- Threadneedle European Equity -- total 258 258 239 248 254 239 Amount deferred 0 0 0 119 0 0 - --------------------------------------------------------------------------------------- Threadneedle Global 1,514 1,514 1,404 1,450 1,491 1,404 Equity -- total Amount deferred 0 0 0 696 0 0 - --------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------- TAUNTON- FUND LEWIS MAHER PAGLIA RICHIE RIGBY - --------------------------------------------------------------------------------- New York Tax- $ 281 N/A $ 109 N/A $ 109 Exempt -- total Amount deferred 56 N/A 109 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - --------------------------------------------------------------------------------- Balanced -- total 4,277 N/A 1,688 N/A 1,656 Amount deferred 806 N/A 1,688 N/A 0 - --------------------------------------------------------------------------------- Disciplined Large Cap 848 N/A 334 N/A 332 Growth -- total Amount deferred 147 N/A 334 N/A 0 - --------------------------------------------------------------------------------- Disciplined Large Cap 7 N/A 3 N/A 3 Value -- total Amount deferred 1 N/A 3 N/A 0 - --------------------------------------------------------------------------------- Diversified Equity 34,529 N/A 13,599 N/A 13,370 Income -- total Amount deferred 6,484 N/A 13,599 N/A 0 - --------------------------------------------------------------------------------- Mid Cap Value -- total 12,194 N/A 4,804 N/A 4,739 Amount deferred 2,251 N/A 4,804 N/A 0 - --------------------------------------------------------------------------------- Strategic 9,812 N/A 3,866 N/A 3,802 Allocation -- total Amount deferred 1,836 N/A 3,866 N/A 0 - --------------------------------------------------------------------------------- Strategic Income 817 N/A 324 N/A 320 Allocation -- total Amount deferred 147 N/A 324 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------- Absolute Return Currency and Income -- total 2,634 N/A 1,104 N/A 1,097 Amount deferred 417 N/A 1,104 N/A 0 - --------------------------------------------------------------------------------- Disciplined International Equity -- total 3,511 N/A 1,447 N/A 1,439 Amount deferred 599 N/A 1,447 N/A 0 - --------------------------------------------------------------------------------- Emerging Markets 856 N/A 374 N/A 364 Bond -- total Amount deferred 149 N/A 374 N/A 0 - --------------------------------------------------------------------------------- Global Bond -- total 3,754 N/A 1,563 N/A 1,555 Amount deferred 626 N/A 1,563 N/A 0 - --------------------------------------------------------------------------------- Global 682 N/A 286 N/A 282 Technology -- total Amount deferred 121 N/A 286 N/A 0 - --------------------------------------------------------------------------------- Partners International Select Growth -- total 3,222 N/A 1,338 N/A 1,323 Amount deferred 564 N/A 1,338 N/A 0 - --------------------------------------------------------------------------------- Partners International Select Value -- total 9,121 N/A 3,815 N/A 3,744 Amount deferred 1,637 N/A 3,815 N/A 0 - --------------------------------------------------------------------------------- Partners International Small Cap -- total 482 N/A 201 N/A 198 Amount deferred 86 N/A 201 N/A 0 - --------------------------------------------------------------------------------- Threadneedle Emerging Markets -- total 3,080 N/A 1,271 N/A 1,259 Amount deferred 545 N/A 1,271 N/A 0 - --------------------------------------------------------------------------------- Threadneedle European Equity -- total 592 N/A 247 N/A 243 Amount deferred 104 N/A 247 N/A 0 - --------------------------------------------------------------------------------- Threadneedle Global 3,461 N/A 1,448 N/A 1,427 Equity -- total Amount deferred 608 N/A 1,448 N/A 0 - ---------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 179
AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND - --------------------------------------------------------------------------------------- Threadneedle Global Equity Income -- total $ 7 $ 7 $ 7 $ 6 $ 7 $ 6 Amount deferred 0 0 0 3 0 0 - --------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha -- total 5 5 5 5 5 5 Amount deferred 0 0 0 2 0 0 - --------------------------------------------------------------------------------------- Threadneedle International Opportunity -- total 1,258 1,256 1,166 1,204 1,238 1,166 Amount deferred 0 0 0 578 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - --------------------------------------------------------------------------------------- Intermediate Tax- 176 179 164 166 176 164 Exempt -- total Amount deferred 0 0 0 81 0 0 - --------------------------------------------------------------------------------------- Mid Cap Growth -- total 1,781 1,807 1,657 1,683 1,781 1,657 Amount deferred 0 0 0 822 0 0 - --------------------------------------------------------------------------------------- Tax-Exempt 1,561 1,582 1,451 1,472 1,561 1,451 Bond -- total Amount deferred 0 0 0 718 0 0 - --------------------------------------------------------------------------------------- Tax-Exempt High 5,855 5,939 5,442 5,525 5,855 5,442 Income -- total Amount deferred 0 0 0 2,696 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - --------------------------------------------------------------------------------------- Tax-Exempt Money 340 344 317 325 340 317 Market -- total Amount deferred 0 0 0 161 0 0 - --------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------- TAUNTON- FUND LEWIS MAHER PAGLIA RICHIE RIGBY - --------------------------------------------------------------------------------- Threadneedle Global Equity Income -- total $ 13 N/A $ 7 N/A $ 6 Amount deferred 2 N/A 7 N/A 0 - --------------------------------------------------------------------------------- Threadneedle Global Extended Alpha -- total 10 N/A 5 N/A 4 Amount deferred 1 N/A 5 N/A 0 - --------------------------------------------------------------------------------- Threadneedle International Opportunity -- total 2,874 N/A 1,202 N/A 1,184 Amount deferred 507 N/A 1,202 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - --------------------------------------------------------------------------------- Intermediate Tax- 393 N/A 169 $ 21 166 Exempt -- total Amount deferred 63 N/A 167 0 0 - --------------------------------------------------------------------------------- Mid Cap Growth -- total 4,103 N/A 1,702 128 1,683 Amount deferred 672 N/A 1,687 0 0 - --------------------------------------------------------------------------------- Tax-Exempt 3,497 N/A 1,497 172 1,472 Bond -- total Amount deferred 564 N/A 1,477 0 0 - --------------------------------------------------------------------------------- Tax-Exempt High 13,163 N/A 5,610 623 5,525 Income -- total Amount deferred 2,121 N/A 5,539 0 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - --------------------------------------------------------------------------------- Tax-Exempt Money 757 25 333 69 321 Market -- total Amount deferred 116 0 326 0 0 - ---------------------------------------------------------------------------------
* Funds-of-Funds do not pay additional compensation to the Board members for attending meetings. Compensation is paid directly from the underlying funds in which each Fund-of-Funds invests. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES The following table identifies those investors who, as of 30 days after the end of the fund's fiscal period, owned 5% or more of any class of a fund's shares and those investors who owned 25% or more of a fund's shares (all share classes taken together). Investors who own more than 25% of a fund's shares are presumed to control the fund and would be able to determine the outcome of most issues that are submitted to shareholders for vote. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 32. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of 30 days after the end of the fund's fiscal period:
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income Charles Schwab & Co., Inc. (Charles Class A 29.57% -- Schwab) a brokerage firm in San Francisco, CA ------------------------------------------------------------------------------------------ RiverSource Investments, LLC Class R4 100.00% -- (RiverSource Investments), Minneapolis, MN - -------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Charles Schwab Class A 34.70% 29.83% Class R4 92.71% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 7.29% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 180
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Charles Schwab Class A 35.06% 30.11% Class R4 47.05% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 52.95% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Charles Schwab Class R4 90.68% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 9.32% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class A 6.23% -- Conservative Class R4 59.37% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 40.63% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Charles Schwab Class R4 90.34% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 9.66% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 84.07% -- Moderate Aggressive ------------------------------------------------------------------------------------------ Fifth Third Bank TTEE, Cincinnati, OH Class R4 14.67% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 64.94% -- Moderate Conservative ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 35.06% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 91.86% -- Total Equity ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 8.14% -- - -------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index Charles Schwab Class D 100.00% -- Class E 19.56% ------------------------------------------------------------------------------------------ Wachovia Bank NA (Wachovia Bank), Class E 80.41% 65.12% Charlotte, NC - -------------------------------------------------------------------------------------------------------------------------------- Small Company Index Charles Schwab Class A 6.62% -- Class R4 6.67% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 90.66% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------------------------------------- Equity Value Charles Schwab Class A 7.49% -- ------------------------------------------------------------------------------------------ John C. Mullarkey, Willowbrook, IL Class C 5.31% -- ------------------------------------------------------------------------------------------ MLP Fenner & Smith (MLP Fenner & Smith), Class C 5.23% -- Jacksonville, FL ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ John Hancock Life Insurance Company, Class R4 70.10% -- Buffalo, NY ------------------------------------------------------------------------------------------ Wachovia Bank Class R3 97.73% -- Class R4 25.20% - -------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Charles Schwab Class A 7.48% -- Class R4 98.31% ------------------------------------------------------------------------------------------ RiverSource Investments Class R2 100.00% 36.12%(a) Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 17.44% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 25.22% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 30.71% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.95% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 17.18% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 181
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining Charles Schwab Class A 12.49% -- Class R4 98.30% ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- ------------------------------------------------------------------------------------------ Richard L. Venable and Susan Angela Class C 6.32% -- Venable, Argyle, TX - -------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Charles Schwab Class A 7.29% -- Class R4 94.50% ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R3 100.00% Class R4 5.50% Class R5 100.00% - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity RiverSource Investments Class I 100.00% -- Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 47.75% 39.07% - -------------------------------------------------------------------------------------------------------------------------------- Recovery and Infrastructure RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R3 100.00% Class R4 51.43% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 73.21% 64.08% Class R4 48.57% - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class A 7.59% -- Inc. (American Enterprise Investment Services), Minneapolis, MN ------------------------------------------------------------------------------------------ Charles Schwab Class A 5.52% -- ------------------------------------------------------------------------------------------ Jagdish N. and Madhuri J. Sheth, Class A 10.77% -- Atlanta, GA ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 100.00% 59.76% - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class A 5.52% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 100.00% 72.74% - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 RiverSource Investments Class R2 31.88% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ David T. Matthiesen, Littleton, CO Class A 9.44% -- ------------------------------------------------------------------------------------------ Matrix Capital Bank MSCS (Matrix Class R2 68.11% -- Capital), Denver, CO ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 100.00% 79.30% - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 182
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 RiverSource Investments Class R2 18.65% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Anthony D. and Rebecca H. Marken, Class A 6.20% -- Lexington, MA ------------------------------------------------------------------------------------------ Matrix Capital Class R2 81.34% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 100.00% 88.61% - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 RiverSource Investments Class R2 41.48% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Dimitris Bertsimas, Belmont, MA Class A 50.21% -- ------------------------------------------------------------------------------------------ John C. Bukowski, Suffern, NY Class A 5.09% -- ------------------------------------------------------------------------------------------ Applied Reliability Engineering, Denver, Class R2 58.52% -- CO ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 99.99% 79.01% - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Gary L. and Karen L. Fournier, Class A 8.32% -- Vicksburg, MS ------------------------------------------------------------------------------------------ Richard and Stefanie A. Nelson, Class A 5.96% -- Hot Springs, SD ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 99.44% 90.38% - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 RiverSource Investments Class R2 33.50% -- Class R3 14.05% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Matrix Capital Class R2 66.49% -- ------------------------------------------------------------------------------------------ GWFS Equities Inc. (GWFS Equities), Class R3 85.95% -- Greenwood Village, CO ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 98.75% 85.86% - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Anthony D. and Rebecca H. Marken, Class A 6.45% -- Lexington, MA ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 100.00% 86.84% - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 183
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------------------------------------- High Yield Bond RiverSource Investments Class R2 27.22% Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 29.71% ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 24.42% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 39.22% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.82% Inc. Minneapolis, MN ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.31% Class R4 20.13% ------------------------------------------------------------------------------------------ ING Life Insurance and Annuity, Class R3 91.93% Hartford, CT Class R4 79.48% ------------------------------------------------------------------------------------------ Applied Reliability Engineering, Denver, Class R2 72.76% CO ------------------------------------------------------------------------------------------ Wachovia Bank Class R3 7.76% - -------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth RiverSource Investments Class R3 20.20% Class R4 5.34% Class R5 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 17.76% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 24.95% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 30.59% Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.47% Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 17.97% ------------------------------------------------------------------------------------------ Charles Schwab Class R4 87.93% ------------------------------------------------------------------------------------------ GWFS Equities Inc. Class R2 95.37% ------------------------------------------------------------------------------------------ Body Masters, Inc., Denver, CO Class R3 52.41% ------------------------------------------------------------------------------------------ Central Jersey Collision, Denver, CO Class R3 29.39% - -------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Portfolio Builder Aggressive Fund Class I 17.95% 25.99%(a) ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 25.18% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 30.44% Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.45% Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 17.77% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.14% Class R4 95.38% - -------------------------------------------------------------------------------------------------------------------------------- Partners Select Value RiverSource Investments Class R4 12.91% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 17.74% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 24.83% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.01% Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.42% Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 17.79% ------------------------------------------------------------------------------------------ Charles Schwab Class A 5.76% Class R4 87.09% - -------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity RiverSource Investments Class I 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 5.89% Class R4 5.19% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 94.49% - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 184
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value RiverSource Investments Class R3 8.30% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 17.22% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 24.12% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 32.85% Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.31% Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 17.33% ------------------------------------------------------------------------------------------ Charles Schwab Class A 11.88% Class R4 92.22% ------------------------------------------------------------------------------------------ Hartford Life Insurance Company Class R2 99.33% (Hartford Life), Weatogue, CT Class R3 91.70% ------------------------------------------------------------------------------------------ JP Morgan Chase Bank, Kansas City, MO Class R5 99.97% - -------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. RiverSource Investments Class W 100.00% ------------------------------------------------------------------------------------------ Government Portfolio Builder Conservative Fund Class I 59.22% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 40.78% Fund ------------------------------------------------------------------------------------------ Charles Schwab Class A 11.99% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 97.47% - -------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Income Builder Basic Income Class I 33.50% 66.83%(a) ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 17.22% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 49.28% ------------------------------------------------------------------------------------------ RiverSource Life Insurance Company, Class R4 14.85% Minneapolis, MN ------------------------------------------------------------------------------------------ Charles Schwab Class A 16.85% Class R4 44.59% ------------------------------------------------------------------------------------------ Matrix Capital Class R4 20.60% ------------------------------------------------------------------------------------------ Ury & Moskow, LLC Retirement Plan, Class R4 19.96% Fargo, ND - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 23.09% -- Class R4 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 13.95% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 14.25% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 34.77% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 6.91% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 8.28% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 11.66% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 7.46% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 185
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Real Estate RiverSource Investments Class R4 10.36% 53.84%(a) Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.17% -- Class R4 89.64% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 7.92% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 13.20% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 25.18% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 27.58% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.33% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 11.69% -- - -------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------------- Cash Management Charles Schwab Class A 5.96% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R5 100.00% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.94% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 33.15% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 27.47% -- ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 12.00% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 11.40% -- Fund ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 5.65% -- ------------------------------------------------------------------------------------------ Russell P. and Janice K. Costanza, Class C 6.42% -- Sodus, MI ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 94.86% -- ------------------------------------------------------------------------------------------ GWFS Equities Class Y 5.14% -- - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.99% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 7.06% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 10.50% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.53% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 11.43% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 16.15% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 10.23% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.44% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 186
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and RiverSource Investments Class A 45.76% 57.55%(a) Mid Cap Equity Class R4 83.04% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 11.38% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 13.93% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 19.04% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 12.18% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2025 Class I 6.06% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2030 Class I 5.69% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.79% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.42% -- Class R4 16.96% ------------------------------------------------------------------------------------------ Deanna L. Rose, Punta Gorda, Fl Class C 8.49% -- ------------------------------------------------------------------------------------------ William E. and MaryLou K. Carroll, Punta Class C 11.48% -- Gorda, Fl ------------------------------------------------------------------------------------------ Mary Ruth Neal, Sacramento, CA Class C 5.38% -- ------------------------------------------------------------------------------------------ Don M. and Barbara A. Warner, Fair Oaks, Class C 5.06% -- CA ------------------------------------------------------------------------------------------ Antim G. and Sonal A Shah, Springfield, Class C 5.01% -- VA - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value RiverSource Investments Class A 67.37% 86.60%(a) Class C 9.20% Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Joanne and David J. Thorpe, Lakeville, Class B 8.77% -- MA ------------------------------------------------------------------------------------------ John A. and Dawn M. Gettman, Beaumont, Class B 7.50% -- CA ------------------------------------------------------------------------------------------ Neil Van Slyke, Rochester, NY Class B 5.08% -- ------------------------------------------------------------------------------------------ Sanford A. Greentree, Westlake VLG, CA Class C 28.37% -- ------------------------------------------------------------------------------------------ Keith and Sandra Crowell, Huntersville, Class C 19.41% -- NC ------------------------------------------------------------------------------------------ Bea Vande Merwe, Salt Lake City, UT Class C 12.96% -- ------------------------------------------------------------------------------------------ Richard T. Castiano, Fort Myers, FL Class C 11.18% -- ------------------------------------------------------------------------------------------ Matthew M. Harrison, Richmond, IN Class C 6.92% -- ------------------------------------------------------------------------------------------ Timothy E. Releford, New York, NY Class C 6.06% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 34.91% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 26.71% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 38.34% -- - -------------------------------------------------------------------------------------------------------------------------------- Floating Rate RiverSource Investments Class W 100.00% 37.41%(a) Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 11.75% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 29.59% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 47.73% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 46.63% -- Class R4 95.13% ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 6.46% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 187
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Growth RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 5.99% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.62% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.40% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.53% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.78% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 20.08% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 42.87% -- ------------------------------------------------------------------------------------------ Ameriprise Trust Company Class R4 51.99% -- - -------------------------------------------------------------------------------------------------------------------------------- Income Opportunities Charles Schwab Class A 14.09% -- Class R4 93.46% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 14.67% 25.94%(a) ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 41.16% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 35.94% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.21% -- Fund ------------------------------------------------------------------------------------------ RiverSource Life Insurance Company Class R4 6.54% -- - -------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities RiverSource Life Insurance Company Class R4 26.67% 42.88%(a) ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 11.24% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 5.50% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 6.68% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 26.84% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 29.28% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.17% -- Fund ------------------------------------------------------------------------------------------ Charles Schwab Class A 35.37% -- Class R4 26.55% ------------------------------------------------------------------------------------------ GWFS Equities Class R4 5.02% -- ------------------------------------------------------------------------------------------ Matrix Capital Class R4 41.76% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.98% -- - -------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.58% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.41% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.61% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.77% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 20.03% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.85% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 188
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Large Cap Value RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 39.10% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.18% -- Class R4 60.90% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.52% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.76% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.69% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.77% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.56% -- ------------------------------------------------------------------------------------------ Patricia J. King Graham, Lakeview, AR Class C 5.11% -- ------------------------------------------------------------------------------------------ Columbia 529 Plan, Boston, MA Class A 5.07% -- - -------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond RiverSource Investments Class R4 100.00% 60.07%(a) Class W 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 56.50% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 43.50% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 18.86% -- ------------------------------------------------------------------------------------------ John W. and Cecelia E. Kramar, Hacienda Class C 17.03% -- Heights, CA ------------------------------------------------------------------------------------------ Mary Loretta Jacobsmeyer, Riverside, CA Class C 7.78% -- ------------------------------------------------------------------------------------------ Michael N. Stanley, Palm Springs, CA Class C 8.16% -- ------------------------------------------------------------------------------------------ Rita R. and Lawrence E. Dale, Barstow, Class C 6.50% -- CA ------------------------------------------------------------------------------------------ Bernard C. and Denise M. Asbell, Class C 5.70% -- Riverside, CA - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Linda A. Wochnik, Sierra Madre, CA Class B 5.01% -- - -------------------------------------------------------------------------------------------------------------------------------- Diversified Bond RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.97% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.72% -- ------------------------------------------------------------------------------------------ Citigroup Global Markets, Owings Mills, Class C 26.98% -- MD ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 5.92% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 40.79% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 21.02% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 12.46% -- Fund ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 96.96% -- ------------------------------------------------------------------------------------------ Minnesota Tax-Exempt None None N/A -- - -------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Charles Schwab Class A 8.47% -- ------------------------------------------------------------------------------------------ Joan Sabbatini, E. Northport, NY Class B 8.19% -- ------------------------------------------------------------------------------------------ Ena S. Ryan, Brooklyn, NY Class C 8.64% -- ------------------------------------------------------------------------------------------ Ottoviano Asarese, Buffalo, NY Class C 6.00% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------------- Balanced MLP Fenner & Smith Class C 9.91% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.96% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 189
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth RiverSource Investments Class R2 100.00% 84.96%(a) Class R3 100.00% Class R4 34.24% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 16.76% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.85% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 27.61% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.59% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.18% -- ------------------------------------------------------------------------------------------ Matrix Capital Class R4 65.76% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 8.85% -- ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 66.35% -- - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value RiverSource Investments Class B 36.84% 98.09(a) Class C 100.00% Class I 17.75% Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 30.20% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 29.87% -- ------------------------------------------------------------------------------------------ Disciplined Asset Allocation Portfolios Class I 6.06% -- Moderate ------------------------------------------------------------------------------------------ Paul W. Eastman, Dublin, OH Class A 25.80% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 23.18% -- ------------------------------------------------------------------------------------------ Ronald E. and Patricia S. Leithe, Cary, Class A 12.12% -- NC ------------------------------------------------------------------------------------------ Joseph E. and Sonya M. Landholm, Sedona, Class A 10.08% -- AZ ------------------------------------------------------------------------------------------ Ralph and Carol Sievert, Appleton, WI Class A 7.62% -- ------------------------------------------------------------------------------------------ Tseng-Yen Yen, Fullerton, CA Class B 42.60% -- ------------------------------------------------------------------------------------------ Rita S. Mall, Wyncote, PA Class B 20.56% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 190
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Charles Schwab Class A 25.97% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.19% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.08% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.33% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.07% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.37% -- ------------------------------------------------------------------------------------------ Hartford Life Class R2 74.50% -- ------------------------------------------------------------------------------------------ Hartford Securities Distribution Company Class R2 6.00% -- Inc., Hartford, CT ------------------------------------------------------------------------------------------ GWFS Equities Class R3 84.53% -- Class R4 11.39% ------------------------------------------------------------------------------------------ Wachovia Bank Class R2 13.87% -- Class R3 8.11% Class R4 35.07% Class R5 22.97% ------------------------------------------------------------------------------------------ Wells Fargo Bank Class R4 27.91% -- ------------------------------------------------------------------------------------------ American Century Investments, Kansas Class R4 6.24% -- City, MO ------------------------------------------------------------------------------------------ ING Class R4 13.19% -- Class R5 39.87% ------------------------------------------------------------------------------------------ Ameriprise Trust Company Class R5 11.76% -- ------------------------------------------------------------------------------------------ Taynik & Co., Boston, MA Class R5 9.07% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class W 100.00% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 191
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Charles Schwab Class A 34.32% -- Class R5 8.42% ------------------------------------------------------------------------------------------ Prudential Investment Management Class A 12.85% -- Services LLC, Newark, NJ ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 18.24% -- ------------------------------------------------------------------------------------------ Citigroup Global Markets, Owings Mills, Class C 5.56% -- MD ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.10% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.36% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.01% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.14% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.35% -- ------------------------------------------------------------------------------------------ Hartford Life Class R2 81.55% -- Class R3 12.83% ------------------------------------------------------------------------------------------ JP Morgan Chase Bank, New York NY Class R3 15.80% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R3 34.97% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R3 9.90% -- Class R4 18.81% ------------------------------------------------------------------------------------------ ING Class R3 8.27% -- Class R4 20.24% Class R5 17.33% ------------------------------------------------------------------------------------------ John Hancock Life Insurance Company, Class R4 25.79% -- Buffalo, NY ------------------------------------------------------------------------------------------ NFS LLC FEBO, Chicago, IL Class R5 28.65% -- ------------------------------------------------------------------------------------------ PIMS/Prudential Retirement, Greenville, Class R5 16.80% -- SC ------------------------------------------------------------------------------------------ Standard Insurance Company, Portland, OR Class R5 10.61% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class W 100.00% -- - -------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation Charles Schwab Class A 11.51% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 59.42% -- ------------------------------------------------------------------------------------------ Charles Schwab Class R4 39.07% -- - -------------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Charles Schwab Class A 26.98% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class A 14.28% -- Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 192
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency Income RiverSource Investments Class R4 46.97% 28.54%(a) Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 8.72% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.93% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 21.85% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 21.69% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 8.43% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.61% -- Fund ------------------------------------------------------------------------------------------ American Enterprise Class W 99.96% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 70.04% -- Class R4 53.03% ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 5.79% -- - -------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 8.27% Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 9.01% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 10.16% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.80% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 11.96% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 16.42% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 10.56% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services, Class W 99.96% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.93% -- Class R4 91.73% ------------------------------------------------------------------------------------------ Daniel and Linda Miklovic, St. Louis, MO Class C 5.17% -- - -------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Income Builder Enhanced Income Class I 34.35% 35.11%(a) ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 35.29% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 9.81% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 46.85% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services, Class W 99.98% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.44% -- Class R4 27.12% ------------------------------------------------------------------------------------------ Matrix Capital Class R4 26.03% -- ------------------------------------------------------------------------------------------ Muhammad A. Ali, Twn and Cntry, MO Class C 6.62% -- ------------------------------------------------------------------------------------------ Brenda L. Ruiz, Lake Mary, FL Class C 5.77% -- - -------------------------------------------------------------------------------------------------------------------------------- Global Bond Income Builder Enhanced Income Class I 5.55% 32.63%(a) ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 5.64% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 34.08% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 30.07% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 9.23% -- Fund ------------------------------------------------------------------------------------------ American Enterprise Investment Services, Class W 99.94% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.23% -- Class R4 100.00% - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 193
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Global Technology RiverSource Investments Class I 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.08% -- Class R4 99.65% - -------------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth Charles Schwab Class A 15.31% 41.23% Class R4 82.82% ------------------------------------------------------------------------------------------ New York Life Trust Company Class R4 13.64% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.58% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.88% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.47% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.57% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.79% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners International Select Value Charles Schwab Class A 17.27% -- Class R4 99.14% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.71% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.73% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.10% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.64% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 20.12% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap Portfolio Builder Aggressive Fund Class I 19.06% 30.16%(a) ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.14% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.63% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.81% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 18.64% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.66% ------------------------------------------------------------------------------------------ Massachusetts Mutual Life Insurance Co. Class R4 96.79% -- Springfield, MA - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Charles Schwab Class A 13.95% -- Class R4 87.24% ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 12.76% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity RiverSource Investments Class I 100.00% -- Class R4 17.97% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.98% -- Class R4 82.03% ------------------------------------------------------------------------------------------ Marilyn O. Matthews, Pasadena, CA Class C 5.31% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity RiverSource Investments Class I 100.00% -- Class R2 98.46% Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.95% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R4 5.35% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 90.82% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 194
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income RiverSource Investments Class C 6.40% 29.58%(a) Class I 100.00% Class R2 100.00% Class R3 100.00% Class R4 83.38% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 20.16% -- Class R4 16.62% ------------------------------------------------------------------------------------------ Janet K. Zimmer, Warsaw, IN Class C 24.03% -- ------------------------------------------------------------------------------------------ Michael A. Streiber, Mount Airy, MD Class C 11.24% -- ------------------------------------------------------------------------------------------ Alfred T. Hockenmaier, North Hills, CA Class C 9.72% -- ------------------------------------------------------------------------------------------ Sandra H. Norene, Rio Oso, CA Class C 7.99% -- ------------------------------------------------------------------------------------------ Steven A. and Melissa D. Stiles, Class C 7.05% -- Roanoke, VA ------------------------------------------------------------------------------------------ Louis M. and Shirli A. Nagy, Ventura, CA Class C 5.93% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha RiverSource Investments Class C 7.38% 57.92%(a) Class I 100.00% Class R2 100.00% Class R3 100.00% Class R4 30.07% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 66.08% -- Class R4 69.93% ------------------------------------------------------------------------------------------ Michael and Marissa Jenkinson, Burke, VA Class C 17.59% -- ------------------------------------------------------------------------------------------ Michael Selig, Arlington, VA Class C 11.38% -- ------------------------------------------------------------------------------------------ Poonam and Pradeep Singh, McLean, VA Class C 10.72% -- ------------------------------------------------------------------------------------------ Michael and Kristin L. Elder, Class C 9.76% -- Alexandria, VA ------------------------------------------------------------------------------------------ Steven R. and Wendy L. Person, Atlanta, Class C 9.53% -- GA ------------------------------------------------------------------------------------------ Jennifer S. Carter, Washington, D.C. Class C 8.76% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle International RiverSource Investments Class R2 100.00% -- Opportunity Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.09% -- Class R4 84.55% ------------------------------------------------------------------------------------------ Matrix Capital Class R4 14.22% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.90% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.66% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.25% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.81% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.70% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2009 Page 195
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax Exempt Charles Schwab Class A 7.21% -- - -------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth Portfolio Builder Aggressive Fund Class I 18.26% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.37% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 30.84% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.00% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.56% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 78.73% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R4 12.28% -- - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond None N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Lawrence Garner, Woodstock, GA and Class A 6.67% -- Ronald J. Garner, Wyckoff, NJ ------------------------------------------------------------------------------------------ Charles Schwab Class A 6.25% -- - --------------------------------------------------------------------------------------------------------------------------------
(a) Combination of all share classes of RiverSource Investments initial capital and affiliated funds-of-funds' investments in Class I shares. A fund may serve as an underlying investment of funds-of-funds that principally invest in shares of other funds in the RiverSource Family of Funds (the underlying funds). The underlying funds and the funds-of-funds share the same officers, Board members, and investment manager, RiverSource Investments. The funds-of-funds do not invest in an underlying fund for the purpose of exercising management or control; however, from time to time, investments by the funds-of- funds in a fund may represent a significant portion of a fund. Because the funds-of-funds may own a substantial portion of the shares of a fund, procedures have been put into place to assure that public shareholders will determine the outcome of all actions taken at underlying fund shareholder meetings. In proxy voting, the funds-of-funds will vote on each proposal in the same proportion that other shareholders vote on the proposal. In addition, RiverSource Investments or an affiliate may own shares of a fund as a result of an initial capital investment at the inception of the fund or class. To the extent RiverSource Investments, as manager of the funds-of-funds, may be deemed a beneficial owner of the shares of an underlying fund held by the funds- of-funds, and such shares, together with any initial capital investment by RiverSource Investments or an affiliate, represent more than 25% of a fund, RiverSource Investments and its affiliated companies may be deemed to control the fund. 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 (now known as RiverSource) 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 (the "District Court"). In response to defendants' motion to dismiss the complaint, the District 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 (the "Eighth Circuit") on Aug. 8, 2007. On April 8, 2009, the Eighth Circuit reversed summary judgment and remanded to the District Court for further proceedings. 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 Statement of Additional Information - July 30, 2009 Page 196 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 Family of 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 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc. (which is now known as RiverSource Fund Distributors, Inc.), Seligman Data Corp. and Brian T. Zino (collectively, the "Seligman Parties"), alleging, in substance, that the Seligman Parties permitted various persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies then managed by Seligman was and had been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. On March 13, 2009, without admitting or denying any violations of law or wrongdoing, the Seligman Parties entered into a stipulation of settlement with the NYAG and settled the claims made by the NYAG. Under the terms of the settlement, Seligman paid $11.3 million to four Seligman Funds. This settlement resolved all outstanding matters between the Seligman Parties and the NYAG. In addition to the foregoing matter, the New York staff of the SEC indicated in September 2005 that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and 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. There have been no further developments with the SEC on this matter. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements for the fiscal years ended July 31, 2007 or later contained in a fund's Annual Report were audited by the independent registered public accounting firm, Ernst & Young LLP, 220 South 6th Street, Suite 1400, Minneapolis, MN 55402. The information for periods ended on or before June 30, 2007 was audited by other auditors. The independent registered public accounting firm also provides other accounting and tax-related services as requested by the funds. Statement of Additional Information - July 30, 2009 Page 197 APPENDIX A DESCRIPTION OF RATINGS STANDARD & POOR'S LONG-TERM DEBT RATINGS. A Standard & Poor's corporate or municipal debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. The debt rating is not a recommendation to purchase, sell, or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of such information or based on other circumstances. The ratings are based, in varying degrees, on the following considerations: - Likelihood of default capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation. - Nature of and provisions of the obligation. - Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. INVESTMENT GRADE Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. SPECULATIVE GRADE Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category also is used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. Debt rated CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. Debt rated C typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Statement of Additional Information - July 30, 2009 A-1 Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. MOODY'S LONG-TERM DEBT RATINGS Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risk appear somewhat larger than in Aaa securities. A - Bonds that are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds that are rated Ba are judged to have speculative elements - their future cannot be considered as well- assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds that are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. FITCH'S LONG-TERM DEBT RATINGS Fitch's bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings represent Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated. Fitch ratings are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature of taxability of payments made in respect of any security. Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. INVESTMENT GRADE AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. Statement of Additional Information - July 30, 2009 A-2 AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. SPECULATIVE GRADE BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements. B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC: Bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C: Bonds are in imminent default in payment of interest or principal. DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. DDD represents the highest potential for recovery on these bonds, and D represents the lowest potential for recovery. SHORT-TERM RATINGS STANDARD & POOR'S COMMERCIAL PAPER RATINGS A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. These categories are as follows: A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with doubtful capacity for payment. D Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. STANDARD & POOR'S MUNI BOND AND NOTE RATINGS An S&P municipal bond or note rating reflects the liquidity factors and market- access risks unique to these instruments. Notes maturing in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. Statement of Additional Information - July 30, 2009 A-3 Note rating symbols and definitions are as follows: SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. Municipal bond rating symbols and definitions are as follows: Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal and interest. Standard & Poor's rating SP-3 indicates speculative capacity to pay principal and interest. MOODY'S SHORT-TERM RATINGS Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: (i) leading market positions in well-established industries, (ii) high rates of return on funds employed, (iii) conservative capitalization structure with moderate reliance on debt and ample asset protection, (iv) broad margins in earnings coverage of fixed financial charges and high internal cash generation, and (v) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. MOODY'S SHORT-TERM MUNI BONDS AND NOTES Short-term municipal bonds and notes are rated by Moody's. The ratings reflect the liquidity concerns and market access risks unique to notes. Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample although not so large as in the preceding group. Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. Moody's MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. FITCH'S SHORT-TERM RATINGS Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The Statement of Additional Information - July 30, 2009 A-4 short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. Fitch short-term ratings are as follows: F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+. F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned F-1+ and F-1 ratings. F-3: Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse changes could cause these securities to be rated below investment grade. F-S: Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. D: Default. Issues assigned this rating are in actual or imminent payment default. Statement of Additional Information - July 30, 2009 A-5 APPENDIX B STATE TAX-EXEMPT FUNDS STATE RISK FACTORS California Tax-Exempt Fund, Minnesota Tax-Exempt Fund and New York Tax-Exempt Fund invest primarily in the municipal securities issued by a single state and political sub-divisions that state. Each Fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax- exempt investments will be significantly greater than that of more geographically diversified funds, which may result in greater losses and volatility. Because of the relatively small number of issuers of tax-exempt securities, the Fund may invest a higher percentage of assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the Fund and other accounts managed by the investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. In addition, a Fund may concentrate in a segment of the tax-exempt debt market, such as revenue bonds for health care facilities, housing or airports. These investments may cause the value of a fund's shares to change more than the values of funds' shares that invest in more diversified investments. The yields on the securities in which the Fund invests generally are dependent on a variety of factors, including the financial condition of the issuer or other obligor, the revenue source from which the debt service is payable, general economic and monetary conditions, conditions in the relevant market, the size of a particular issue, the maturity of the obligation, and the rating of the issue. In addition to such factors, geographically concentrated securities will experience particular sensitivity to local conditions, including political and economic changes, adverse conditions to an industry significant to the area, and other developments within a particular locality. Because many tax-exempt bonds may be revenue or general obligations of local governments or authorities, ratings on tax-exempt bonds may be different from the ratings given to the general obligation bonds of a particular state. Certain events may adversely affect all investments within a particular market segment of the market. Examples include litigation, legislation or court decisions, concerns about pending or contemplated litigation, legislation or court decisions, or lower demand for the services or products provided by a particular market segment. Investing mostly in state-specific tax-exempt investments makes the Fund more vulnerable to that state's economy and to factors affecting tax-exempt issuers in that state than would be true for more geographically diversified funds. These risks include, among others: - the inability or perceived inability of a government authority to collect sufficient tax or other revenues to meet its payment obligations; - natural disasters and ecological or environmental concerns; - the introduction of constitutional or statutory limits on a tax-exempt issuer's ability to raise revenues or increase taxes; - the inability of an issuer to pay interest on or repay principal or securities in which the funds invest during recessionary periods; and - economic or demographic factors that may cause a decrease in tax or other revenues for a government authority or for private operators of publicly financed facilities. More information about state specific risks may be available from official state resources. Statement of Additional Information - July 30, 2009 B-1 APPENDIX C S&P 500 INDEX FUND ADDITIONAL INFORMATION ABOUT THE S&P 500 INDEX The fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the shareholders of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index, which are determined, composed and calculated by S&P without regard to the Fund. S&P has no obligation to take the needs of the Fund or its shareholders into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Fund or the timing of the issuance or sale of the Fund or in the determination or calculation of the equation by which the Fund's shares are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of Fund shares. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN (THE S&P INDEX) AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, ITS SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. Statement of Additional Information - July 30, 2009 C-1 APPENDIX D SELIGMAN FUNDS SELIGMAN CAPITAL FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMON STOCK FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. Seligman Emerging Markets Fund Seligman Global Smaller Companies Fund Seligman Global Growth Fund Seligman Global Technology Fund Seligman International Growth Fund SELIGMAN GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES Seligman U.S. Government Securities Fund Seligman High-Yield Fund SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. Seligman LaSalle Global Real Estate Fund Seligman LaSalle Monthly Dividend Real Estate Fund SELIGMAN MUNICIPAL FUND SERIES, INC. Seligman National Municipal Class Seligman Minnesota Municipal Class Seligman New York Municipal Class SELIGMAN MUNICIPAL SERIES TRUST Seligman California Municipal High Yield Series Seligman California Municipal Quality Series SELIGMAN PORTFOLIOS, INC. Seligman Capital Portfolio Seligman Cash Management Portfolio Seligman Common Stock Portfolio Seligman Communications and Information Portfolio Seligman Global Technology Portfolio Seligman International Growth Portfolio Seligman Investment Grade Fixed Income Portfolio Seligman Large-Cap Value Portfolio Seligman Smaller-Cap Value Portfolio SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. Seligman TargETFund 2045 Seligman TargETFund 2035 Seligman TargETFund 2025 Seligman TargETFund 2015 Seligman TargETFund Core SELIGMAN ASSET ALLOCATION SERIES, INC. Seligman Asset Allocation Aggressive Growth Fund Seligman Asset Allocation Balanced Fund Seligman Asset Allocation Growth Fund Seligman Asset Allocation Moderate Growth Fund SELIGMAN VALUE FUND SERIES, INC. Seligman Large-Cap Value Fund Seligman Smaller-Cap Value Fund SELIGMAN LASALLE INTERNATIONAL REAL ESTATE FUND, INC. TRI-CONTINENTAL CORPORATION
S-6500 AZ (7/09) Statement of Additional Information - July 30, 2009 D-1 PORTFOLIO OF INVESTMENTS ------------------------------------------------------ MAY 31, 2009 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (98.0%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) FOREIGN AGENCIES (0.9%)(C) KfW 04-16-12 2.25% $3,795,000 $3,836,662 10-31-14 5.00 2,600,000 2,784,189 --------------- Total 6,620,851 - ------------------------------------------------------------------------------------- SUPRANATIONAL (0.5%)(c) Asian Development Bank 09-05-13 3.63 3,726,000 3,836,280 - ------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS & AGENCIES (32.6%) Federal Home Loan Mtge Corp 10-20-10 1.38 3,545,000 3,549,718 01-07-11 1.50 9,070,000(p) 9,154,387 03-15-11 5.63 2,612,000(p) 2,821,684 11-18-11 1.75 6,355,000 6,372,947 03-23-12 2.13 7,420,000(p) 7,512,861 06-13-18 4.88 5,405,000(p) 5,782,949 Federal Natl Mtge Assn 03-02-11 2.00 12,270,000 12,365,669 04-28-11 1.38 5,685,000 5,715,953 04-29-11 1.15 3,121,000(l) 3,122,992 05-18-12 1.50 3,200,000(l) 3,193,509 04-09-13 3.25 14,350,000(p) 14,935,437 07-17-13 4.38 5,020,000 5,377,951 01-02-14 5.13 16,915,000 17,310,016 02-05-14 2.75 12,715,000(p) 12,772,216 11-15-30 6.63 1,945,000 2,371,214 U.S. Treasury 06-30-10 2.88 5,730,000(p) 5,875,267 10-31-10 1.50 18,575,000(p) 18,795,577 05-31-11 0.88 13,000,000(b) 12,987,780 01-15-12 1.13 17,000,000(p) 16,957,500 04-15-12 1.38 5,135,000(p) 5,140,618 05-15-12 1.38 15,000,000(p) 14,987,100 02-15-14 4.00 1,375,000 1,482,315 04-30-14 1.88 6,195,000(p) 6,065,277 02-15-15 4.00 17,240,000(p) 18,493,933 02-15-19 2.75 4,140,000(p) 3,890,648 05-15-19 3.13 7,500,000 7,285,575 U.S. Treasury Inflation-Indexed Bond 01-15-14 2.00 4,333,176(e) 4,464,873 --------------- Total 228,785,966 - ------------------------------------------------------------------------------------- ASSET-BACKED (4.6%) Ameriquest Mtge Securities Series 2005-R6 Cl A2 08-25-35 0.51 2,159,043(l) 1,859,664 Asset Backed Securities Corp Home Equity Series 2005-HE2 Cl M1 02-25-35 0.76 2,672,462(l) 2,107,001 Bank of America Credit Card Trust Series 2008-A5 Cl A5 12-16-13 1.54 1,825,000(l) 1,821,714 Capital Auto Receivables Asset Trust Series 2006-SN1A Cl A4B 03-20-10 0.43 984,823(d,l) 979,675 Credit-Based Asset Servicing and Securitization LLC Series 2007-CB4 Cl A1A 04-25-37 0.40 3,285,082(l) 2,182,947 Deutsche Mtge Securities Collateralized Mtge Obligation Series 2009-RS2 Cl 4A1 04-26-37 0.44 3,880,000(d,m) 3,336,800 First Franklin Mtge Loan Asset-backed Ctfs Series 2005-FFH3 Cl 2A3 09-25-35 0.72 1,254,695(l) 1,147,357 First Franklin Mtge Loan Asset-backed Ctfs Series 2006-FF18 Cl A2A 12-25-37 0.38 1,641,466(l) 1,539,102 GSAMP Trust Series 2006-HE8 Cl A2A 01-25-37 0.38 3,943,311(l) 3,502,697 JPMorgan Mtge Acquisition Corp Series 2006-HE2 Cl A3 07-25-36 0.53 3,506,268(l) 3,026,046
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 16 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ASSET-BACKED (CONT.) NovaStar Home Equity Loan Series 2006-4 Cl A2A (MGIC) 09-25-36 0.35% $1,618,243(i,l) $1,533,626 NovaStar Home Equity Loan Series 2007-2 Cl A2A 09-25-37 0.40 2,467,013(l) 2,042,502 Residential Asset Securities Series 2007-KS3 Cl AI2 12-25-32 0.49 4,050,000(l) 2,177,472 Structured Asset Investment Loan Trust Series 2005-9 Cl A5 11-25-10 0.54 3,749,663(l) 3,192,835 Structured Asset Securities Corp Collateralized Mtge Obligation Series 2006-NC1 Cl A6 05-25-36 0.36 2,205,069(m) 2,045,834 --------------- Total 32,495,272 - ------------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED (3.7%)(f) Crown Castle Towers LLC Series 2005-1A Cl AFX 06-15-35 4.64 3,525,000(d) 3,436,875 Federal Home Loan Mtge Corp Multifamily Structured Pass-Through Ctfs Series K001 Cl A2 04-25-16 5.65 5,402,714 5,884,186 Federal Natl Mtge Assn #381990 10-01-09 7.11 4,023,504 4,021,147 GE Capital Commercial Mtge Series 2001-3 Cl A1 06-10-38 5.56 5,714,888 5,798,287 JPMorgan Chase Commercial Mtge Securities Series 2004-CBX Cl A3 01-12-37 4.18 7,135,074 7,081,672 --------------- Total 26,222,167 - ------------------------------------------------------------------------------------- MORTGAGE-BACKED (50.5%)(f,o) Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-1 Cl 3A21 03-25-37 6.18 1,584,469(m) 928,123 American Home Mtge Assets Collateralized Mtge Obligation Series 2007-2 Cl A2A 03-25-47 0.47 3,162,944(m) 751,675 American Home Mtge Investment Trust Collateralized Mtge Obligation Series 2007-1 Cl GA1C 05-25-47 0.50 4,151,613(m) 1,615,834 Citigroup Mtge Loan Trust Collateralized Mtge Obligation Series 2006-AR9 Cl 1A1 11-25-36 0.38 510,470(l) 426,900 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04-25-35 7.50 1,278,861 828,973 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-OA11 Cl A3B1 09-25-46 0.49 2,693,863(l) 1,835,562 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OA9 Cl A2 06-25-47 0.66 5,396,281(l) 1,327,812 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 01-25-38 0.81 3,616,229(l) 383,359 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-R2 Cl 2A1 06-25-35 7.00 3,924,101(d) 3,127,018 Federal Home Loan Mtge Corp #1G0847 07-01-35 4.71 6,224,439(m) 6,336,940 Federal Home Loan Mtge Corp #1G2264 10-01-37 6.02 5,635,953(m) 5,881,151 Federal Home Loan Mtge Corp #1G2598 01-01-37 6.09 2,029,677(m) 2,125,973 Federal Home Loan Mtge Corp #1J0614 09-01-37 5.68 2,801,415(m) 2,926,778 Federal Home Loan Mtge Corp #A18107 01-01-34 5.50 2,705,069 2,803,382
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp #A57402 02-01-37 5.00% $2,180,719 $2,233,306 Federal Home Loan Mtge Corp #A74027 03-01-38 5.00 1,290,117 1,321,156 Federal Home Loan Mtge Corp #A74458 03-01-38 5.00 704,887 721,845 Federal Home Loan Mtge Corp #A78592 06-01-38 5.00 494,336 506,229 Federal Home Loan Mtge Corp #A78614 06-01-38 5.00 329,979 337,918 Federal Home Loan Mtge Corp #A82611 10-01-38 5.00 490,670 502,475 Federal Home Loan Mtge Corp #A82694 10-01-38 5.00 172,812 176,970 Federal Home Loan Mtge Corp #A82811 11-01-38 5.00 748,683 766,695 Federal Home Loan Mtge Corp #A83067 11-01-38 5.00 184,005 188,432 Federal Home Loan Mtge Corp #A83590 12-01-38 5.00 218,563 223,821 Federal Home Loan Mtge Corp #A84206 01-01-38 5.00 115,814 118,734 Federal Home Loan Mtge Corp #C00351 07-01-24 8.00 215,238 238,273 Federal Home Loan Mtge Corp #C00385 01-01-25 9.00 358,166 399,712 Federal Home Loan Mtge Corp #C80329 08-01-25 8.00 62,965 69,851 Federal Home Loan Mtge Corp #E00398 10-01-10 7.00 129,553 133,878 Federal Home Loan Mtge Corp #E81240 06-01-15 7.50 2,552,496 2,713,846 Federal Home Loan Mtge Corp #E90650 07-01-12 5.50 85,064 87,423 Federal Home Loan Mtge Corp #E92454 11-01-17 5.00 2,184,774 2,278,899 Federal Home Loan Mtge Corp #G00363 06-01-25 8.00 262,684 291,412 Federal Home Loan Mtge Corp #G00501 05-01-26 9.00 470,374 525,824 Federal Home Loan Mtge Corp #G04699 09-01-38 5.00 678,733 695,062 Federal Home Loan Mtge Corp #G04710 09-01-38 6.00 1,784,488 1,868,482 Federal Home Loan Mtge Corp #G04723 03-01-38 5.00 91,275 93,476 Federal Home Loan Mtge Corp #G05198 12-01-37 5.00 917,497 940,052 Federal Home Loan Mtge Corp #G05290 02-01-39 5.00 1,264,854 1,295,284 Federal Home Loan Mtge Corp #G05306 12-01-38 5.00 31,074 31,821 Federal Home Loan Mtge Corp #G08307 11-01-38 5.00 1,886,530 1,931,916 Federal Home Loan Mtge Corp #G10669 03-01-12 7.50 812,132 859,829 Federal Home Loan Mtge Corp #G11243 04-01-17 6.50 10,078,382 10,673,700 Federal Home Loan Mtge Corp #G12100 11-01-13 5.00 2,237,036 2,295,490 Federal Home Loan Mtge Corp #M30074 09-01-09 6.50 3,132 3,143 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 11 Cl B 01-01-20 7.58 6,376(j) 1,470 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2471 Cl SI 03-15-32 52.06 1,184,043(j) 116,610 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2783 Cl MI 03-15-25 307.69 415,971(j) 108 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2617 Cl HD 06-15-16 7.00 4,484,335 4,732,992 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 3346 Cl FA 02-15-19 0.57 7,691,874(l) 7,582,934
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn 06-01-24 5.50% $475,000(b) $495,633 06-01-39 4.50 25,225,000(b) 25,414,187 Federal Natl Mtge Assn #125032 11-01-21 8.00 105,728 117,305 Federal Natl Mtge Assn #190129 11-01-23 6.00 804,329 848,133 Federal Natl Mtge Assn #190353 08-01-34 5.00 5,924,836 6,084,128 Federal Natl Mtge Assn #190988 06-01-24 9.00 178,540 195,906 Federal Natl Mtge Assn #254384 06-01-17 7.00 246,334 262,421 Federal Natl Mtge Assn #254454 08-01-17 7.00 459,380 489,379 Federal Natl Mtge Assn #254723 05-01-23 5.50 7,296,383 7,593,505 Federal Natl Mtge Assn #254757 05-01-13 5.00 4,875,017 5,070,969 Federal Natl Mtge Assn #255501 09-01-14 6.00 495,141 517,563 Federal Natl Mtge Assn #303885 05-01-26 7.50 395,348 436,252 Federal Natl Mtge Assn #313007 07-01-11 7.50 84,491 87,814 Federal Natl Mtge Assn #336512 02-01-26 6.00 43,385 45,816 Federal Natl Mtge Assn #357485 02-01-34 5.50 10,804,551 11,218,725 Federal Natl Mtge Assn #407327 01-01-14 5.50 276,608 291,032 Federal Natl Mtge Assn #456374 12-01-13 5.50 501,560 527,714 Federal Natl Mtge Assn #508402 08-01-14 6.50 220,317 233,520 Federal Natl Mtge Assn #545818 07-01-17 6.00 10,126,036 10,690,737 Federal Natl Mtge Assn #545864 08-01-17 5.50 8,611,000 9,056,461 Federal Natl Mtge Assn #545910 08-01-17 6.00 1,575,077 1,661,789 Federal Natl Mtge Assn #555063 11-01-17 5.50 6,325,348 6,655,454 Federal Natl Mtge Assn #555367 03-01-33 6.00 7,889,568 8,337,464 Federal Natl Mtge Assn #579485 04-01-31 6.50 2,021,663(q) 2,186,861 Federal Natl Mtge Assn #593829 12-01-28 7.00 1,349,555 1,478,047 Federal Natl Mtge Assn #601416 11-01-31 6.50 749,741 813,174 Federal Natl Mtge Assn #630993 09-01-31 7.50 2,064,121 2,279,529 Federal Natl Mtge Assn #648040 06-01-32 6.50 2,039,875 2,197,583 Federal Natl Mtge Assn #648349 06-01-17 6.00 5,611,149 5,925,164 Federal Natl Mtge Assn #651284 07-01-17 6.00 1,099,903 1,161,956 Federal Natl Mtge Assn #662866 11-01-17 6.00 1,009,492 1,070,407 Federal Natl Mtge Assn #665752 09-01-32 6.50 1,125,872 1,212,917 Federal Natl Mtge Assn #670782 11-01-12 5.00 193,702 201,367 Federal Natl Mtge Assn #670830 12-01-12 5.00 243,703 250,100 Federal Natl Mtge Assn #671415 01-01-10 5.00 137,036 138,523 Federal Natl Mtge Assn #678940 02-01-18 5.50 1,721,771 1,811,824 Federal Natl Mtge Assn #686227 02-01-18 5.50 2,310,129 2,430,921 Federal Natl Mtge Assn #696837 04-01-18 5.50 2,501,023 2,631,713 Federal Natl Mtge Assn #704610 06-01-33 5.50 9,256,205(q) 9,611,025 Federal Natl Mtge Assn #712602 06-01-13 5.00 585,408 608,939 Federal Natl Mtge Assn #722325 07-01-33 4.96 4,419,062(m) 4,561,965 Federal Natl Mtge Assn #725232 03-01-34 5.00 8,732,366 8,975,325 Federal Natl Mtge Assn #725425 04-01-34 5.50 7,904,430 8,203,004
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 19 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #725431 08-01-15 5.50% $5,408,796 $5,690,834 Federal Natl Mtge Assn #725773 09-01-34 5.50 6,712,159 6,965,263 Federal Natl Mtge Assn #730632 08-01-33 4.01 1,296,527(m) 1,328,664 Federal Natl Mtge Assn #735212 12-01-34 5.00 5,284,101 5,426,166 Federal Natl Mtge Assn #735578 06-01-35 5.00 3,967,190 4,071,370 Federal Natl Mtge Assn #739243 09-01-33 6.00 2,580,615 2,750,639 Federal Natl Mtge Assn #739331 09-01-33 6.00 1,347,318 1,422,123 Federal Natl Mtge Assn #743524 11-01-33 5.00 2,709,728 2,785,120 Federal Natl Mtge Assn #745275 02-01-36 5.00 919,886 944,043 Federal Natl Mtge Assn #753508 11-01-33 5.00 2,769,842 2,846,907 Federal Natl Mtge Assn #791447 10-01-34 6.00 3,978,422 4,191,848 Federal Natl Mtge Assn #797046 07-01-34 5.50 2,669,459 2,770,119 Federal Natl Mtge Assn #799769 11-01-34 5.04 3,066,498(m) 3,174,531 Federal Natl Mtge Assn #801344 10-01-34 5.08 3,149,346(m) 3,239,921 Federal Natl Mtge Assn #815463 02-01-35 5.50 1,737,096 1,802,599 Federal Natl Mtge Assn #832641 09-01-35 6.00 5,866,125 6,158,820 Federal Natl Mtge Assn #849082 01-01-36 5.83 2,545,481(m) 2,680,284 Federal Natl Mtge Assn #849170 01-01-36 5.93 2,801,968(m) 2,950,823 Federal Natl Mtge Assn #878661 02-01-36 5.50 7,000,101 7,194,792 Federal Natl Mtge Assn #883267 07-01-36 6.50 3,980,832 4,297,944 Federal Natl Mtge Assn #887403 07-01-36 7.00 2,455,234 2,676,772 Federal Natl Mtge Assn #888989 06-01-37 5.99 4,964,436(m) 5,246,334 Federal Natl Mtge Assn #902818 11-01-36 5.91 1,982,527(m) 2,065,793 Federal Natl Mtge Assn #919341 05-01-37 6.50 2,921,054 3,116,144 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 163 Cl 2 07-25-22 22.15 440,083(j) 72,282 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-18 Cl SE 02-25-32 39.01 2,396,640(j) 285,189 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-26 Cl MI 03-25-23 20.86 1,324,839(j) 131,474 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-63 Cl IP 07-25-33 29.02 3,261,423(j) 339,766 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-71 Cl IM 12-25-31 22.49 1,752,360(j) 148,381 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 36 Cl 2 08-01-18 26.78 3,749(j) 624 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 70 Cl 2 01-15-20 27.28 166,984(j) 33,230
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 20 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn Collateralized Mtge Obligation Principal Only Series G-15 Cl A 06-25-21 2.49% $22,103(k) $20,297 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-W11 Cl A1 06-25-33 5.40 103,627(m) 103,745 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2004-60 Cl PA 04-25-34 5.50 2,859,415 2,970,046 Govt Natl Mtge Assn 06-01-39 4.50 5,000,000(b) 5,043,750 06-01-39 5.50 5,000,000(b) 5,179,725 Govt Natl Mtge Assn #608948 06-15-36 6.00 15,146 15,843 Govt Natl Mtge Assn #615740 08-15-13 6.00 536,542 566,532 Govt Natl Mtge Assn #646487 04-15-36 6.00 65,313 68,318 Govt Natl Mtge Assn #651914 04-15-36 6.00 206,234 215,721 Govt Natl Mtge Assn #657503 07-15-36 6.00 297,959 311,666 Govt Natl Mtge Assn #676516 02-15-38 6.00 32,179 33,649 Govt Natl Mtge Assn #677228 08-15-38 6.00 763,321 798,195 Govt Natl Mtge Assn #677322 09-15-38 6.00 4,484,529 4,689,416 Govt Natl Mtge Assn #677589 12-15-37 6.00 391,977 410,253 Govt Natl Mtge Assn #678095 01-15-39 6.00 237,962 248,834 Govt Natl Mtge Assn #678101 01-15-39 6.00 372,126 389,128 Govt Natl Mtge Assn #680678 01-15-38 6.00 59,461 62,177 Govt Natl Mtge Assn #685300 11-15-38 6.00 99,907 104,471 Govt Natl Mtge Assn #689460 07-15-38 6.00 30,571 31,968 Govt Natl Mtge Assn #695654 10-15-38 6.00 23,657 24,738 Govt Natl Mtge Assn #699277 09-15-38 6.00 23,577 24,655 Govt Natl Mtge Assn #700159 01-15-39 6.00 304,398 318,305 Govt Natl Mtge Assn #700743 10-15-38 6.00 213,079 222,814 Govt Natl Mtge Assn #701589 01-15-39 6.00 378,659 395,958 Govt Natl Mtge Assn #781507 09-15-14 6.00 2,531,716 2,640,536 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-62 Cl IC 03-20-29 8,876.79 395,732(j) 1,191 Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2004-4 Cl 3A 06-19-34 1.08 317,838(m) 141,797 Lehman XS Trust Series 2006-16N Cl A1B 11-25-46 0.43 1,509,715(l) 1,209,748 Morgan Stanley Mtge Loan Trust Series 2006-13AX Cl A1 10-25-36 0.40 1,720,974(l) 1,136,508 Residential Accredit Loans Collateralized Mtge Obligation Series 2002-QS14 Cl A12 09-25-32 5.50 5,609,926 4,603,673 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-14 Cl 2A1 12-25-35 5.50 2,731,470 2,284,832 --------------- Total 353,418,087 - -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 21 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ELECTRIC (0.7%) FirstEnergy Sr Unsecured Series B 11-15-11 6.45% $1,330,000 $1,390,017 NiSource Finance 11-15-10 7.88 3,590,000 3,653,321 --------------- Total 5,043,338 - ------------------------------------------------------------------------------------- GAS PIPELINES (1.2%) CenterPoint Energy Resources Sr Unsecured 02-15-11 7.75 2,120,000 2,203,723 Northern Natural Gas Sr Unsecured 06-01-11 7.00 1,275,000(d) 1,378,610 Transcontinental Gas Pipe Line LLC Sr Unsecured Series B 08-15-11 7.00 4,895,000 5,134,244 --------------- Total 8,716,577 - ------------------------------------------------------------------------------------- INDEPENDENT ENERGY (0.9%) Anadarko Finance Series B 05-01-11 6.75 3,595,000(c) 3,748,446 Devon Financing 09-30-11 6.88 2,060,000(c) 2,233,085 --------------- Total 5,981,531 - ------------------------------------------------------------------------------------- MEDIA CABLE (0.2%) Comcast 03-15-11 5.50 1,440,000 1,510,109 - ------------------------------------------------------------------------------------- RAILROADS (0.2%) CSX Sr Unsecured 03-15-11 6.75 1,065,000 1,114,750 - ------------------------------------------------------------------------------------- WIRELINES (2.0%) AT&T Sr Unsecured 03-15-11 6.25 3,590,000 3,824,316 Telefonica Emisiones SAU 06-20-11 5.98 1,065,000(c) 1,124,736 Telefonica Europe 09-15-10 7.75 1,065,000(c) 1,129,774 TELUS Sr Unsecured 06-01-11 8.00 3,565,000(c) 3,832,699 Verizon Pennsylvania Sr Unsecured Series A 11-15-11 5.65 3,725,000 3,930,847 --------------- Total 13,842,372 - ------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $692,068,548) $687,587,300 - ------------------------------------------------------------------------------------- FDIC-INSURED DEBT (5.0%)(g) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) Bank of America FDIC Govt Guaranty 04-30-12 2.10% $6,455,000(p) $6,502,051 General Electric Capital FDIC Govt Guaranty 03-11-11 1.80 9,635,000 9,744,410 Goldman Sachs Group FDIC Govt Guaranty 07-15-11 1.63 7,750,000(p) 7,801,414 JPMorgan Chase & Co FDIC Govt Guaranty 02-23-11 1.65 2,655,000(p) 2,680,716 Morgan Stanley FDIC Govt Guaranty 02-10-12 1.24 8,300,000 8,340,454 - ------------------------------------------------------------------------------------- TOTAL FDIC-INSURED DEBT (Cost: $34,778,501) $35,069,045 - ------------------------------------------------------------------------------------- GOVERNMENT GUARANTEED (1.1%)(h) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) UK Barclays Bank Govt Guaranty 03-05-12 2.70% $7,440,000(c,d) $7,535,582 - ------------------------------------------------------------------------------------- TOTAL GOVERNMENT GUARANTEED (Cost: $7,433,602) $7,535,582 - -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 22 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
MONEY MARKET FUND (3.6%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 0.27% 25,429,221(n) $25,429,221 - ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $25,429,221) $25,429,221 - ------------------------------------------------------------------------------------- INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN (14.6%) SHARES VALUE(a) CASH COLLATERAL REINVESTMENT FUND JPMorgan Prime Money Market Fund 102,551,624 $102,551,624 - ------------------------------------------------------------------------------------- TOTAL INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN (Cost: $102,551,624) $102,551,624 - ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $862,261,496)(r) $858,172,772 =====================================================================================
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT MAY 31, 2009
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - ------------------------------------------------------------------------------------ U.S. Long Bond, 20-year 13 $1,529,531 Sept. 2009 $4,855 U.S. Treasury Note, 2- year 646 140,060,875 Oct. 2009 (9,128) U.S. Treasury Note, 3- year (70) (15,788,281) July 2009 (6,686) U.S. Treasury Note, 5- year (669) (77,886,238) July 2009 685,159 U.S. Treasury Note, 10- year (139) (16,488,875) June 2009 326,625 U.S. Treasury Note, 10- year (75) (8,775,000) Sept. 2009 (97,396) - ------------------------------------------------------------------------------------ Total $903,429 - ------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using policies described in Note 1 to the financial statements. (b) At May 31, 2009, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $48,991,523. See Note 1 to the financial statements. (c) Foreign security values are stated in U.S. dollars. At May 31, 2009, the value of foreign securities represented 4.3% 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 May 31, 2009, the value of these securities amounted to $19,794,560 or 2.8% of net assets. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 23 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------ NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (e) Inflation-indexed bonds are securities in which the principal amount is adjusted for inflation and the semiannual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (f) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) This debt is guaranteed under the FDIC's Temporary Liquidity Guarantee Program (TLGP) and is backed by the full faith and credit of the United States. (h) This debt is guaranteed by the HM Treasury, United Kingdom. (i) The following abbreviation is used in the portfolio security description to identify the insurer of the issue: MGIC -- Mortgage Guaranty Insurance Corporation
(j) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. The interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at May 31, 2009. (k) Principal only represents securities that entitle holders to receive only principal payments on the underlying mortgages. The yield to maturity of a principal only is sensitive to the rate of principal payments on the underlying mortgage assets. A slow (rapid) rate of principal repayments may have an adverse (positive) effect on yield to maturity. Interest rate disclosed represents yield based upon the estimated timing of future cash flows at May 31, 2009. (l) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on May 31, 2009. (m) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on May 31, 2009. (n) Affiliated Money Market Fund -- See Note 7 to the financial statements. The rate shown is the seven-day current annualized yield at May 31, 2009. - -------------------------------------------------------------------------------- 24 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (o) Represents comparable securities held to satisfy future delivery requirements of the following open forward sale commitments at May 31, 2009:
PRINCIPAL SETTLEMENT PROCEEDS SECURITY AMOUNT DATE RECEIVABLE VALUE ----------------------------------------------------------------------------- Federal Natl Mtge Assn 05-01-39 6.00% $4,000,000 06-11-09 $4,175,000 $4,187,500 06-01-39 5.00 10,000,000 06-11-09 10,137,890 10,237,500
(p) At May 31, 2009, security was partially or fully on loan. See Note 6 to the financial statements. (q) At May 31, 2009, investments in securities included securities valued at $774,454 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (r) At May 31, 2009, the cost of securities for federal income tax purposes was $871,890,260 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $15,870,846 Unrealized depreciation (29,588,334) ----------------------------------------------------------- Net unrealized depreciation $(13,717,488) -----------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 25 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------ FAIR VALUE MEASUREMENTS Statement of Financial Accounting Standards No. 157 (SFAS 157) requires disclosures relating to the fair valuation of securities for financial statement purposes. 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 May 31, 2009:
FAIR VALUE AT MAY 31, 2009 ------------------------------------------------------------ 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 $239,942,437 $611,921,465 $6,308,870 $858,172,772 Other financial instruments* 903,429 -- -- 903,429 - ------------------------------------------------------------------------------------ Total $240,845,866 $611,921,465 $6,308,870 $859,076,201 - ------------------------------------------------------------------------------------
* Other financial instruments are derivative instruments, such as futures, which are valued at the unrealized appreciation (depreciation) on the instrument. The following table is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
INVESTMENTS IN SECURITIES - --------------------------------------------------------------- Balance as of May 31, 2008 $16,535,423 Accrued discounts/premiums 100,303 Realized gain (loss) (387,893) Change in unrealized appreciation (depreciation)* (363,113) Net purchases (sales) (5,298,292) Transfers in and/or out of Level 3 (4,277,558) - --------------------------------------------------------------- Balance as of May 31, 2009 $6,308,870 - ---------------------------------------------------------------
* Change in unrealized appreciation (depreciation) relating to securities held at May 31, 2009 was $(824,895). - -------------------------------------------------------------------------------- 26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- HOW TO FIND INFORMATION ABOUT THE FUND'S QUARTERLY 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 filed on Form N-Q, can be obtained without charge, upon request, by calling the RiverSource Family of Funds at 1(800) 221-2450. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 27 STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- MAY 31, 2009
ASSETS Investments in securities, at value Unaffiliated issuers* (identified cost $734,280,651) $730,191,927 Affiliated money market fund (identified cost $25,429,221) 25,429,221 Investments of cash collateral received for securities on loan (identified cost $102,551,624) 102,551,624 - -------------------------------------------------------------------------------------- Total investments in securities (identified cost $862,261,496) 858,172,772 Capital shares receivable 752,784 Dividends and accrued interest receivable 3,781,009 Receivable for investment securities sold 87,645,201 - -------------------------------------------------------------------------------------- Total assets 950,351,766 - -------------------------------------------------------------------------------------- LIABILITIES Forward sale commitments, at value (proceeds receivable $14,312,890) 14,425,000 Dividends payable to shareholders 175,365 Capital shares payable 927,045 Payable for investment securities purchased 80,449,998 Payable for securities purchased on a forward-commitment basis 48,991,523 Payable upon return of securities loaned 102,551,624 Variation margin payable on futures contracts 467,305 Accrued investment management services fees 9,213 Accrued distribution fees 134,353 Accrued transfer agency fees 3,282 Accrued administrative services fees 1,316 Accrued plan administration services fees 848 Other accrued expenses 575,682 - -------------------------------------------------------------------------------------- Total liabilities 248,712,554 - -------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $701,639,212 - -------------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 1,514,025 Additional paid-in capital 802,474,911 Undistributed net investment income 430,828 Accumulated net realized gain (loss) (99,483,147) Unrealized appreciation (depreciation) on investments (3,297,405) - -------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $701,639,212 - -------------------------------------------------------------------------------------- *Including securities on loan, at value $132,128,881 - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 28 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $529,368,837 114,236,678 $4.63(1) Class B $113,216,242 24,431,558 $4.63 Class C $ 12,866,781 2,776,585 $4.63 Class I $ 41,851,347 9,022,598 $4.64 Class R4 $ 4,331,129 934,061 $4.64 Class W $ 4,876 1,053 $4.63 - -----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $4.77. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 3.00%. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 29 STATEMENT OF OPERATIONS -------------------------------------------------------- YEAR ENDED MAY 31, 2009
INVESTMENT INCOME Income: Interest $ 29,489,899 Income distributions from affiliated money market fund 64,532 Fee income from securities lending 259,895 Less foreign taxes withheld (2,823) - -------------------------------------------------------------------------- Total income 29,811,503 - -------------------------------------------------------------------------- Expenses: Investment management services fees 3,665,529 Distribution fees Class A 1,393,600 Class B 1,284,921 Class C 111,382 Class W 11 Transfer agency fees Class A 979,619 Class B 240,149 Class C 20,239 Class R4 2,188 Class W 10 Administrative services fees 521,265 Plan administration services fees -- Class R4 10,939 Compensation of board members 22,801 Custodian fees 73,685 Printing and postage 107,869 Registration fees 95,951 Professional fees 53,153 Other 31,755 - -------------------------------------------------------------------------- Total expenses 8,615,066 Expenses waived/reimbursed by the Investment Manager and its affiliates (987,699) Earnings and bank fee credits on cash balances (8,100) - -------------------------------------------------------------------------- Total net expenses 7,619,267 - -------------------------------------------------------------------------- Investment income (loss) -- net 22,192,236 - -------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (16,858,870) Futures contracts (7,152,235) - -------------------------------------------------------------------------- Net realized gain (loss) on investments (24,011,105) Net change in unrealized appreciation (depreciation) on investments 4,441,905 - -------------------------------------------------------------------------- Net gain (loss) on investments (19,569,200) - -------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 2,623,036 - --------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 30 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
YEAR ENDED MAY 31, 2009 2008 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 22,192,236 $ 29,999,961 Net realized gain (loss) on investments (24,011,105) 1,099,985 Net change in unrealized appreciation (depreciation) on investments 4,441,905 (800,569) - ------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 2,623,036 30,299,377 - ------------------------------------------------------------------------------------------ Distributions to shareholders from: Net investment income Class A (16,331,022) (21,333,414) Class B (2,826,872) (5,699,109) Class C (237,025) (312,941) Class I (2,172,593) (2,868,438) Class R4 (134,786) (183,760) Class W (139) (196) - ------------------------------------------------------------------------------------------ Total distributions (21,702,437) (30,397,858) - ------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 246,924,684 206,496,511 Class B shares 33,777,836 42,734,598 Class C shares 7,040,083 2,621,382 Class I shares 13,901,496 69,048,377 Class R4 shares 2,274,007 2,801,130 Reinvestment of distributions at net asset value Class A shares 14,899,763 19,605,781 Class B shares 2,659,409 5,406,615 Class C shares 215,459 299,079 Class I shares 2,176,497 2,844,139 Class R4 shares 134,521 185,296 Payments for redemptions Class A shares (258,638,948) (200,741,788) Class B shares (78,504,697) (105,920,795) Class C shares (3,812,662) (3,568,542) Class I shares (64,443,360) (33,540,963) Class R4 shares (2,725,737) (2,086,457) - ------------------------------------------------------------------------------------------ Increase (decrease) in net assets from capital share transactions (84,121,649) 6,184,363 - ------------------------------------------------------------------------------------------ Total increase (decrease) in net assets (103,201,050) 6,085,882 Net assets at beginning of year 804,840,262 798,754,380 - ------------------------------------------------------------------------------------------ Net assets at end of year $ 701,639,212 $ 804,840,262 - ------------------------------------------------------------------------------------------ Undistributed (excess of distributions over) net investment income $ 430,828 $ (195,666) - ------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 31 FINANCIAL HIGHLIGHTS ---------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14(b) .19(b) .19 .15 .12 Net gains (losses) (both realized and unrealized) (.11) .01 .05 (.10) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .20 .24 .05 .09 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.19) (.19) (.16) (.12) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.63 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $529 $539 $514 $641 $894 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.02% 1.04% 1.03% 1.06% 1.01% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .89% .89% .89% .89% .93% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.00% 3.93% 3.99% 3.27% 2.49% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return(h) .59% 4.27% 5.12% 1.00% 1.92% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.88% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 32 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .15(b) .15 .12 .08 Net gains (losses) (both realized and unrealized) (.11) .01 .05 (.11) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.01) .16 .20 .01 .05 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.15) (.15) (.12) (.08) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.63 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $113 $159 $216 $338 $588 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.78% 1.80% 1.79% 1.82% 1.76% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.68% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.26% 3.18% 3.23% 2.50% 1.73% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return(h) (.18%) 3.48% 4.34% .26% 1.16% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.64% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 33 FINANCIAL HIGHLIGHTS (continued) ---------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .15(b) .15 .12 .08 Net gains (losses) (both realized and unrealized) (.11) .02 .05 (.11) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.01) .17 .20 .01 .05 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.16) (.15) (.12) (.08) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.63 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $13 $10 $10 $15 $24 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.78% 1.80% 1.80% 1.83% 1.77% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.68% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.21% 3.18% 3.24% 2.51% 1.73% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return(h) (.17%) 3.49% 4.34% .26% 1.16% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.64% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 34 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.74 $4.69 $4.79 $4.83 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .16(b) .20(b) .20 .17 .14 Net gains (losses) (both realized and unrealized) (.11) .01 .05 (.10) (.04) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .05 .21 .25 .07 .10 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.21) (.20) (.17) (.14) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.64 $4.74 $4.74 $4.69 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $42 $93 $55 $62 $31 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .60% .60% .59% .62% .57% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .51% .51% .54% .58% .57% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.49% 4.23% 4.37% 3.66% 2.98% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return 1.18% 4.45% 5.50% 1.56% 2.06% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.50% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 35 FINANCIAL HIGHLIGHTS (continued) ---------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(b) .19(b) .19 .16 .13 Net gains (losses) (both realized and unrealized) (.11) .02 .05 (.11) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .04 .21 .24 .05 .10 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.20) (.19) (.16) (.13) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.64 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $5 $4 $19 $100 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .90% .90% .86% .88% .84% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .76% .76% .72% .72% .76% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.15% 4.06% 4.09% 3.27% 2.66% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 271% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return .93% 4.41% 5.31% 1.19% 2.10% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2009 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.75% for the year ended May 31, 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 36 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007(B) Net asset value, beginning of period $4.74 $4.73 $4.75 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14(c) .18(c) .08 Net gains (losses) (both realized and unrealized) (.12) .02 (.02) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .02 .20 .06 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.13) (.19) (.08) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.63 $4.74 $4.73 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.04% 1.06% 1.00%(f) - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .96% .95% .95%(f) - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.95% 3.87% 4.02%(f) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(i) 271% 209% 168% - -------------------------------------------------------------------------------------------------------------- Total return .52% 4.21% 1.42%(j) - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to May 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) 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). (h) 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 years ended May 31, 2009 and 2008. (i) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 199% for the year ended May 31, 2009. (j) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Short Duration U.S. Government Fund (the Fund) is a series of RiverSource Government Income Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Government Income 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 in direct obligations of the U.S. government, such as Treasury bonds, bills and notes, and of its agencies and instrumentalities. 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. However, Class B shares are closed to new investors and new purchases. - - 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 May 31, 2009, 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. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - -------------------------------------------------------------------------------- 38 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- VALUATION OF SECURITIES Effective June 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. 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 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. 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. Investments in money market funds are valued at net asset value. SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward- commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward- - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- commitments. At May 31, 2009, the Fund has outstanding when-issued securities of $48,991,523. The Fund also enters into transactions to sell purchase commitments to third parties at current market values and concurrently acquires other purchase commitments for similar securities at later dates. As an inducement for the Fund to "roll over" its purchase commitments, the Fund receives negotiated amounts in the form of reductions of the purchase price of the commitment. The Fund records the incremental difference between the forward purchase and sale of each forward roll as realized gain or loss. Losses may arise due to changes in the value of the securities or if a counterparty does not perform under the terms of the agreement. If a counterparty files for bankruptcy or becomes insolvent, the Fund's right to repurchase or sell securities may be limited. FORWARD SALE COMMITMENTS The Fund may enter into forward sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of forward sale commitments are not received until the contractual settlement date. During the time a forward sale commitment is outstanding, equivalent deliverable securities, or an offsetting forward purchase commitment deliverable on or before the sale commitment date, are used to satisfy the commitment. Unsettled forward sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Valuation of securities" above. The forward sale commitment is "marked-to- market" daily and the change in market value is recorded by the Fund as an unrealized gain or loss. If the forward sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss. If the Fund delivers securities under the commitment, the Fund realizes a gain or a loss from the sale of the securities based upon the market price established at the date the commitment was entered into. Forward sale commitments outstanding at period end are listed in the Notes to Portfolio of Investments. 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. - -------------------------------------------------------------------------------- 40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- 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. 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 and options contracts, recognition of unrealized appreciation (depreciation) for certain derivative investments, post-October losses and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. In the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $136,695 and accumulated net realized loss has been decreased by $117,395,747 resulting in a net reclassification adjustment to decrease paid-in capital by $117,532,442. The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED MAY 31, 2009 2008 -------------------------- -------------------------- ORDINARY LONG-TERM ORDINARY LONG-TERM INCOME CAPITAL GAIN INCOME CAPITAL GAIN - -------------------------------------------------------------------------------- Class A $16,331,022 $-- $21,333,414 $-- Class B 2,826,872 -- 5,699,109 -- Class C 237,025 -- 312,941 -- Class I 2,172,593 -- 2,868,438 -- Class R4 134,786 -- 183,760 -- Class W 139 -- 196 --
- -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- At May 31, 2009, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.................. $ 821,385 Undistributed accumulated long-term gain....... $ -- Accumulated realized loss...................... $(88,365,852) Unrealized appreciation (depreciation)......... $(14,629,892)
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 enhanced disclosures about a fund's derivatives 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 May 31, 2009, the Fund did not own nor was it a party to any credit derivative contracts within the scope of these amendments. The Fund has adopted Statement of Financial Accounting Standards No. 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. See Investments in Derivatives below for more information. On April 9, 2009, the FASB issued Staff Position No. 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP 157-4). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also requires additional disaggregation of the current SFAS 157 required disclosures. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Management is currently evaluating the impact that the adoption of FSP 157-4 will have on the amounts and disclosures within the Fund's financial statements. - -------------------------------------------------------------------------------- 42 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and payable monthly, 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, if any, 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. INVESTMENTS IN DERIVATIVES The Fund may invest in certain derivative instruments which are transactions whose values depend on or are derived from (in whole or in part) the value of one or more other assets, such as securities, currencies, commodities or indices. Such derivative instruments may be used to maintain cash reserves while maintaining exposure to certain other assets, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, and to pursue higher investment returns. The Fund may also use derivative instruments to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk, and credit risk. FUTURES TRANSACTIONS The Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange to produce incremental earnings, hedge existing positions or protect against market changes in the value of equities, interest rates or foreign currencies. The Fund may also buy and write put and call options on these futures contracts. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. 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. Upon entering into futures contracts, the Fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the Fund - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 43 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- may not achieve the anticipated benefits of the futures contracts and may realize a loss. Additional risks include counterparty credit risk, 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. The gross notional amount of long and short futures contracts were $142 million and $119 million, respectively, at May 31, 2009. The monthly average gross notional amounts for long and short contracts were $162 million and $144 million, respectively, for the year ended May 31, 2009. EFFECTS OF DERIVATIVE TRANSACTIONS ON THE FINANCIAL STATEMENTS The following tables are intended to provide additional information about the effect of derivatives on the financial statements of the Fund, including: 1) the fair value of derivatives by risk category and the location of those fair values in the Statement of Assets and Liabilities and 2) the impact of derivatives transactions on the Fund's operations over the period including realized gains or losses and unrealized gains or losses. The derivative schedules following the Portfolio of Investments present additional information regarding derivative instruments outstanding at the end of the period, if any. FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF MAY 31, 2009
ASSET DERIVATIVES LIABILITY DERIVATIVES -------------------------------- -------------------------------- STATEMENT OF ASSETS STATEMENT OF ASSETS RISK EXPOSURE AND LIABILITIES AND LIABILITIES CATEGORY LOCATION FAIR VALUE LOCATION FAIR VALUE - ---------------------------------------------------------------------------------------- Net Net Interest rate Assets--Unrealized Assets--Unrealized contracts appreciation $1,016,639* depreciation $113,210* - ---------------------------------------------------------------------------------------- TOTAL $1,016,639 $113,210 - ----------------------------------------------------------------------------------------
* Includes cumulative appreciation (depreciation) of futures contracts as reported in the Futures Contracts Outstanding table following the Portfolio of Investments. Only the current day's variation margin of futures contracts is reported in receivables or payables in the Statement of Assets and Liabilities. EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2009
AMOUNT OF REALIZED GAIN OR (LOSS) ON DERIVATIVES RECOGNIZED IN INCOME - -------------------------------------------- RISK EXPOSURE CATEGORY FUTURES - -------------------------------------------- Interest rate contracts $(7,152,235) - -------------------------------------------- TOTAL $(7,152,235) - --------------------------------------------
- -------------------------------------------------------------------------------- 44 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION OR (DEPRECIATION) ON DERIVATIVES RECOGNIZED IN INCOME - -------------------------------------------- RISK EXPOSURE CATEGORY FUTURES - -------------------------------------------- Interest rate contracts $(1,578,737) - -------------------------------------------- TOTAL $(1,578,737) - --------------------------------------------
3. 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 equal to a percentage of the Fund's average daily net assets that declines from 0.48% to 0.25% annually as the Fund's net assets increase. The management fee for the year ended May 31, 2009 was 0.48% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, a fee for administration and accounting services equal to a percentage of the Fund's average daily net assets that declines from 0.07% to 0.04% annually as the Fund's net assets increase. The fee for the year ended May 31, 2009 was 0.07% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended May 31, 2009, other expenses paid to this company were $4,802. 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 funds in the RiverSource Family of 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. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 45 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- 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 $20.50 for Class A, $21.50 for Class B and $21.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R4 shares and an annual asset- based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees in 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, of the 1.00% fee, up to 0.75% is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed (unreimbursed expense) was approximately $4,253,000 and $121,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of April 30, 2009, 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 $431,785 for Class A, $93,928 for Class B and $4,452 for Class C for the year ended May 31, 2009. - -------------------------------------------------------------------------------- 46 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended May 31, 2009, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A ............................................ 0.89% Class B ............................................ 1.65 Class C ............................................ 1.65 Class I ............................................ 0.51 Class R4 ........................................... 0.76 Class W ............................................ 0.96
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A ......................................... $251,512 Class B ......................................... 57,978 Class C ......................................... 5,025 Class R4 ........................................ 2,170
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R4 .......................................... $106
The management fees waived/reimbursed at the Fund level were $670,908. Under an agreement which was effective until May 31, 2009, the Investment Manager and its affiliates contractually agreed to waive certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*), would not exceed the following percentage of the class average daily net assets: Class A ............................................ 0.89% Class B ............................................ 1.65 Class C ............................................ 1.65 Class I ............................................ 0.51 Class R4 ........................................... 0.76 Class W ............................................ 0.96
Effective June 1, 2009, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until July 31, 2010, unless sooner terminated at the discretion of the Board, such that net expenses - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 47 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- (excluding fees and expenses of acquired funds*), will not exceed the following percentage of the class average daily net assets: Class A ............................................ 0.86% Class B ............................................ 1.62 Class C ............................................ 1.62 Class I ............................................ 0.48 Class R4 ........................................... 0.78 Class W ............................................ 0.93
* 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. BANK FEE CREDITS During the year ended May 31, 2009, the Fund's transfer agency fees were reduced by $8,100 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. For the period from June 1, 2008 to Dec. 15, 2008, the Fund paid custodian fees amounting to $63,466 to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 4. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations, but including mortgage dollar rolls) aggregated $1,843,940,420 and $1,785,408,253, respectively, for the year ended May 31, 2009. Realized gains and losses are determined on an identified cost basis. - -------------------------------------------------------------------------------- 48 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- 5. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
YEAR ENDED MAY 31, 2009 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------- Class A 53,272,239 3,226,458 (56,089,954) 408,743 Class B 7,298,534 575,044 (16,904,640) (9,031,062) Class C 1,525,411 46,643 (827,332) 744,722 Class I 2,986,449 469,925 (13,974,458) (10,518,084) Class R4 491,850 29,090 (590,144) (69,204) - ---------------------------------------------------------------------------------- YEAR ENDED MAY 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------- Class A 43,400,136 4,118,107 (42,186,985) 5,331,258 Class B 8,957,341 1,135,754 (22,307,379) (12,214,284) Class C 549,369 62,833 (750,024) (137,822) Class I 14,458,872 596,542 (7,078,714) 7,976,700 Class R4 587,072 38,907 (437,399) 188,580 - ----------------------------------------------------------------------------------
6. LENDING OF PORTFOLIO SECURITIES Effective Dec. 1, 2008, the Fund has entered into a Master Securities Lending Agreement (the Agreement) with JPMorgan Chase Bank, National Association (JPMorgan). The Agreement authorizes JPMorgan as lending agent to lend securities to authorized borrowers in order to generate additional income on behalf of the Fund. Pursuant to the Agreement, the securities loaned are secured by cash or U.S. government securities equal to at least 100% of the market value of the loaned securities. Any additional collateral required to maintain those levels due to market fluctuations of the loaned securities is delivered the following business day. Cash collateral received is invested by the lending agent on behalf of the Fund into authorized investments pursuant to the Agreement. The investments made with the cash collateral are listed in the Portfolio of Investments. The values of such investments and any uninvested cash collateral balance are disclosed in the Statement of Assets and Liabilities along with the related obligation to return the collateral upon the return of the securities loaned. At May 31, 2009, securities valued at $132,128,881 were on loan, secured by U.S. government securities valued at $31,834,802 and by cash collateral of $102,551,624 invested in short-term securities or in cash equivalents. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 49 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- Pursuant to the Agreement, the Fund receives income for lending its securities either in the form of fees or by earning interest on invested cash collateral, net of negotiated rebates paid to borrowers and fees paid to the lending agent for services provided and any other securities lending expenses. Income of $241,833 earned from securities lending from Dec. 1, 2008 through May 31, 2009 is included in the Statement of Operations. The Fund also continues to earn interest and dividends on the securities loaned. Risks of delay in recovery of securities or even loss of rights in the securities may occur should the borrower of the securities fail financially. Risks may also arise to the extent that the value of the securities loaned increases above the value of the collateral received. JPMorgan will indemnify the Fund from losses resulting from a borrower's failure to return a loaned security when due. Such indemnification does not extend to losses associated with declines in the value of cash collateral investments. Loans are subject to termination by the Fund or the borrower at any time, and are, therefore, not considered to be illiquid investments. Prior to Dec. 1, 2008, the Investment Manager served as securities lending agent for the Fund under the Securities Lending Agency Agreement pursuant to which the Fund agreed to reimburse the Investment Manager for expenses incurred by it in connection with the lending program. Expenses paid to the Investment Manager as securities lending agent were $2,629 through Nov. 30, 2008 and are included in other expenses in the Statement of Operations. Cash collateral received on loaned securities had been invested in an affiliated money market fund. Income of $18,062 earned from securities lending from June 1, 2008 through Nov. 30, 2008 is included in the Statement of Operations. 7. 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 funds in the RiverSource Family of Funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of RiverSource Short-Term Cash Fund aggregated $455,393,792 and $442,866,545, respectively, for the year ended May 31, 2009. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found in the Statement of Operations and the Fund's invested balance in RiverSource Short-Term Cash Fund at May 31, 2009, can be found in the Portfolio of Investments. - -------------------------------------------------------------------------------- 50 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- 8. 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 funds in the RiverSource Family of Funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the year ended May 31, 2009. 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. 9. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, the Fund had a capital loss carry-over of $70,163,196 at May 31, 2009, that if not offset by capital gains will expire as follows:
2013 2014 2015 2017 $36,267,962 $20,469,230 $9,579,187 $3,846,817
- -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 51 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- Because the measurement periods for a regulated investment company's income are different for excise tax purposes versus income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the Fund is permitted to treat net capital losses realized between Nov. 1, 2008 and its fiscal year end (post-October loss) as occurring on the first day of the following tax year. At May 31, 2009, the Fund had a post-October loss of $18,202,656 that is treated for income tax purposes as occurring on June 1, 2009. For the year ended May 31, 2009, $117,356,906 of capital loss carry-over expired unused. 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. 10. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company (now known as RiverSource) 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 (the District Court). In response to defendants' motion to dismiss the complaint, the District 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 (the Eighth Circuit) on August 8, 2007. On April 8, 2009, the Eighth Circuit reversed summary judgment and remanded to the District Court for further proceedings. 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 - -------------------------------------------------------------------------------- 52 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- 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 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc. (which is now known as RiverSource Fund Distributors, Inc.), Seligman Data Corp. and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that the Seligman Parties permitted various persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies then managed by Seligman was and had been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. On March 13, 2009, without admitting or denying any violations of law or wrongdoing, the Seligman Parties entered into a stipulation of settlement with the NYAG and settled the claims made by the NYAG. Under the terms of the settlement, Seligman paid $11.3 million to four Seligman Funds. This settlement resolved all outstanding matters between the Seligman Parties and the NYAG. In addition to the foregoing matter, the New York staff of the SEC indicated in September 2005 that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and Seligman Advisors, Inc. relating to frequent trading - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 53 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- 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. There have been no further developments with the SEC on this matter. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. - -------------------------------------------------------------------------------- 54 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of RiverSource Short Duration U.S. Government Fund (the Fund) (one of the portfolios constituting the RiverSource Government Income Series, Inc.) as of May 31, 2009, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the periods presented through May 31, 2007, were audited by other auditors whose report dated July 20, 2007, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2009, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 55 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) ----------- In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of RiverSource Short Duration U.S. Government Fund of the RiverSource Government Income Series, Inc. at May 31, 2009, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota July 21, 2009 - -------------------------------------------------------------------------------- 56 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT PORTFOLIO OF INVESTMENTS ------------------------------------------------------ MAY 31, 2009 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (119.1%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ASSET-BACKED (5.8%) Asset Backed Securities Corp Home Equity Series 2005-HE2 Cl M1 02-25-35 0.76% $1,225,764(h) $966,407 Credit-Based Asset Servicing and Securitization LLC Series 2006-RP2 Cl A1 07-25-36 0.46 309,698(d,h) 287,973 Deutsche Mtge Securities Collateralized Mtge Obligation Series 2009-RS2 Cl 4A1 04-25-37 0.44 1,795,000(d,g) 1,543,700 First Franklin Mtge Loan Asset Backed Ctfs Series 2005-FF2 Cl A2C 03-25-35 0.62 357,051(h) 328,397 First Franklin Mtge Loan Asset-backed Ctfs Series 2005-FFH3 Cl 2A3 09-25-35 0.72 581,706(h) 531,941 First Franklin Mtge Loan Asset-backed Ctfs Series 2006-FF18 Cl A2A 12-25-37 0.38 745,285(h) 698,808 GSAMP Trust Series 2006-HE8 Cl A2A 01-25-37 0.38 2,111,328(h) 1,875,413 JPMorgan Mtge Acquisition Corp Series 2006-HE2 Cl A3 07-25-36 0.53 1,616,800(h) 1,395,362 JPMorgan Mtge Acquisition Corp Series 2006-RM1 Cl A2 08-25-36 0.39 341,327(h) 294,327 JPMorgan Mtge Acquisition Corp Series 2006-WMC3 Cl A2 08-25-36 0.36 64,154(h) 61,325 Long Beach Mtge Loan Trust Series 2006-4 Cl 2A2 05-25-36 0.41 788,257(h) 745,775 MASTR Asset Backed Securities Trust Series 2005-FRE1 Cl A4 10-25-35 0.56 613,947(h) 528,131 NovaStar Home Equity Loan Series 2006-4 Cl A2A (MGIC) 09-25-36 0.35 1,078,828(h,n) 1,022,417 Novistar Home Equity Loan Series 2007-2 Cl A2A 09-25-37 0.40 1,552,906(h) 1,285,690 RAAC Series Series 2006-SP4 Cl A1 11-25-36 0.41 1,554,217(h) 1,321,625 Renaissance Home Equity Loan Trust Series 2006-4 Cl AF1 01-25-37 5.55 132,416 127,736 Renaissance Home Equity Loan Trust Series 2007-2 Cl M4 06-25-37 6.31 195,000(k) 9,066 Renaissance Home Equity Loan Trust Series 2007-2 Cl M5 06-25-37 6.66 130,000(k) 5,301 Renaissance Home Equity Loan Trust Series 2007-2 Cl M6 06-25-37 7.01 190,000(k) 6,581 Residential Asset Mtge Products Series 2006-EFC1 Cl A2 02-25-36 0.51 537,998(h) 428,991 Residential Asset Securities Series 2007-KS3 Cl AI2 04-25-37 0.49 1,700,000(h) 914,001 Resmae Mtge Loan Trust Series 2006-1 Cl A2A 02-25-36 0.41 155,118(d,h) 152,350 Soundview Home Equity Loan Trust Series 2008-1 Cl A1 (FSA) 02-25-38 1.81 1,376,499(d,h,n) 982,944 Structured Asset Investment Loan Trust Series 2005-9 Cl A5 11-25-35 0.54 1,738,813(h) 1,480,598
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 16 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ASSET-BACKED (CONT.) Structured Asset Securities Corp Collateralized Mtge Obligation Series 2006-NC1 Cl A6 05-25-36 0.36% $465,515(g) $431,898 Structured Asset Securities Corp Series 2007-BC1 Cl A2 02-25-37 0.36 1,985,383(h) 1,793,962 --------------- Total 19,220,719 - ------------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED (3.7%)(f) Citigroup/Deutsche Bank Commercial Mtge Trust Series 2007-CD4 Cl A2B 12-11-49 5.21 3,000,000 2,782,149 Crown Castle Towers LLC Series 2005-1A Cl AFX 06-15-35 4.64 3,450,000(d) 3,363,750 Federal Home Loan Mtge Corp Multifamily Structured Pass-Through Ctfs Series K001 Cl A2 04-25-16 5.65 1,816,232 1,978,088 GS Mtge Securities II Series 2007-EOP Cl J 03-06-20 1.26 1,000,000(d,h) 640,382 LB-UBS Commercial Mtge Trust Series 2004-C6 Cl A6 08-15-29 5.02 2,000,000 1,713,264 Wachovia Bank Commercial Mtge Trust Series 2003-C7 Cl A2 10-15-35 5.08 2,000,000(d) 1,868,364 --------------- Total 12,345,997 - ------------------------------------------------------------------------------------- MORTGAGE-BACKED (107.4%)(f,m) American Home Mtge Assets Collateralized Mtge Obligation Series 2007-2 Cl A2A 03-25-47 0.47 1,167,530(g) 277,464 American Home Mtge Investment Trust Collateralized Mtge Obligation Series 2007-1 Cl GA1C 05-25-47 0.50 1,740,999(g) 677,608 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11 Cl 1A1 01-25-34 6.00 487,048 438,689 Banc of America Funding Collateralized Mtge Obligation Series 2007-8 Cl 1A1 10-25-37 6.00 904,976 485,859 ChaseFlex Trust Collateralized Mtge Obligation Series 2005-2 Cl 2A2 06-25-35 6.50 501,901 434,301 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Interest Only Series 2007-8CB Cl A13 05-25-37 24.86 1,625,925(j) 212,538 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2003-20CB Cl 1A1 10-25-33 5.50 4,347,854 3,484,737 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-50CB Cl 2A1 11-25-35 6.00 860,378 484,937 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04-25-35 7.50 315,654 204,610 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-45T1 Cl 2A5 02-25-37 6.00 473,741 249,602 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-25 Cl 1A1 11-25-37 6.50 859,937 476,761 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OA9 Cl A2 06-25-47 0.66 1,190,054(h) 292,825 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09-25-47 0.81 1,753,979(h) 185,940
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Countrywide Home Loans Collateralized Mtge Obligation Series 2005-R2 Cl 2A1 06-25-35 7.00% $410,865(d) $327,408 Countrywide Home Loans Collateralized Mtge Obligation Series 2006-HYB1 Cl 1A1 03-20-36 5.32 377,303(g) 177,336 Credit Suisse Mtge Capital Ctfs Collateralized Mtge Obligation Series 2009-2R Cl 1A16 09-26-34 3.69 15,000,000(d,e,g) 1,650,000 Federal Home Loan Mtge Corp #G05058 12-01-38 6.00 3,758,395 3,935,298 Federal Home Loan Mtge Corp 06-01-39 4.50 3,000,000(e) 3,017,814 06-01-39 5.00 8,000,000(e) 8,182,496 06-01-39 5.50 2,500,000(e) 2,582,030 06-01-39 6.00 8,400,000(e) 8,785,879 06-01-39 6.50 1,000,000(e) 1,064,062 Federal Home Loan Mtge Corp #1B7116 08-01-36 5.90 3,548,320(g) 3,705,230 Federal Home Loan Mtge Corp #1J0149 11-01-36 6.09 1,865,539(g) 1,958,325 Federal Home Loan Mtge Corp #1J1621 05-01-37 5.87 2,621,251(g) 2,741,777 Federal Home Loan Mtge Corp #555300 10-01-17 8.00 160,074 170,769 Federal Home Loan Mtge Corp #A10892 07-01-33 6.00 512,747 539,642 Federal Home Loan Mtge Corp #A15111 10-01-33 6.00 716,474 754,604 Federal Home Loan Mtge Corp #A21059 04-01-34 6.50 437,582 468,354 Federal Home Loan Mtge Corp #A25174 08-01-34 6.50 293,967 314,639 Federal Home Loan Mtge Corp #A83607 12-01-38 5.50 6,031,377 6,236,105 Federal Home Loan Mtge Corp #C53098 06-01-31 8.00 233,475 256,358 Federal Home Loan Mtge Corp #C53878 12-01-30 5.50 784,879 815,275 Federal Home Loan Mtge Corp #C68876 07-01-32 7.00 129,031 139,145 Federal Home Loan Mtge Corp #C69665 08-01-32 6.50 1,873,794 2,014,934 Federal Home Loan Mtge Corp #C79930 06-01-33 5.50 1,126,995 1,169,539 Federal Home Loan Mtge Corp #D95232 03-01-22 6.50 220,857 237,503 Federal Home Loan Mtge Corp #D95371 04-01-22 6.50 258,768 278,899 Federal Home Loan Mtge Corp #E81240 06-01-15 7.50 505,408 537,356 Federal Home Loan Mtge Corp #E88036 02-01-17 6.50 841,613 891,397 Federal Home Loan Mtge Corp #E88468 12-01-16 6.50 204,932 219,427 Federal Home Loan Mtge Corp #E89232 04-01-17 7.00 389,415 415,306 Federal Home Loan Mtge Corp #E92454 11-01-17 5.00 1,107,570 1,155,286 Federal Home Loan Mtge Corp #E93685 01-01-18 5.50 904,222 950,241 Federal Home Loan Mtge Corp #E99684 10-01-18 5.00 298,465 309,542 Federal Home Loan Mtge Corp #G01169 01-01-30 5.50 1,208,730 1,255,870 Federal Home Loan Mtge Corp #G01535 04-01-33 6.00 1,722,269 1,831,143 Federal Home Loan Mtge Corp #G02757 06-01-36 5.00 7,317,302 7,501,759 Federal Home Loan Mtge Corp #G03419 07-01-37 6.00 4,010,927 4,199,942 Federal Home Loan Mtge Corp #G12101 11-01-18 5.00 606,238 632,355 Federal Home Loan Mtge Corp #G03180 08-01-37 5.00 9,534,691 9,764,616 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2471 Cl SI 03-15-32 52.06 227,689(j) 22,424
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2639 Cl UI 03-15-22 14.96% $882,813(j) $86,639 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2795 Cl IY 07-15-17 82.15 279,960(j) 7,922 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2817 Cl SA 06-15-32 45.09 710,503(j) 54,453 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2824 Cl EI 09-15-20 49.66 1,762,683(j) 52,767 Federal Natl Mtge Assn 06-01-39 4.50 19,100,000(e) 19,243,251 06-01-39 5.50 10,000,000(e) 10,337,501 Federal Natl Mtge Assn #190353 08-01-34 5.00 1,392,337 1,429,770 Federal Natl Mtge Assn #252409 03-01-29 6.50 1,087,936 1,169,665 Federal Natl Mtge Assn #254759 06-01-18 4.50 1,562,822 1,616,039 Federal Natl Mtge Assn #254793 07-01-33 5.00 1,859,149 1,910,876 Federal Natl Mtge Assn #254916 09-01-23 5.50 1,500,390 1,561,489 Federal Natl Mtge Assn #256135 02-01-36 5.50 6,398,166 6,605,440 Federal Natl Mtge Assn #313470 08-01-10 7.50 49,064 49,928 Federal Natl Mtge Assn #323362 11-01-28 6.00 2,111,761 2,236,926 Federal Natl Mtge Assn #323715 05-01-29 6.00 395,252 418,678 Federal Natl Mtge Assn #344909 04-01-25 8.00 537,219 587,522 Federal Natl Mtge Assn #357514 03-01-34 5.50 1,948,064 2,022,739 Federal Natl Mtge Assn #483691 12-01-28 7.00 1,043,911 1,161,673 Federal Natl Mtge Assn #487757 09-01-28 7.50 659,028 726,472 Federal Natl Mtge Assn #514704 01-01-29 6.00 464,561 492,096 Federal Natl Mtge Assn #545008 06-01-31 7.00 1,241,795 1,365,007 Federal Natl Mtge Assn #545339 11-01-31 6.50 195,865 212,380 Federal Natl Mtge Assn #545818 07-01-17 6.00 1,819,622 1,921,098 Federal Natl Mtge Assn #545864 08-01-17 5.50 1,062,646 1,117,619 Federal Natl Mtge Assn #555458 05-01-33 5.50 1,447,857 1,498,083 Federal Natl Mtge Assn #555528 04-01-33 6.00 1,672,023 1,766,945 Federal Natl Mtge Assn #555734 07-01-23 5.00 614,657 633,430 Federal Natl Mtge Assn #581418 06-01-31 7.00 774,433 847,660 Federal Natl Mtge Assn #583088 06-01-29 6.00 2,407,612 2,574,761 Federal Natl Mtge Assn #592270 01-01-32 6.50 574,177 617,789 Federal Natl Mtge Assn #596505 08-01-16 6.50 118,398 126,438 Federal Natl Mtge Assn #601416 11-01-31 6.50 278,774 302,360 Federal Natl Mtge Assn #624979 01-01-32 6.00 564,510 600,486 Federal Natl Mtge Assn #626670 03-01-32 7.00 479,783 532,364 Federal Natl Mtge Assn #627426 03-01-17 6.50 380,927 406,813 Federal Natl Mtge Assn #630992 09-01-31 7.00 1,503,596 1,672,750 Federal Natl Mtge Assn #630993 09-01-31 7.50 1,602,478 1,769,710
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 19 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #631388 05-01-32 6.50% $1,387,290 $1,506,993 Federal Natl Mtge Assn #632856 03-01-17 6.00 364,269 384,267 Federal Natl Mtge Assn #633674 06-01-32 6.50 802,900 873,741 Federal Natl Mtge Assn #635231 04-01-32 7.00 73,036 79,941 Federal Natl Mtge Assn #635908 04-01-32 6.50 995,342 1,080,757 Federal Natl Mtge Assn #636812 04-01-32 7.00 101,424 111,397 Federal Natl Mtge Assn #640200 10-01-31 9.50 100,838 114,778 Federal Natl Mtge Assn #640207 03-01-17 7.00 35,221 36,483 Federal Natl Mtge Assn #640208 04-01-17 7.50 41,716 42,938 Federal Natl Mtge Assn #644805 05-01-32 7.00 834,187 916,250 Federal Natl Mtge Assn #645053 05-01-32 7.00 508,950 555,589 Federal Natl Mtge Assn #646189 05-01-32 6.50 341,130(l) 367,504 Federal Natl Mtge Assn #654071 09-01-22 6.50 467,619 502,765 Federal Natl Mtge Assn #654685 11-01-22 6.00 479,934 507,564 Federal Natl Mtge Assn #655635 08-01-32 6.50 662,522 719,688 Federal Natl Mtge Assn #656514 09-01-17 6.50 894,056 954,143 Federal Natl Mtge Assn #660186 11-01-32 6.00 1,953,064 2,084,276 Federal Natl Mtge Assn #665752 09-01-32 6.50 1,054,195 1,135,698 Federal Natl Mtge Assn #667302 01-01-33 7.00 490,794 538,920 Federal Natl Mtge Assn #670382 09-01-32 6.00 949,925 1,003,853 Federal Natl Mtge Assn #676683 12-01-32 6.00 1,041,809 1,100,953 Federal Natl Mtge Assn #677089 01-01-33 5.50 481,584(l) 500,496 Federal Natl Mtge Assn #677294 01-01-33 6.00 1,208,860(l) 1,277,488 Federal Natl Mtge Assn #681080 02-01-18 5.00 644,323 671,790 Federal Natl Mtge Assn #682229 03-01-33 5.50 3,697,675 3,842,886 Federal Natl Mtge Assn #684585 02-01-33 5.50 1,250,111 1,305,956 Federal Natl Mtge Assn #684843 02-01-18 5.50 1,239,438 1,304,270 Federal Natl Mtge Assn #684853 03-01-33 6.50 210,990 226,873 Federal Natl Mtge Assn #688002 03-01-33 5.50 1,181,143 1,231,183 Federal Natl Mtge Assn #689026 05-01-33 5.50 342,519 357,512 Federal Natl Mtge Assn #689093 07-01-28 5.50 854,933 893,316 Federal Natl Mtge Assn #694628 04-01-33 5.50 1,790,532 1,874,190 Federal Natl Mtge Assn #694795 04-01-33 5.50 2,167,890 2,269,549 Federal Natl Mtge Assn #695460 04-01-18 5.50 1,598,165 1,681,742 Federal Natl Mtge Assn #697145 03-01-23 5.50 989,609 1,034,107 Federal Natl Mtge Assn #699424 04-01-33 5.50 1,393,595 1,459,000 Federal Natl Mtge Assn #701101 04-01-33 6.00 1,821,885 1,923,038 Federal Natl Mtge Assn #704610 06-01-33 5.50 1,787,461 1,855,981 Federal Natl Mtge Assn #705655 05-01-33 5.00 640,171 657,982 Federal Natl Mtge Assn #708503 05-01-33 6.00 262,826 279,462 Federal Natl Mtge Assn #708504 05-01-33 6.00 557,745(l) 593,214 Federal Natl Mtge Assn #710780 05-01-33 6.00 188,988 199,481
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 20 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #711206 05-01-33 5.50% $1,040,946 $1,080,849 Federal Natl Mtge Assn #711239 07-01-33 5.50 524,371 544,472 Federal Natl Mtge Assn #711501 05-01-33 5.50 663,529 695,367 Federal Natl Mtge Assn #723771 08-01-28 5.50 697,797 729,125 Federal Natl Mtge Assn #725017 12-01-33 5.50 2,505,862 2,623,873 Federal Natl Mtge Assn #725232 03-01-34 5.00 1,465,790 1,506,573 Federal Natl Mtge Assn #725424 04-01-34 5.50 7,855,423 8,156,548 Federal Natl Mtge Assn #725425 04-01-34 5.50 2,270,930 2,356,710 Federal Natl Mtge Assn #725684 05-01-18 6.00 580,388 616,621 Federal Natl Mtge Assn #725773 09-01-34 5.50 1,573,886 1,633,234 Federal Natl Mtge Assn #726940 08-01-23 5.50 1,139,860 1,193,666 Federal Natl Mtge Assn #730153 08-01-33 5.50 582,009 604,319 Federal Natl Mtge Assn #733367 08-01-23 5.50 847,783 888,039 Federal Natl Mtge Assn #735212 12-01-34 5.00 7,850,664 8,061,732 Federal Natl Mtge Assn #735841 11-01-19 4.50 4,990,662 5,154,364 Federal Natl Mtge Assn #743524 11-01-33 5.00 1,648,418 1,694,282 Federal Natl Mtge Assn #743579 11-01-33 5.50 1,403,448 1,457,247 Federal Natl Mtge Assn #745275 02-01-36 5.00 3,164,409 3,247,508 Federal Natl Mtge Assn #745355 03-01-36 5.00 3,304,360 3,391,134 Federal Natl Mtge Assn #747339 10-01-23 5.50 1,029,629 1,078,285 Federal Natl Mtge Assn #753507 12-01-18 5.00 781,935 811,530 Federal Natl Mtge Assn #759342 01-01-34 6.50 350,860 379,424 Federal Natl Mtge Assn #770403 04-01-34 5.00 1,337,034 1,372,981 Federal Natl Mtge Assn #776962 04-01-29 5.00 1,198,202 1,238,953 Federal Natl Mtge Assn #779676 06-01-34 5.00 2,281,807 2,343,154 Federal Natl Mtge Assn #785506 06-01-34 5.00 4,882,506 5,013,774 Federal Natl Mtge Assn #793622 09-01-34 5.50 5,448,938 5,654,408 Federal Natl Mtge Assn #797232 09-01-34 5.50 5,381,965 5,584,910 Federal Natl Mtge Assn #826585 08-01-35 5.00 2,055,481 2,109,459 Federal Natl Mtge Assn #841764 07-01-35 5.50 3,716,778 3,853,447 Federal Natl Mtge Assn #845109 05-01-36 6.00 5,076,462 5,324,997 Federal Natl Mtge Assn #869867 04-01-21 5.50 3,419,241 3,574,028 Federal Natl Mtge Assn #878661 02-01-36 5.50 1,741,405 1,789,837 Federal Natl Mtge Assn #881629 02-01-36 5.50 1,139,279 1,170,965 Federal Natl Mtge Assn #886020 07-01-36 6.50 897,193 968,780 Federal Natl Mtge Assn #886291 07-01-36 7.00 655,786 715,395 Federal Natl Mtge Assn #888414 11-01-35 5.00 3,490,547 3,582,210 Federal Natl Mtge Assn #893101 10-01-36 6.50 2,470,258 2,635,379 Federal Natl Mtge Assn #902818 11-01-36 5.91 2,621,523(g) 2,731,627 Federal Natl Mtge Assn #928046 01-01-37 6.00 3,224,195 3,382,046 Federal Natl Mtge Assn #928870 11-01-37 8.50 215,499 235,823 Federal Natl Mtge Assn #933966 07-01-23 6.00 2,270,436 2,398,277
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 21 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #933985 08-01-23 5.50% $1,805,781 $1,886,579 Federal Natl Mtge Assn #941285 06-01-37 6.00 3,879,967 4,066,892 Federal Natl Mtge Assn #960606 10-01-36 5.50 3,245,178 3,367,548 Federal Natl Mtge Assn #984458 05-01-38 6.00 4,107,633 4,305,296 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-119 Cl GI 12-25-33 10.48 449,449(j) 73,633 12-25-33 10.74 256,728(j) 42,059 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-63 Cl IP 07-25-33 29.02 1,683,127(j) 175,344 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-71 Cl IM 12-25-31 22.49 389,413(j) 32,973 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2004-84 Cl GI 12-25-22 27.35 158,055(j) 10,200 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2005-70 Cl YJ 08-25-35 129.13 1,869,992(j) 44,986 Govt Natl Mtge Assn 06-01-39 4.50 10,000,000(e) 10,087,501 06-01-39 5.00 7,000,000(e) 7,201,250 Govt Natl Mtge Assn #3931 12-20-36 6.00 3,262,467 3,407,983 Govt Natl Mtge Assn #518371 02-15-30 7.00 117,064 127,828 Govt Natl Mtge Assn #528344 03-15-30 7.00 284,298 310,439 Govt Natl Mtge Assn #556293 12-15-31 6.50 337,251 361,870 Govt Natl Mtge Assn #583182 02-15-32 6.50 551,120 590,663 Govt Natl Mtge Assn #595256 12-15-32 6.00 281,382 296,524 Govt Natl Mtge Assn #619613 09-15-33 5.00 1,110,411 1,148,651 Govt Natl Mtge Assn #646077 12-15-37 6.00 427,182 447,099 Govt Natl Mtge Assn #656213 08-15-36 6.00 442,807 463,176 Govt Natl Mtge Assn #673220 10-15-38 6.00 425,102 444,524 Govt Natl Mtge Assn #677322 09-15-38 6.00 270,675 283,042 Govt Natl Mtge Assn #684307 02-15-38 6.00 416,665 435,701 Govt Natl Mtge Assn #691269 07-15-38 6.00 137,680 143,971 Govt Natl Mtge Assn #699075 09-15-38 6.00 435,208 455,092 Govt Natl Mtge Assn #699837 01-15-39 6.00 444,750 465,070 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2005-AR8 Cl AX1 04-25-35 0.00 4,902,377(b,i,j) -- IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-AR25 Cl 3A3 09-25-36 6.72 9,803,607(j) 101,255 JPMorgan Mtge Trust Collateralized Mtge Obligation Series 2004-S2 4A5 11-25-34 6.00 854,202 650,161 Lehman XS Trust Collateralized Mtge Obligation Series 2007-5H Cl 1A1 05-25-37 6.50 4,530,769 2,108,224
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 22 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-7 Cl 8A1 08-25-19 5.00% $298,277 $276,572 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-8 Cl 7A1 09-25-19 5.00 421,873 377,230 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2005-3 Cl 1A2 04-25-35 5.50 1,537,000 986,143 Nomura Asset Acceptance Corp Collateralized Mtge Obligation Series 2006-AF1 Cl 1A1A 05-25-36 0.41 1,416,424(h) 947,427 Residential Accredit Loans Collateralized Mtge Obligation Series 2002-QS14 Cl A12 09-25-32 5.50 2,578,849 2,116,280 Structured Asset Securities Collateralized Mtge Obligation Series 2003-33H Cl 1A1 10-25-33 5.50 520,617 474,534 Washington Mutual Alternative Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2006-5 Cl 3A1B 07-25-36 0.37 728,945(h) 659,776 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR12 Cl 2A1 09-25-36 6.10 1,827,838(g) 1,254,566 --------------- Total 353,124,923 - ------------------------------------------------------------------------------------- ELECTRIC (0.3%) FirstEnergy Sr Unsecured Series B 11-15-11 6.45 245,000 256,056 NiSource Finance 11-15-10 7.88 660,000 671,641 --------------- Total 927,697 - ------------------------------------------------------------------------------------- GAS PIPELINES (0.6%) CenterPoint Energy Resources Sr Unsecured 02-15-11 7.75 400,000 415,797 Northern Natural Gas Sr Unsecured 06-01-11 7.00 500,000(d) 540,632 Transcontinental Gas Pipe Line LLC Sr Unsecured Series B 08-15-11 7.00 900,000 943,987 --------------- Total 1,900,416 - ------------------------------------------------------------------------------------- INDEPENDENT ENERGY (0.3%) Anadarko Finance Series B 05-01-11 6.75 655,000(c) 682,958 Devon Financing 09-30-11 6.88 380,000(c) 411,928 --------------- Total 1,094,886 - ------------------------------------------------------------------------------------- MEDIA CABLE (0.1%) Comcast 03-15-11 5.50 260,000 272,659 - ------------------------------------------------------------------------------------- RAILROADS (0.1%) CSX Sr Unsecured 03-15-11 6.75 195,000 204,109 - ------------------------------------------------------------------------------------- WIRELINES (0.8%) AT&T Sr Unsecured 03-15-11 6.25 660,000 703,078 Telefonica Emisiones SAU 06-20-11 5.98 195,000(c) 205,938 Telefonica Europe 09-15-10 7.75 195,000(c) 206,860 TELUS Sr Unsecured 06-01-11 8.00 655,000(c) 704,185
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 23 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) WIRELINES (CONT.) Verizon Pennsylvania Sr Unsecured Series A 11-15-11 5.65% $685,000 $722,853 --------------- Total 2,542,914 - ------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $393,955,076) $391,634,320 - -------------------------------------------------------------------------------------
MONEY MARKET FUND (2.6%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 0.27% 8,620,461(o) $8,620,461 - ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $8,620,461) $8,620,461 - ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $402,575,537)(p) $400,254,781 =====================================================================================
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT MAY 31, 2009
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - ------------------------------------------------------------------------------------ U.S. Treasury Note, 2- year (23) $(5,013,281) July 2009 $(2,197) U.S. Treasury Note, 5- year (17) (1,979,172) July 2009 12,455 U.S. Treasury Note, 10- year (67) (7,947,875) June 2009 198,758 U.S. Treasury Note, 10- year (35) (4,095,000) Sept. 2009 (45,452) - ------------------------------------------------------------------------------------ Total $163,564 - ------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using policies described in Note 1 to the financial statements. (b) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in U.S. dollar currency unless otherwise noted. At May 31, 2009, the value of foreign securities represented 0.7% 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 May 31, 2009, the value of these securities amounted to $11,357,503 or 3.5% of net assets. (e) At May 31, 2009, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $72,304,471. See Note 1 to the financial statements. - -------------------------------------------------------------------------------- 24 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (f) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on May 31, 2009. (h) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on May 31, 2009. (i) Negligible market value. (j) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only security is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. The interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at May 31, 2009. (k) This position is in bankruptcy. (l) At May 31, 2009, investments in securities included securities valued at $540,421 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (m) Represents comparable securities held to satisfy future delivery requirements of the following open forward sale commitments at May 31, 2009:
PRINCIPAL SETTLEMENT PROCEEDS SECURITY AMOUNT DATE RECEIVABLE VALUE -------------------------------------------------------------------------- Federal Natl Mtge Assn 06-01-39 5.00% $8,200,000 06-11-09 $8,339,453 $8,394,750
(n) The following abbreviations are used in the portfolio security descriptions to identify the insurer of the issue: FSA -- Financial Security Assurance MGIC -- Mortgage Guaranty Insurance Corporation
- -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 25 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------ NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (o) Affiliated Money Market Fund -- See Note 6 to the financial statements. The rate shown is the seven-day current annualized yield at May 31, 2009. (p) At May 31, 2009, the cost of securities for federal income tax purposes was $412,001,636 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $11,368,343 Unrealized depreciation (23,115,198) ----------------------------------------------------------- Net unrealized depreciation $(11,746,855) -----------------------------------------------------------
- -------------------------------------------------------------------------------- 26 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- FAIR VALUE MEASUREMENTS Statement of Financial Accounting Standards No. 157 (SFAS 157) requires disclosures relating to the fair valuation of securities for financial statement purposes. 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 May 31, 2009:
FAIR VALUE AT MAY 31, 2009 ---------------------------------------------------------- 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 $8,620,461 $382,692,656 $8,941,664 $400,254,781 Other financial instruments* 163,564 -- -- 163,564 - ---------------------------------------------------------------------------------- Total $8,784,025 $382,692,656 $8,941,664 $400,418,345 - ----------------------------------------------------------------------------------
* Other financial instruments are derivative instruments, such as futures, which are valued at the unrealized appreciation (depreciation) on the instrument. The following table is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
INVESTMENTS IN SECURITIES - --------------------------------------------------------------- Balance as of May 31, 2008 $8,131,384 Accrued discounts/premiums (56,711) Realized gain (loss) 1,379,691 Change in unrealized appreciation (depreciation)* (2,386,164) Net purchases (sales) 1,762,837 Transfers in and/or out of Level 3 110,627 - --------------------------------------------------------------- Balance as of May 31, 2009 $8,941,664 - ---------------------------------------------------------------
* Change in unrealized appreciation (depreciation) relating to securities held at May 31, 2009 was $(2,419,533). - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 27 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------ HOW TO FIND INFORMATION ABOUT THE FUND'S QUARTERLY 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 filed on Form N-Q, can be obtained without charge, upon request, by calling the RiverSource Family of Funds at 1(800) 221-2450. - -------------------------------------------------------------------------------- 28 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- MAY 31, 2009
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $393,955,076) $391,634,320 Affiliated money market fund (identified cost $8,620,461) 8,620,461 - -------------------------------------------------------------------------------------- Total investments in securities (identified cost $402,575,537) 400,254,781 Capital shares receivable 109,397 Dividends and accrued interest receivable 1,556,505 Receivable for investment securities sold 83,957,550 - -------------------------------------------------------------------------------------- Total assets 485,878,233 - -------------------------------------------------------------------------------------- LIABILITIES Forward sale commitments, at value (proceeds receivable $8,339,453) 8,394,750 Dividends payable to shareholders 119,892 Capital shares payable 331,942 Payable for investment securities purchased 75,619,285 Payable for securities purchased on a forward-commitment basis 72,304,471 Variation margin payable on futures contracts 127,773 Accrued investment management services fees 4,298 Accrued distribution fees 21,992 Accrued transfer agency fees 670 Accrued administrative services fees 627 Accrued plan administration services fees 13 Other accrued expenses 97,958 - -------------------------------------------------------------------------------------- Total liabilities 157,023,671 - -------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $328,854,562 - -------------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 689,532 Additional paid-in capital 353,241,589 Undistributed net investment income 36,056 Accumulated net realized gain (loss) (22,900,126) Unrealized appreciation (depreciation) on investments (2,212,489) - -------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $328,854,562 - --------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $ 78,939,541 16,543,068 $4.77(1) Class B $ 24,176,629 5,064,728 $4.77 Class C $ 4,090,259 856,738 $4.77 Class I $221,584,142 46,475,255 $4.77 Class R4 $ 63,991 13,427 $4.77 - -----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $5.01. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 29 STATEMENT OF OPERATIONS ------------------------------------------------------- YEAR ENDED MAY 31, 2009
INVESTMENT INCOME Income: Interest $ 19,301,247 Income distributions from affiliated money market fund 213,377 Less foreign taxes withheld (517) - -------------------------------------------------------------------------- Total income 19,514,107 - -------------------------------------------------------------------------- Expenses: Investment management services fees 1,731,277 Distribution fees Class A 213,851 Class B 267,370 Class C 40,318 Transfer agency fees Class A 189,770 Class B 62,602 Class C 9,207 Class R4 3,392 Administrative services fees 252,478 Plan administration service fees -- Class R4 16,960 Compensation of board members 10,561 Custodian fees 60,875 Printing and postage 33,096 Registration fees 53,920 Professional fees 40,630 Other 15,303 - -------------------------------------------------------------------------- Total expenses 3,001,610 Expenses waived/reimbursed by the Investment Manager and its affiliates (541,040) Earnings and bank fee credits on cash balances (1,200) - -------------------------------------------------------------------------- Total net expenses 2,459,370 - -------------------------------------------------------------------------- Investment income (loss) -- net 17,054,737 - -------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (7,615,426) Futures contracts (10,766,699) - -------------------------------------------------------------------------- Net realized gain (loss) on investments (18,382,125) Net change in unrealized appreciation (depreciation) on investments 2,926,890 - -------------------------------------------------------------------------- Net gain (loss) on investments (15,455,235) - -------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 1,599,502 - --------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 30 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
YEAR ENDED MAY 31, 2009 2008 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 17,054,737 $ 19,201,708 Net realized gain (loss) on investments (18,382,125) (883,804) Net change in unrealized appreciation (depreciation) on investments 2,926,890 282,877 - ---------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,599,502 18,600,781 - ---------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (3,899,777) (4,636,312) Class B (1,013,132) (1,375,945) Class C (152,824) (166,238) Class I (11,827,943) (10,669,521) Class R4 (290,189) (1,927,487) Net realized gain Class A (635,778) -- Class B (193,543) -- Class C (29,317) -- Class I (1,808,398) -- Class R4 (451) -- - ---------------------------------------------------------------------------------------- Total distributions (19,851,352) (18,775,503) - ---------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 19,874,397 21,261,899 Class B shares 7,170,065 7,521,919 Class C shares 1,148,620 493,948 Class I shares 73,431,416 60,497,906 Class R4 shares 75,985 3,560,740 Reinvestment of distributions at net asset value Class A shares 4,107,536 4,221,397 Class B shares 1,103,090 1,272,184 Class C shares 167,436 153,418 Class I shares 13,610,360 10,765,444 Class R4 shares 161,216 1,945,056 Payments for redemptions Class A shares (36,083,563) (40,583,767) Class B shares (16,410,942) (19,411,598) Class C shares (1,228,211) (1,336,741) Class I shares (75,837,805) (57,241,980) Class R4 shares (41,377,098) (2,867,441) - ---------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (50,087,498) (9,747,616) - ---------------------------------------------------------------------------------------- Total increase (decrease) in net assets (68,339,348) (9,922,338) Net assets at beginning of year 397,193,910 407,116,248 - ---------------------------------------------------------------------------------------- Net assets at end of year $328,854,562 $397,193,910 - ---------------------------------------------------------------------------------------- Undistributed net investment income $ 36,056 $ 69,436 - ----------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 31 FINANCIAL HIGHLIGHTS ---------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.92 $5.12 $5.03 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .21(b) .23(b) .22 .21 .19 Net gains (losses) (both realized and unrealized) (.18) (.02) .09 (.20) .10 - -------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .21 .31 .01 .29 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.22) (.23) (.20) (.20) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.25) (.22) (.23) (.21) (.20) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.92 $5.12 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $79 $95 $111 $126 $159 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.08% 1.09% 1.17% 1.19% 1.10% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .89% .89% .89% .89% .95% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.51% 4.56% 4.45% 4.08% 3.67% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return(h) .79% 4.31% 6.30% .12% 5.78% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 32 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.93 $5.12 $5.04 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18(b) .19(b) .19 .17 .15 Net gains (losses) (both realized and unrealized) (.18) (.01) .07 (.19) .09 - -------------------------------------------------------------------------------------------------------------- Total from investment operations -- .18 .26 (.02) .24 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.19) (.19) (.16) (.16) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.22) (.19) (.19) (.17) (.16) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.93 $5.12 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $24 $34 $44 $64 $98 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.84% 1.86% 1.94% 1.95% 1.86% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.69% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.75% 3.79% 3.70% 3.31% 2.90% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return(h) .03% 3.53% 5.30% (.42%) 4.78% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 33 FINANCIAL HIGHLIGHTS (continued) ---------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.93 $5.12 $5.04 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18(b) .19(b) .19 .17 .15 Net gains (losses) (both realized and unrealized) (.18) (.01) .07 (.19) .09 - -------------------------------------------------------------------------------------------------------------- Total from investment operations -- .18 .26 (.02) .24 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.19) (.19) (.16) (.16) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.22) (.19) (.19) (.17) (.16) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.93 $5.12 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $4 $5 $7 $11 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.83% 1.85% 1.94% 1.95% 1.85% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.70% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.76% 3.80% 3.70% 3.31% 2.90% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return(h) .03% 3.53% 5.30% (.43%) 4.79% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. (h) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 34 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.92 $5.11 $5.03 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(b) .25(b) .24 .22 .20 Net gains (losses) (both realized and unrealized) (.18) (.02) .08 (.19) .09 - -------------------------------------------------------------------------------------------------------------- Total from investment operations .05 .23 .32 .03 .29 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.23) (.24) (.24) (.21) (.21) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.27) (.24) (.24) (.22) (.21) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.92 $5.11 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $222 $222 $207 $6 $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .61% .63% .63% .73% .66% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .48% .48% .54% .54% .62% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.93% 4.97% 4.90% 4.99% 3.99% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return 1.21% 4.74% 6.68% .59% 5.92% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 35 FINANCIAL HIGHLIGHTS (continued) ---------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2009 2008 2007 2006 2005 Net asset value, beginning of period $4.99 $5.00 $4.92 $5.11 $5.03 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(b) .23(b) .23 .21 .20 Net gains (losses) (both realized and unrealized) (.10) (.01) .08 (.19) .08 - -------------------------------------------------------------------------------------------------------------- Total from investment operations .13 .22 .31 .02 .28 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.31) (.23) (.23) (.20) (.20) Distributions from realized gains (.04) -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.35) (.23) (.23) (.21) (.20) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $4.99 $5.00 $4.92 $5.11 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $42 $40 $35 $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .89% .93% .99% 1.04% .94% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .70% .75% .71% .71% .77% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.38% 4.69% 4.63% 4.40% 3.99% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 431%(g) 354% 306% 178% 137% - -------------------------------------------------------------------------------------------------------------- Total return 2.82% 4.46% 6.51% .49% 5.75% - --------------------------------------------------------------------------------------------------------------
(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) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) 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 years ended May 31, 2009 and 2008. (g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 162% for the year ended May 31, 2009. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 36 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource U.S. Government Mortgage Fund (the Fund) is a series of RiverSource Government Income Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Government Income 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 mortgage-backed securities that either are issued or guaranteed as to principal and interest by the U.S. government, its agencies, authorities or instrumentalities. The Fund offers Class A, Class B, Class C, Class I and Class R4 shares. - - Class A shares are sold with a front-end sales charge. - - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - - Class C shares may be subject to a CDSC. - - Class I and Class R4 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. At May 31, 2009, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares. At May 31, 2009, the Investment Manager, RiverSource Life Insurance Company and the RiverSource affiliated funds-of-funds owned approximately 67% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- VALUATION OF SECURITIES Effective June 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. 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 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. Swap transactions are valued through an authorized pricing service, broker, or an internal model. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. Investments in money market funds are valued at net asset value. SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward- commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward- - -------------------------------------------------------------------------------- 38 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- commitments. At May 31, 2009, the Fund has outstanding when-issued securities of $70,723,354 and other forward-commitments of $1,581,117. The Fund also enters into transactions to sell purchase commitments to third parties at current market values and concurrently acquires other purchase commitments for similar securities at later dates. As an inducement for the Fund to "roll over" its purchase commitments, the Fund receives negotiated amounts in the form of reductions of the purchase price of the commitment. The Fund records the incremental difference between the forward purchase and sale of each forward roll as realized gain or loss. Losses may arise due to changes in the value of the securities or if a counterparty does not perform under the terms of the agreement. If a counterparty files for bankruptcy or becomes insolvent, the Fund's right to repurchase or sell securities may be limited. FORWARD SALE COMMITMENTS The Fund may enter into forward sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of forward sale commitments are not received until the contractual settlement date. During the time a forward sale commitment is outstanding, equivalent deliverable securities, or an offsetting forward purchase commitment deliverable on or before the sale commitment date, are used to satisfy the commitment. Unsettled forward sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Valuation of securities" above. The forward sale commitment is "marked-to- market" daily and the change in market value is recorded by the Fund as an unrealized gain or loss. If the forward sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss. If the Fund delivers securities under the commitment, the Fund realizes a gain or a loss from the sale of the securities based upon the market price established at the date the commitment was entered into. 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. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- 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. 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 and options contracts, recognition of unrealized appreciation (depreciation) for certain derivative investments, post-October losses and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. In the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $95,748 and accumulated net realized loss has been increased by $95,748. The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED MAY 31, 2009 2008 -------------------------- -------------------------- ORDINARY LONG-TERM ORDINARY LONG-TERM INCOME CAPITAL GAIN INCOME CAPITAL GAIN ------------------------------------------------------- Class A $ 4,535,555 $-- $ 4,636,312 $-- Class B 1,206,675 -- 1,375,945 -- Class C 182,141 -- 166,238 -- Class I 13,636,341 -- 10,669,521 -- Class R4 290,640 -- 1,927,487 --
At May 31, 2009, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.................. $ 342,467 Undistributed accumulated long-term gain....... $ -- Accumulated realized loss...................... $(13,435,568) Unrealized appreciation (depreciation)......... $(11,863,566)
- -------------------------------------------------------------------------------- 40 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- 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 enhanced disclosures about a fund's derivatives 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 May 31, 2009, the Fund did not own nor was it a party to any credit derivative contracts within the scope of these amendments. The Fund has adopted 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. See Investments in Derivatives below for more information. On April 9, 2009, the FASB issued Staff Position No. 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP 157-4). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also requires additional disaggregation of the current SFAS 157 required disclosures. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Management is currently evaluating the impact that the adoption of FSP 157-4 will have on the amounts and disclosures within the Fund's financial statements. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and payable monthly, 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. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income, if any, 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. INVESTMENTS IN DERIVATIVES The Fund may invest in certain derivative instruments, which are transactions whose values depend on or are derived from (in whole or in part) the value of one or more other assets, such as securities, currencies, commodities or indices. Such derivative instruments may be used to maintain cash reserves while maintaining exposure to certain other assets, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, and to pursue higher investment returns. The Fund may also use derivative instruments to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk, and credit risk. FUTURES TRANSACTIONS The Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange to produce incremental earnings, hedge existing positions or protect against market changes in the value of equities, interest rates or foreign currencies. The Fund may also buy and write put and call options on these futures contracts. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. 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. Upon entering into futures contracts, the Fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. Additional risks include counterparty credit risk, 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. - -------------------------------------------------------------------------------- 42 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- The gross notional amount of short contracts was $19 million at May 31, 2009. The monthly average gross notional contract amount for these contracts was $63 million for the year ended May 31, 2009. TOTAL RETURN SWAP TRANSACTIONS The Fund may enter into total return swap agreements to gain exposure to the total return on a specified security, a basket of securities or a security index during the specified period, in return for periodic payments based on a fixed or variable interest rate. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or securities in a market. Under the terms of a total return swap agreement, payments made by the Fund or the counterparty are based on the total return of a particular reference asset or assets (such as an equity security, a combination of equity securities, a mortgage-backed security, a combination of mortgage-backed securities, or an index) in exchange for a specified interest rate. The notional amounts of swap contracts are not recorded in the financial statements. Swap contracts are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time the Fund will realize a gain or (loss). Periodic payments received (or made) by the Fund over the term of the contract are recorded as realized gains (losses). Total return swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. It may not be possible for the Fund to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. Total return swaps are subject to the risk associated with the investment in the underlying securities. The risk in the case of short total return swap transactions is unlimited based on the potential for unlimited increases in the market value of the referenced securities. This risk may be offset if the Fund holds any of the referenced assets. The risk in the case of long total return swap transactions is limited to the current notional amount of the total return swap. Total return swaps are also subject to the risk of the counterparty not fulfilling its obligations under the agreement. The counterparty risk may be offset by any collateral held by the Fund related to the swap transactions. At May 31, 2009, and for the year then ended, the Fund had no outstanding total return swap contracts. EFFECTS OF DERIVATIVE TRANSACTIONS ON THE FINANCIAL STATEMENTS The following tables are intended to provide additional information about the effect of derivatives on the financial statements of the Fund including: the fair value of derivatives by risk category and the location of those fair values in the Statement of Assets and Liabilities; the impact of derivative transactions on the - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 43 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- Fund's operations over the period including realized gains or losses and unrealized gains or losses. The derivative schedules following the Portfolio of Investments present additional information regarding derivative instruments outstanding at the end of the period, if any. FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF MAY 31, 2009
ASSET DERIVATIVES LIABILITY DERIVATIVES ------------------------------------------------------------------------ STATEMENT OF ASSETS STATEMENT OF ASSETS RISK EXPOSURE AND LIABILITIES AND LIABILITIES CATEGORY LOCATION FAIR VALUE LOCATION FAIR VALUE - ----------------------------------------------------------------------------------------------- Interest rate Net Assets -- Net Assets -- contracts Unrealized appreciation 211,213* Unrealized depreciation $47,649* - ----------------------------------------------------------------------------------------------- Total 211,213 47,649 - -----------------------------------------------------------------------------------------------
* Includes cumulative appreciation (depreciation) of futures contracts as reported in the Futures Contracts Outstanding table following the Portfolio of Investments. Only the current day's variation margin of futures contracts is reported in receivables or payables in the Statement of Assets and Liabilities. EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2009
AMOUNT OF REALIZED GAIN OR (LOSS) ON DERIVATIVES RECOGNIZED IN INCOME - ----------------------------------------------------------------------------------------------- RISK EXPOSURE CATEGORY FUTURES - ----------------------------------------------------------------------------------------------- Interest rate contracts $(10,766,699) - ----------------------------------------------------------------------------------------------- TOTAL $(10,766,699) - -----------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION OR (DEPRECIATION) ON DERIVATIVES RECOGNIZED IN INCOME - ----------------------------------------------------------------------------------------------- RISK EXPOSURE CATEGORY FUTURES - ----------------------------------------------------------------------------------------------- Interest rate contracts $(691,566) - ----------------------------------------------------------------------------------------------- TOTAL $(691,566) - -----------------------------------------------------------------------------------------------
3. 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 0.48% to 0.29% annually as the Fund's net assets increase. The management fee for the year ended May 31, 2009 was 0.48% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, a fee for administration and accounting services at a percentage of the - -------------------------------------------------------------------------------- 44 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- Fund's average daily net assets that declines from 0.07% to 0.04% annually as the Fund's net assets increase. The fee for the year ended May 31, 2009 was 0.07% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended May 31, 2009, other expenses paid to this company were $2,147. 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 funds in the RiverSource Family of 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 $20.50 for Class A, $21.50 for Class B and $21.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R4 shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees in 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 shares and a fee at an annual rate - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 45 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- 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, of the 1.00% fee, up to 0.75% is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed (unreimbursed expense) was approximately $1,009,000 and $36,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of April 30, 2009, 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 $78,259 for Class A, $22,751 for Class B and $197 for Class C for the year ended May 31, 2009. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended May 31, 2009, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A............................................. 0.89% Class B............................................. 1.65 Class C............................................. 1.65 Class I............................................. 0.48 Class R4............................................ 0.70
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A........................................... $52,313 Class B........................................... 16,615 Class C........................................... 2,466 Class R4.......................................... 2,916
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R4.......................................... $1,183
The management fees waived/reimbursed at the Fund level were $465,547. Under an agreement which was effective until May 31, 2009, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses such that net expenses (excluding fees and expenses of acquired - -------------------------------------------------------------------------------- 46 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- funds*), would not exceed the following percentage of the class average daily net assets: Class A............................................. 0.89% Class B............................................. 1.65 Class C............................................. 1.65 Class I............................................. 0.48 Class R4............................................ 0.75
Effective June 1, 2009, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until July 31, 2010, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*), will not exceed the following percentage of the class average daily net assets: Class A............................................. 0.89% Class B............................................. 1.65 Class C............................................. 1.65 Class I............................................. 0.47 Class R4............................................ 0.77
* 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. BANK FEE CREDITS During the year ended May 31, 2009, the Fund's transfer agency fees were reduced by $1,200 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. For the period from June 1, 2008 to Dec. 15, 2008, the Fund paid custodian fees amounting to $63,152 to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 4. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations, but including mortgage-dollar rolls) aggregated $1,906,701,335 and $2,023,202,969, respectively, for the year ended May 31, 2009. Realized gains and losses are determined on an identified cost basis. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 47 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- 5. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
YEAR ENDED MAY 31, 2009 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------- Class A 4,148,102 866,721 (7,573,975) (2,559,152) Class B 1,504,114 232,629 (3,413,335) (1,676,592) Class C 240,131 35,345 (256,741) 18,735 Class I 15,087,681 2,874,393 (15,906,305) 2,055,769 Class R4 22,129 32,732 (8,546,518) (8,491,657) - ---------------------------------------------------------------------------------- YEAR ENDED MAY 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------- Class A 4,250,751 842,644 (8,112,975) (3,019,580) Class B 1,496,899 253,951 (3,883,104) (2,132,254) Class C 98,644 30,621 (266,401) (137,136) Class I 12,137,691 2,151,644 (11,378,602) 2,910,733 Class R4 715,755 388,748 (571,898) 532,605 - ----------------------------------------------------------------------------------
6. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the funds in the RiverSource Family of 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 $219,092,879 and $235,368,190, respectively, for the year ended May 31, 2009. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found in the Statement of Operations and the Fund's invested balance in RiverSource Short-Term Cash Fund at May 31, 2009, can be found in the Portfolio of Investments. 7. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks 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, - -------------------------------------------------------------------------------- 48 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- which is a collective agreement between the Fund and certain other funds in the RiverSource Family of Funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the year ended May 31, 2009. 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. 8. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, the Fund had a capital loss carry-over of $410,120 at May 31, 2009, that if not offset by capital gains will expire in 2017. Because the measurement periods for a regulated investment company's income are different for excise tax purposes versus income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the Fund is permitted to treat net capital losses realized between Nov. 1, 2008 and its fiscal year end (post-October loss) as occurring on the first day of the following tax year. At May 31, 2009, the Fund had a post-October loss of $13,025,448 that is treated for income tax purposes as occurring on June 1, 2009. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 49 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. 9. 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 (now known as RiverSource) 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 (the District Court). In response to defendants' motion to dismiss the complaint, the District 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 (the Eighth Circuit) on August 8, 2007. On April 8, 2009, the Eighth Circuit reversed summary judgment and remanded to the District Court for further proceedings. 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. - -------------------------------------------------------------------------------- 50 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT - -------------------------------------------------------------------------------- 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 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc. (which is now known as RiverSource Fund Distributors, Inc.), Seligman Data Corp. and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that the Seligman Parties permitted various persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies then managed by Seligman was and had been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. On March 13, 2009, without admitting or denying any violations of law or wrongdoing, the Seligman Parties entered into a stipulation of settlement with the NYAG and settled the claims made by the NYAG. Under the terms of the settlement, Seligman paid $11.3 million to four Seligman Funds. This settlement resolved all outstanding matters between the Seligman Parties and the NYAG. In addition to the foregoing matter, the New York staff of the SEC indicated in September 2005 that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and 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. There have been no further developments with the SEC on this matter. 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 - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 51 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. - -------------------------------------------------------------------------------- 52 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of RiverSource U.S. Government Mortgage Fund (the Fund) (one of the portfolios constituting the RiverSource Government Income Series, Inc.) as of May 31, 2009, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the periods presented through May 31, 2007, were audited by other auditors whose report dated July 20, 2007, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2009, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 53 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) ----------- In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of RiverSource U.S. Government Mortgage Fund of the RiverSource Government Income Series, Inc. at May 31, 2009, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota July 21, 2009 - -------------------------------------------------------------------------------- 54 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT PART C. OTHER INFORMATION Item 23. Exhibits (a)(1) Articles of Incorporation, as amended October 17, 1988, filed as Exhibit 1 to Registrant's Post-Effective Amendment No. 7 to Registration Statement No. 2-96512, are incorporated by reference. (a)(2) Articles of Amendment to the Articles of Incorporation, dated June 16, 1999, filed as Exhibit (a)(2) to Registrant's Post-Effective Amendment No. 31 are incorporated by reference. (a)(3) Articles of Amendment, dated Nov. 14, 2002, filed electronically on or about May 22, 2003 as Exhibit (a)(3) to Registrant's Post-Effective Amendment No. 36 to Registration Statement No. 2-96512 are incorporated by reference. (a)(4) Articles of Amendment, dated April 21, 2006, filed electronically on or about July 25, 2007 as Exhibit (a)(4) to Registrant's Post-Effective Amendment No. 42 to Registration Statement No. 2-96512 are incorporated by reference. (a)(5) Certificate of Designation, dated Oct. 5, 2006, filed electronically on or about July 28, 2008 as Exhibit (a)(5) to Registrant's Post-Effective Amendment No. 46 to Registration Statement No. 2-96512 is incorporated by reference. (a)(6) Certificate of Designation, dated Feb. 23, 2009, reflecting addition of Class R2 shares to RiverSource Short Duration U.S. Government Fund is filed electronically herewith as Exhibit (a)(6) to Registrant's Post-Effective Amendment No. 47 to Registration Statement No. 2-96512. (b) By-laws, as amended April 13, 2006 filed electronically filed electronically as Exhibit (b) to Registrant's Post-Effective Amendment No. 45 to Registration Statement No. 2-96512 are incorporated by reference. (c) Stock Certificate for common stock, filed as Exhibit No. 4 to Registration Statement No. 2-96512, is incorporated by reference. (d) Investment Management Services Agreement, amended and restated, dated May 1, 2006, between Registrant and RiverSource Investments, LLC filed electronically on or about July 25, 2006 as Exhibit (d) to Registrant's Post-Effective Amendment No. 42 to Registration Statement No. 2-96512 is incorporated by reference. (e)(1) Distribution Agreement, effective Nov. 7, 2008, amended and restated July 13, 2009, between Registrant and RiverSource Fund Distributors, Inc. is filed electronically herewith as Exhibit (e)(1) to Registrant's Post-Effective Amendment No. 47 to Registration Statement No. 2-96512. (e)(2) Form of Service Agreement filed electronically on or about Aug. 27, 2007 as Exhibit (e)(3) to RiverSource Sector Series, Inc. Post-Effective Amendment No. 39 to Registration Statement No. 33-20872 is incorporated by reference. (e)(3) Form of RiverSource Funds Dealer Agreement filed electronically on or about Aug. 27, 2007 as Exhibit (e)(4) to RiverSource Sector Series, Inc. Post-Effective Amendment No. 39 to Registration Statement No. 33-20872 is incorporated by reference. (f) Deferred Compensation Plan, amended and restated Jan. 1, 2009, filed electronically on or about Jan. 27, 2009 as Exhibit (f) to RiverSource Equity Series, Inc. Post-Effective Amendment No. 105 to Registration Statement No. 2-13188 is incorporated by reference. (g) Form of Master Global Custody Agreement with JP Morgan Chase Bank, N.A. filed electronically on or about Dec. 23, 2008 as Exhibit (g) to RiverSource International Managers Series, Inc. Post-
Effective Amendment No. 18 to Registration Statement No. 333-64010 is incorporated by reference. (h)(1) Administrative Services Agreement, dated Oct. 1, 2005, amended and restated July 13, 2009, between Registrant and Ameriprise Financial, Inc. is filed electronically herewith as Exhibit (h)(1) to Registrant's Post-Effective Amendment No. 47 to Registration Statement No. 2-96512. (h)(2) Transfer Agency Agreement, dated Oct. 1, 2005, amended and restated July 13, 2009, between Registrant and RiverSource Service Corporation is filed electronically herewith as Exhibit (h)(2) to Registrant's Post-Effective Amendment No. 47 to Registration Statement No. 2-96512. (h)(3) Plan Administration Services Agreement, dated Dec. 1, 2006, amended and restated June 15, 2009, between Registrant and RiverSource Service Corporation filed electronically on or about June 25, 2009 as Exhibit (h)(3) to RiverSource Series Trust Post-Effective Amendment No. 9 to Registration Statement No. 333-131683 is incorporated by reference. (h)(4) Master Fee Cap/Fee Waiver Agreement, dated Oct. 1, 2005, amended and restated July 13, 2009 between RiverSource Investments, LLC, Ameriprise Financial, Inc., RiverSource Service Corporation, RiverSource Fund Distributors, Inc. and the Registrant is filed electronically herewith as Exhibit (h)(4) to Registrant's Post-Effective Amendment No. 47 to Registration Statement No. 2-96512. (h)(5) Agreement and Plan of Reorganization, dated Sept. 8, 1994, between IDS Strategy Fund, Inc, and IDS Federal Income Fund, Inc., filed electronically as Exhibit 4 to Registrant's Pre-Effective Amendment No. 1, on Form N-14, is incorporated by reference. (h)(6) Agreement and Plan of Reorganization, dated Jan. 10, 2009, between Seligman High Income Fund Series, on behalf of Seligman U.S. Government Securities Fund, and RiverSource Government Income Series, Inc., on behalf of RiverSource Short Duration U.S. Government Fund, is filed electronically herewith as Exhibit (h)(6) to Registrant's Post-Effective Amendment No. 47 to Registration Statement No. 2-96512. (h)(7) Agreement and Plan of Reorganization, dated March 10, 2000, between Strategist Income Fund, Inc. on behalf of Strategist Government Income Fund and AXP Federal Income Fund, Inc. is incorporated by reference to Exhibit (h)(8) to Registrant's Post-Effective Amendment No. 30 filed on or about July 28, 2000. (h)(8) License Agreement, effective May 1, 2006, amended and restated as of Nov. 12, 2008, between Ameriprise Financial, Inc. and RiverSource Family of Funds filed electronically on or about Feb. 27, 2009 as Exhibit (h)(4) to RiverSource Variable Series Trust Post-Effective Amendment No. 4 to Registration Statement No. 333-146374 is incorporated by reference. (i) Opinion and consent of counsel as to the legality of the securities being registered is filed electronically herewith. (j) Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP) is filed electronically herewith. (k) Omitted Financial Statements: Not Applicable. (l) Initial Capital Agreement: Not Applicable. (m) Plan of Distribution and Agreement of Distribution, effective Nov. 7, 2008, amended and restated July 13, 2009, between Registrant and RiverSource Fund Distributors, Inc. is filed electronically herewith as Exhibit (m) to Registrant's Post-Effective Amendment No. 47 to Registration Statement No. 2-96512.
(n) Rule 18f - 3(d) Plan, amended and restated as of July 13, 2009, is filed electronically herewith as Exhibit (n) to Registrant's Post-Effective Amendment No. 47 to Registration Statement No. 2-96512. (o) Reserved. (p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed electronically on or about Feb. 27, 2009 as Exhibit (p)(1) to RiverSource Variable Series Trust Post-Effective Amendment No. 4 to Registration Statement No. 333-146374 is incorporated by reference. (p)(2) Code of Ethics adopted under Rule 17j-1 for Registrant's principal underwriter, dated April 2008, filed electronically on or about April 25, 2008 as Exhibit (p)(2) to RiverSource Variable Series Trust Post-Effective Amendment No. 3 to Registration Statement No. 333-146374 is incorporated by reference. (p)(3) Code of Ethics adopted under Rule 17j-1 for Registrant's investment adviser, dated Nov. 15, 2008, filed electronically on or about Nov. 25, 2008 as Exhibit (p)(3) to RiverSource Investment Series, Inc. Post-Effective Amendment No. 121 to Registration Statement No. 2-11328 is incorporated by reference. (q) Directors/Trustees Power of Attorney to sign Amendments to this Registration Statement, dated Jan., 8, 2009, filed electronically on or about Feb. 20, 2009 as Exhibit (q) to Registrant's Post-Effective Amendment No. 46 to Registration Statement No. 2-96512 is incorporated by reference.
Item 24. Persons Controlled by or Under Common Control with Registrant: RiverSource Investments, LLC, as sponsor of the RiverSource Funds, may make initial capital investments in RiverSource funds (seed accounts). RiverSource Investments also serves as investment manager of certain RiverSource funds-of-funds that invest primarily in Class I shares of affiliated RiverSource funds (the "underlying funds"). RiverSource Investments does not make initial capital investments or invest in underlying funds for the purpose of exercising control. However, since these ownership interests may be significant, in excess of 25%, such that RiverSource Investments may be deemed to control certain RiverSource funds, procedures have been put in place to assure that public shareholders determine the outcome of all actions taken at shareholder meetings. Specifically, RiverSource Investments (which votes proxies for the seed accounts) and the Boards of Directors or Trustees of the RiverSource funds-of-funds (which votes proxies for the RiverSource funds-of-funds) vote on each proposal in the same proportion that other shareholders vote on the proposal. Item 25. Indemnification The Articles of Incorporation of the registrant provide that the Fund shall indemnify any person who was or is a party or is threatened to be made a party, by reason of the fact that she or he is or was a director, officer, employee or agent of the Fund, or is or was serving at the request of the Fund as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, to any threatened, pending or completed action, suit or proceeding, wherever brought, and the Fund may purchase liability insurance and advance legal expenses, all to the fullest extent permitted by the laws of the State of Minnesota, as now existing or hereafter amended. The By-laws of the registrant provide that present or former directors or officers of the Fund made or threatened to be made a party to or involved (including as a witness) in an actual or threatened action, suit or proceeding shall be indemnified by the Fund to the full extent authorized by the Minnesota Business Corporation Act, all as more fully set forth in the By-laws filed as an exhibit to this registration statement. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Any indemnification hereunder shall not be exclusive of any other rights of indemnification to which the directors, officers, employees or agents might otherwise be entitled. No indemnification shall be made in violation of the Investment Company Act of 1940. Item 26. Business and Other Connections of the Investment Adviser (RiverSource Investments, LLC) The following are directors and principal officers of RiverSource Investments, LLC who are directors and/or officers of one or more other companies:
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- --------------------------------- -------------------------------------- Neysa M. Alecu, American Enterprise Investment 70400 AXP Financial Center, Anti-Money Laundering Officer and Anti-Money Laundering Services Inc. Minneapolis, MN 55474 Identity Theft Prevention Officer Officer Ameriprise Auto & Home 3500 Packerland Drive Anti-Money Laundering Officer and Insurance Agency, Inc. De Pere, WI 54115 Identity Theft Prevention Officer Ameriprise Bank, FSB 7 World Trade Center Bank Secrecy Act/Anti-Money 250 Greenwich Street, Laundering Officer Suite 3900 New York, NY 10007 Ameriprise Financial, Inc. 200 Ameriprise Financial Center, Anti-Money Laundering Officer and Minneapolis, MN 55474 Identity Theft Prevention Officer Ameriprise Financial Services, 5221 Ameriprise Financial Anti-Money Laundering Officer and Inc. Center, Minneapolis, MN 55474 Identity Theft Prevention Officer Ameriprise Trust Company 200 Ameriprise Financial Center, Anti-Money Laundering Officer Minneapolis, MN 55474 IDS Capital Holdings Inc. Anti-Money Laundering Officer IDS Management Corporation Anti-Money Laundering Officer Kenwood Capital Management LLC 333 S. 7th Street, Suite 2330, Anti-Money Laundering Officer Minneapolis, MN 55402 RiverSource Distributors, Inc. 50611 Ameriprise Financial Anti-Money Laundering Officer and Center, Minneapolis, MN 55474 Identity Theft Prevention Officer RiverSource Life Insurance 829 Ameriprise Financial Center, Anti-Money Laundering Officer and Company Minneapolis, MN 55474 Identity Theft Prevention Officer RiverSource Life Insurance 20 Madison Ave. Ext. Identity Theft Prevention Officer Company of New York Albany, NY 12005 RiverSource Service 734 Ameriprise Financial Center, Anti-Money Laundering Officer and Corporation Minneapolis, MN 55474 Identity Theft Prevention Officer
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- --------------------------------- -------------------------------------- Patrick Thomas Ameriprise Trust Company 200 Ameriprise Financial Center, Director, Senior Vice President Bannigan, Minneapolis, MN 55474 Director and Senior Vice President - Asset Management, Products and Marketing J. & W. Seligman & Co. 100 Park Avenue Director, Senior Vice President - Incorporated New York, NY 10017 Asset Management, Products & Marketing Group RiverSource Distributors, Inc. 50611 Ameriprise Financial Director and Vice President Center, Minneapolis, MN 55474 RiverSource Fund Distributors, Director and Vice President Inc. RiverSource Service Corporation 734 Ameriprise Financial Center, Director Minneapolis, MN 55474 RiverSource Services, Inc. Director and Vice President
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- --------------------------------- -------------------------------------- Walter S. Berman, Advisory Capital Strategies Treasurer Treasurer Group Inc. American Enterprise Investment 70400 AXP Financial Center, Treasurer Services Inc. Minneapolis, MN 55474 Ameriprise Auto & Home 3500 Packerland Drive Treasurer Insurance Agency Inc. De Pere, WI 54115 Ameriprise Bank, FSB 9393 Ameriprise Financial Treasurer Center, Minneapolis, MN 55474 Ameriprise Captive Insurance Director and Treasurer Company Ameriprise Financial, Inc. 200 Ameriprise Financial Center, Director, Executive Vice President, Minneapolis, MN 55474 Chief Financial Officer and Treasurer Ameriprise Financial Services, 5221 Ameriprise Financial Director and Treasurer Inc. Center, Minneapolis, MN 55474 Ameriprise Holdings, Inc. Chief Financial Officer Ameriprise Insurance Company 3500 Packerland Drive Treasurer De Pere, WI 54115 IDS Capital Holdings Inc. Treasurer IDS Management Corporation Treasurer IDS Property Casualty 3500 Packerland Drive Treasurer Insurance Company De Pere, WI 54115 Investors Syndicate Vice President and Treasurer Development Corporation J. & W. Seligman & Co. 100 Park Avenue Treasurer Incorporated New York, NY 10017 RiverSource CDO Seed Treasurer Investments, LLC RiverSource Distributors, Inc. 50611 Ameriprise Financial Treasurer Center, Minneapolis, MN 55474 RiverSource Fund Distributors, Treasurer Inc. RiverSource Fund Distributors 60 St. Mary Axe, London EC3A 8JQ Treasurer Ltd RiverSource Life Insurance 20 Madison Ave. Extension, Vice President and Treasurer Company of New York Albany, NY 12005 RiverSource Life Insurance 829 Ameriprise Financial Center, Vice President and Treasurer Company Minneapolis, MN 55474 RiverSource Service 734 Ameriprise Financial Center, Treasurer Corporation Minneapolis, MN 55474 RiverSource Services, Inc. Treasurer RiverSource Tax Advantaged Treasurer Investments, Inc. Securities America Advisors 12325 Port Grace Blvd., Lavista, Director Inc. NE68128-8204 Securities America Financial 7100 W. Center Rd., Ste. 500, Director Corporation Omaha, NE 68106-2716 Securities America, Inc. 12325 Port Grace Blvd., Lavista, Director NE68128 Threadneedle Asset Management 60 St. Mary Axe, London EC3A 8JQ Director Holdings Ltd. Threadneedle Asset Management 60 St. Mary Axe, London EC3A 8JQ Director Holdings Sarl
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------ -------------------------------- ------------------------------------- Amy K. Johnson J. & W. Seligman & Co. 100 Park Avenue, Chief Administrative Officer Chief Administrative Incorporated New York, NY 10017 Officer Ameriprise Trust Company 200 Ameriprise Financial Center, President Minneapolis, MN 55474 Ameriprise Financial Inc. 200 Ameriprise Financial Center, Vice President - Asset Management Minneapolis, MN 55474 and Trust Services
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- --------------------------------- -------------------------------------- Christopher Paul Advisory Capital Strategies Vice President Keating, Director and Group, Inc. Head of Institutional Sales, Client Service and Consultant Relationships Ameriprise Trust Company 200 Ameriprise Financial Center, Director and Vice President Minneapolis, MN 55474 Boston Equity General Partner Vice President LLC J. & W. Seligman & Co. 100 Park Avenue Head of Institutional Sales, Client Incorporated New York, NY 10017 Service and Consultant Relationships RiverSource Fund Distributors, Vice President Inc. RiverSource Services, Inc. Vice President Seligman Focus Partners LLC 100 Park Avenue Vice President New York, NY 10017 Seligman Health Partners LLC 100 Park Avenue Vice President New York, NY 10017 Seligman Health Plus Partners 100 Park Avenue Vice President LLC New York, NY 10017 Seligman Partners LLC 100 Park Avenue Vice President New York, NY 10017
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- ---------------------------------- -------------------------------------- Michelle Marie Ameriprise Bank, FSB 9393 Ameriprise Financial Director Keeley, Director and Center, Minneapolis, MN 55474 Executive Vice President - Equity and Fixed Income Ameriprise Certificate Company 70100 Ameriprise Financial Vice President - Investments Center, Minneapolis, MN 55474 Ameriprise Financial, Inc. 200 Ameriprise Financial Center, Executive Vice President - Equity and Minneapolis, MN 55474 Fixed Income Ameriprise Financial Services, 5221 Ameriprise Financial Executive Vice President - Equity and Inc. Center, Minneapolis, MN 55474 Fixed Income IDS Property Casualty 3500 Packerland Drive Vice President - Investments Insurance Company De Pere, WI 54115 J. & W. Seligman & Co. 100 Park Avenue, New York, NY Executive Vice President - Equity and Incorporated 10017 Fixed Income Kenwood Capital Management LLC 333 S. 7th Street, Suite 2330, Director Minneapolis, MN 55402 RiverSource CDO Seed Chairperson and President Investments, LLC RiverSource Life Insurance 829 Ameriprise Financial Center, Director, Vice President - Investments Company Minneapolis, MN 55474 RiverSource Life Insurance 20 Madison Ave. Extension, Vice President - Investments Company of New York Albany, NY 12005
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- ---------------------------------- -------------------------------------- Eleanor T.M. Hoagland, Ameriprise Certificate Company 70100 Ameriprise Financial Center, Chief Compliance Officer Chief Compliance Minneapolis, MN 55474 Officer, Money Laundering Prevention Officer and Identity Theft Prevention Officer Ameriprise Trust Company 200 Ameriprise Financial Center, Chief Resolution Officer Minneapolis, MN 55474 J. & W. Seligman & Co. 100 Park Avenue, Money Laundering Prevention Officer Incorporated New York, NY 10017 Kenwood Capital Management LLC 333 S. 7th Street, Suite 2330, Chief Compliance Officer Minneapolis, MN 55474 RiverSource Fund Distributors, Money Laundering Prevention Officer Inc. RiverSource Service Corporation 734 Ameriprise Financial Center, Chief Compliance Officer Minneapolis, MN 55474 RiverSource Services, Inc. Money Laundering Prevention Officer Seligman Data Corp. 100 Park Avenue, Chief Compliance Officer New York, NY 10017
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- ---------------------------------- -------------------------------------- Brian Joseph McGrane, Advisory Capital Strategies Vice President and Chief Financial Director, Vice Group Inc. Officer President and Chief Financial Officer Advisory Select LLC Dissolved Vice President and Chief Financial Officer (resigned 5/1/07) Ameriprise Certificate Company 70100 Ameriprise Financial Vice President and Chief Financial Center, Minneapolis, MN 55474 Officer (resigned 8/24/07) Ameriprise Financial, Inc. 200 Ameriprise Financial Center, Senior Vice President and Lead Minneapolis, MN 55474 Financial Officer Ameriprise Financial Services, 5221 Ameriprise Financial Vice President and Lead Financial Inc. Center, Minneapolis, MN 55474 Officer - Finance
Ameriprise Holdings, Inc. Director Ameriprise Trust Company 200 Ameriprise Financial Center, Director, Vice President and Chief Minneapolis, MN 55474 Financial Officer Boston Equity General Partner Vice President and Chief Financial LLC Officer J. & W. Seligman & Co. 100 Park Avenue, New York, NY Director, Vice President and Chief Incorporated 10017 Financial Officer RiverSource CDO Seed Board Member Investments, LLC RiverSource Life Insurance 829 Ameriprise Financial Center, Director, Executive Vice President Company Minneapolis, MN 55474 and Chief Financial Officer Seligman Focus Partners LLC 100 Park Avenue, New York, NY Vice President and Chief Financial 10017 Officer Seligman Health Partners LLC 100 Park Avenue, New York, NY Vice President and Chief Financial 10017 Officer Seligman Health Plus Partners 100 Park Avenue, New York, NY Vice President and Chief Financial LLC 10017 Officer Seligman Partners LLC 100 Park Avenue, New York, NY Vice President and Chief Financial 10017 Officer
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- --------------------------------- -------------------------------------- Thomas R. Moore, Advisory Capital Strategies Secretary Secretary Group Inc. American Enterprise Investment 70400 AXP Financial Center, Secretary Services Inc. Minneapolis, MN 55474 Ameriprise Bank, FSB 9393 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 Ameriprise Financial, Inc. 200 Ameriprise Financial Center, Vice President, Chief Governance Minneapolis, MN 55474 Officer and Corporate Secretary Ameriprise Financial Services, 5221 Ameriprise Financial Secretary Inc. Center, Minneapolis, MN 55474 Ameriprise Holdings, Inc. Secretary Ameriprise Insurance Company 3500 Packerland Drive Secretary De Pere, WI 54115 Ameriprise Trust Company 200 Ameriprise Financial Center, Secretary Minneapolis, MN 55474 Boston Equity General Partner Secretary LLC IDS Capital Holdings Inc. Secretary IDS Futures Corporation 570 Ameriprise Financial Center, Secretary Minneapolis, MN 55474 IDS Management Corporation Secretary IDS Property Casualty 3500 Packerland Drive Secretary Insurance Company De Pere, WI 54115 Investors Syndicate Secretary Development Corporation J. & W. Seligman & Co. 100 Park Avenue, New York, NY Secretary Incorporated 10017 RiverSource CDO Seed Secretary Investments, LLC RiverSource Fund Distributors, Secretary Inc. RiverSource Distributors, Inc. 50611 Ameriprise Financial Secretary Center, Minneapolis, MN 55474
RiverSource Life Insurance 20 Madison Ave. Extension, Secretary Company of New York Albany, NY 12005 RiverSource Life Insurance 829 Ameriprise Financial Center, Secretary Company Minneapolis, MN 55474 RiverSource Service 734 Ameriprise Financial Center, Secretary Corporation Minneapolis, MN 55474 RiverSource Services, Inc. Secretary RiverSource Tax Advantaged Secretary Investments, Inc. Seligman Focus Partners LLC 100 Park Avenue, New York, NY Secretary 10017 Seligman Health Partners LLC 100 Park Avenue, New York, NY Secretary 10017 Seligman Health Plus Partners 100 Park Avenue, New York, NY Secretary LLC 10017 Seligman Partners LLC 100 Park Avenue, New York, NY Secretary 10017
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- --------------------------------- -------------------------------------- Scott Roane Plummer, Advisory Capital Strategies Chief Legal Officer Chief Legal Officer Group Inc. and Assistant Secretary Ameriprise Certificate Company 70100 Ameriprise Financial Vice President, General Counsel and Center, Minneapolis, MN 55474 Secretary Ameriprise Financial, Inc. 200 Ameriprise Financial Center, Vice President - Asset Management Minneapolis, MN 55474 Compliance Ameriprise Financial Services, 5221 Ameriprise Financial Vice President and Chief Counsel - Inc. Center, Minneapolis, MN 55474 Asset Management Ameriprise Trust Company Chief Legal Officer Boston Equity General Partner Chief Legal Officer LLC J. & W. Seligman & Co. 100 Park Avenue, New York, NY Chief Legal Officer Incorporated 10017 RiverSource Distributors, Inc. 50611 Ameriprise Financial Chief Counsel Center, Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Center, Vice President and Chief Legal Minneapolis, MN 55474 Officer RiverSource Fund Distributors, Chief Counsel Inc. RiverSource Services, Inc. Chief Counsel Seligman Focus Partners LLC 100 Park Avenue, New York, NY Chief Counsel 10017 Seligman Health Partners LLC 100 Park Avenue, New York, NY Chief Counsel 10017 Seligman Health Plus Partners 100 Park Avenue, New York, NY Chief Counsel LLC 10017 Seligman Partners LLC 100 Park Avenue, New York, NY Chief Counsel 10017
Name and Title Other Companies Address* Title within other companies - ---------------------- ------------------------------- --------------------------------- -------------------------------------- William Frederick Advisory Capital Strategies Director and President 'Ted' Truscott Group Inc. Chairman, Chief Investment Officer and President Ameriprise Certificate Company 70100 Ameriprise Financial Director, President and Chief Center, Minneapolis, MN 55474 Executive Officer Ameriprise Financial, Inc. 200 Ameriprise Financial Center, President - U.S. Asset Management, Minneapolis, MN 55474 Annuities and Chief Investment Officer Ameriprise Financial Services, 5221 Ameriprise Financial Senior Vice President and Chief Inc. Center, Minneapolis, MN 55474 Investment Officer Ameriprise Trust Company 200 Ameriprise Financial Center, Director Minneapolis, MN 55474 Boston Equity General Partner President LLC IDS Capital Holdings Inc. Director and President J. & W. Seligman & Co. 100 Park Avenue, New York, NY Chairman and President Incorporated 10017 Kenwood Capital Management LLC 333 S. 7th Street, Suite 2330, Board Member Minneapolis, MN 55402 RiverSource Distributors, Inc. 50611 Ameriprise Financial Chairman and Chief Executive Officer Center, Minneapolis, MN 55474 RiverSource Fund Distributors, Chairman and Chief Executive Officer Inc. RiverSource Life Insurance 829 Ameriprise Financial Center, Director Company Minneapolis, MN 55474 RiverSource Services, Inc. Chairman and Chief Executive Officer Seligman Focus Partners LLC 100 Park Avenue, New York, NY President 10017 Seligman Health Partners LLC 100 Park Avenue, New York, NY President 10017 Seligman Health Plus Partners 100 Park Avenue, New York, NY President LLC 10017 Seligman Partners LLC 100 Park Avenue, New York, NY President 10017 Threadneedle Asset Management 60 St. Mary Axe, London EC3A 8JQ Director Holdings Ltd. Threadneedle Asset Management 60 St. Mary Axe, London EC3A 8JQ Director Holdings Sarl
* Unless otherwise noted, address is 50606 Ameriprise Financial Center, Minneapolis, MN 55474 Item 27. Principal Underwriter (a) RiverSource Fund Distributors, Inc. acts as principal underwriter for the following investment companies: THE RIVERSOURCE FUNDS: RiverSource Bond Series, Inc.; RiverSource California Tax-Exempt Trust; RiverSource Dimensions Series, Inc.; RiverSource Diversified Income Series, Inc.; RiverSource Equity Series, Inc.; RiverSource Global Series, Inc.; RiverSource Government Income Series, Inc.; RiverSource High Yield Income Series, Inc.; RiverSource Income Series, Inc.; RiverSource International Managers Series, Inc.; RiverSource International Series, Inc.; RiverSource Investment Series, Inc.; RiverSource Large Cap Series, Inc.; RiverSource Managers Series, Inc.; RiverSource Market Advantage Series, Inc.; RiverSource Money Market Series, Inc.; RiverSource Sector Series, Inc.; RiverSource Selected Series, Inc.; RiverSource Series Trust; RiverSource Short Term Investments Series, Inc.; RiverSource Special Tax-Exempt Series Trust; RiverSource Strategic Allocation Series, Inc., RiverSource Strategy Series, Inc.; RiverSource Tax-Exempt Income Series, Inc.; RiverSource Tax-Exempt Money Market Series, Inc., RiverSource Tax-Exempt Series, Inc.; and RiverSource Variable Series Trust. THE SELIGMAN FUNDS: Seligman Asset Allocation Series, Inc., Seligman Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Core Fixed Income Fund, Inc., Seligman Frontier Fund, Inc., Seligman Growth Fund, Inc., Seligman Global Fund Series, Inc., Seligman High Income Fund Series, Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman Municipal Fund Series, Inc., Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal Fund Series, Seligman Portfolios, Inc., Seligman TargetHorizon ETF Portfolios, Inc. and Seligman Value Fund Series, Inc. (b) As to each director, principal officer or partner of RiverSource Fund Distributors, Inc.
Name and Principal Business Address Positions and Offices with Underwriter Positions and Offices with Fund - --------------------------------- -------------------------------------- ----------------------------------- William Frederick "Ted" Truscott* Chairman and Chief Executive Officer Director and Vice President Jeffrey Lee McGregor, Sr.* Director and President None Patrick Thomas Bannigan* Director and Vice President President Paul J. Dolan* Chief Operating Officer and Chief None Administrative Officer Jeffrey P. Fox* Chief Financial Officer Treasurer Christopher P. Keating* Vice President None Emily Calcagno** Vice President None Scott Roane Plummer* Chief Counsel Vice President, General Counsel and Secretary James F. Angelos* Chief Compliance Officer None Thomas R. Moore* Secretary None Walter Berman* Treasurer None Eleanor T. M. Hoagland** Anti-Money Laundering Officer None
* Business address is: 50611 Ameriprise Financial Center, Minneapolis, MN 55474 ** Business address is: 100 Park Avenue, New York, NY 10017. (c) Not Applicable Item 28. Location of Accounts and Records Ameriprise Financial, Inc. 707 Second Avenue, South Minneapolis, MN 55402 Iron Mountain Records Management 920 & 950 Apollo Road Eagan, MN 55121 Iron Mountain Records Management is an off-site storage facility housing historical records that are no longer required to be maintained on-site. Records stored at this facility include various trading and accounting records, as well as other miscellaneous records. Item 29. Management Services Not Applicable Item 30. Undertakings Not Applicable SIGNATURES Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant, RIVERSOURCE GOVERNMENT INCOME SERIES, INC., certifies that it meets all of the requirements for effectiveness of this Amendment to its Registration Statement under Rule 485(b) under the Securities Act and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis, and the State of Minnesota on the 27th day of July, 2009. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. By /s/ Patrick T. Bannigan ---------------------------------- Patrick T. Bannigan President By /s/ Jeffrey P. Fox ---------------------------------- Jeffrey P. Fox Treasurer Pursuant to the requirements of the Securities Act, this Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated on the 27th day of July, 2009.
Signature Capacity Signature Capacity - --------- ------------------ ----------------------------- -------- /s/ Stephen R. Lewis, Jr.* Chair of the Board /s/ Jeffrey Laikind* Director - ---------------------------- ----------------------------- Stephen R. Lewis, Jr. Jeffrey Laikind /s/ Kathleen A. Blatz* Director /s/ John F. Maher* Director - ---------------------------- ----------------------------- Kathleen A. Blatz John F. Maher /s/ Arne H. Carlson* Director /s/ Catherine James Paglia* Director - ---------------------------- ----------------------------- Arne H. Carlson Catherine James Paglia /s/ Pamela G. Carlton* Director /s/ Leroy C. Richie* Director - ---------------------------- ----------------------------- Pamela G. Carlton Leroy C. Richie /s/ Patricia M. Flynn* Director /s/ Alison Taunton-Rigby* Director - ---------------------------- ----------------------------- Patricia M. Flynn Alison Taunton-Rigby /s/ Anne P. Jones* Director /s/ William F. Truscott* Director - ---------------------------- ----------------------------- Anne P. Jones William F. Truscott
* Signed pursuant to Directors/Trustees Power of Attorney, dated Jan. 8, 2009, filed electronically on or about Feb. 20, 2009 as Exhibit (q) to Registrant's Post-Effective Amendment No. 46 to Registration Statement No. 2-96512, by: /s/ Scott R. Plummer - ------------------------------------- Scott R. Plummer CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 47 TO REGISTRATION STATEMENT NO. 2-96512 This post-effective amendment comprises the following papers and documents: The facing sheet. Part A. The prospectuses for: RiverSource Short Duration U.S. Government Fund. RiverSource U.S. Government Mortgage Fund. Part B. Statement of Additional Information. Financial Statements. Part C. Other information. The signatures. EXHIBIT INDEX (a)(6) Certificate of Designation, dated Feb. 23, 2009, reflecting addition of Class R2 shares to RiverSource Short Duration U.S. Government Fund. (e)(1) Distribution Agreement, effective Nov. 7, 2008, amended and restated July 13, 2009, between Registrant and RiverSource Fund Distributors, Inc. (h)(1) Administrative Services Agreement, dated Oct. 1, 2005, amended and restated July 13, 2009, between Registrant and Ameriprise Financial, Inc. (h)(2) Transfer Agency Agreement, dated Oct. 1, 2005, amended and restated July 13, 2009, between Registrant and RiverSource Service Corporation. (h)(4) Master Fee Cap/Fee Waiver Agreement, dated Oct. 1, 2005, amended and restated July 13, 2009 between RiverSource Investments, LLC, Ameriprise Financial, Inc., RiverSource Service Corporation, RiverSource Fund Distributors, Inc. and the Registrant. (h)(6) Agreement and Plan of Reorganization, dated Jan. 10, 2009, between Seligman High Income Fund Series, on behalf of Seligman U.S. Government Securities Fund, and RiverSource Government Income Series, Inc., on behalf of RiverSource Short Duration U.S. Government Fund. (i) Opinion and consent of counsel as to the legality of the securities being registered. (j) Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP). (m) Plan of Distribution and Agreement of Distribution, effective Nov. 7, 2008, amended and restated July 13, 2009, between Registrant and RiverSource Fund Distributors, Inc. (n) Rule 18f - 3(d) Plan, amended and restated as of July 13, 2009.
EX-99.A.6 2 c51790exv99waw6.txt CERTIFICATE OF DESIGNATION, DATED FEB 23, 2009 RIVERSOURCE GOVERNMENT INCOME SERIES, INC. CERTIFICATE OF DESIGNATION PURSUANT TO MINNESOTA STATUTES, SECTION 302A.401, SUBD. 3 The undersigned, being the duly elected Secretary of RiverSource Government Income Series, Inc., a Minnesota corporation (the Company), hereby certifies that the following is a true, complete and correct copy of resolutions duly adopted by a majority of the directors of the Company on January 8, 2009: APPROVAL OF DESIGNATION OF NEW CLASS WITHIN AN EXISTING SERIES WHEREAS, the articles of incorporation of the Company permit the board of directors (the Board), by resolution, to authorize the issuance of shares of the Company in separate series and classes and to establish the rights and preferences of each such series and class; and WHEREAS, the Board previously has adopted resolutions, which have been filed with the Minnesota Secretary of State pursuant to Minn. Stat. Section 302A.401, Subd. 3, authorizing the issuance of shares of the Company in the following series and classes and establishing the rights and preferences of such series and classes:
Series Classes Within Series - ------ --------------------- RiverSource Short Duration U.S. Government Fund A, B, C, I, R4 and W RiverSource U.S. Government Mortgage Fund A, B, C, I and R4; and
WHEREAS, the Board wishes to establish a new class of shares within an existing series, RiverSource Short Duration U.S. Government Fund; now, therefore, be it RESOLVED, That the Board hereby establishes the following new class (the New Class) within an existing series, RiverSource Short Duration U.S. Government Fund (the Existing Series):
Existing Series New Class Within Existing Series - --------------- -------------------------------- RiverSource Short Duration U.S. Government Fund R2; And further
RESOLVED, That the Board may from time to time, by resolution duly adopted, change the names of the New Class, with such change to be effective when it is set forth in the prospectus or prospectuses pursuant to which it is offered to the public; and further RESOLVED, That the New Class shall be subject to those differences in the amount of distribution costs, shareholder service fees, transfer agent fees, exchange privileges and other aspects as are set out in the registration statement pertaining thereto filed with the Securities and Exchange Commission and effective on the date the stock was purchased or exchanged, or as subsequently changed as permitted by law, and in all other manner the New Class shall be the same as any other class; and further RESOLVED, That assets identified as relating to the New Class shall belong solely to the shareholders of that class and liabilities, costs and expenses applicable to the New Class shall be obligations solely of that class, it being understood that dividends and distributions may vary between and among classes of the Existing Series to reflect different allocations of liabilities, costs and expenses and the resultant differences in net asset values of the classes; and further RESOLVED, That the Existing Series may convert the New Class designation on any share to another class designation automatically in accordance with the terms set forth in the registration statement pertaining thereto filed with the Securities and Exchange Commission and effective on the date the stock was purchased or exchanged or as subsequently changed as permitted by law; and further RESOLVED, That each share of capital stock of the New Class shall be voted by class (a) as required by the provisions of the Investment Company Act of 1940, as amended, and all rules and regulations promulgated thereunder; (b) when the Board determines that a matter affects the New Class in a materially different way; or (c) when the Board determines a matter affects only one or some of the series or classes of the Company's capital stock, including the New Class; and further RESOLVED, That all provisions pertaining to capital stock as set forth in Article III of the Company's articles of incorporation apply to the New Class. IN WITNESS WHEREOF, the undersigned has signed this Certificate of Designation on February 23, 2009. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. /s/ Scott R. Plummer ---------------------------------------- Scott R. Plummer Secretary SEAL STATE OF MINNESOTA DEPARTMENT OF STATE FILED MAR 02 2009 /s/ Mark Ritchie Secretary of State EX-99.E.1 3 c51790exv99wew1.txt DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT AMENDED AND RESTATED This Distribution Agreement, effective as of November 7, 2008, amended and restated July 13, 2009, ("Agreement"), is by and between RiverSource Fund Distributors, Inc. ("Distributor"), a Delaware corporation, and the Corporations and Trusts listed in Schedule A, each on behalf of their underlying series. The terms "Fund" or "Funds" are used to refer to the corporation or trust and the underlying series as context requires. Part One: APPOINTMENT OF DISTRIBUTOR (1) The Fund covenants and agrees that, during the term of this Agreement and any renewal or extension, Distributor shall have the right to act as principal underwriter for the Fund and to offer for sale and to distribute any and all shares of each class of capital stock issued or to be issued by the Fund, upon the terms described herein and in the Fund's prospectus and statement of additional information included in the Fund's registration statement most recently filed from time to time with the Securities and Exchange Commission and effective under the Securities Act of 1933 ("1933 Act") and the Investment Company Act of 1940, as amended ("1940 Act"), or as the Fund's prospectus may otherwise be amended or supplemented and filed with the SEC pursuant to Rule 497 of the 1933 Act. The right to act as principal underwriter will not apply: (a) to transactions in connection with the merger or consolidation of any other investment company or personal holding company with the Fund or the acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding shares of any such company by the Fund; (b) pursuant to reinvestment of dividends or capital gains distributions; or (c) pursuant to the reinstatement privilege afforded redeeming shareholders. (2) Distributor hereby covenants and agrees to act as the principal underwriter of each class of capital shares issued and to be issued by the Fund during the period of this Agreement and agrees to offer for sale such shares as long as such shares remain available for sale, unless Distributor is unable or unwilling to make such offer for sale or sales or solicitations therefore legally because of any federal, state, provincial or governmental law, rule or agency or for any financial reason. Distributor agrees to devote reasonable time and effort to effect sales of shares of the Fund but is not obligated to sell any specific number of shares. It is understood that Distributor may act as principal underwriter for other entities including registered investment companies. (3) Distributor is authorized to enter into selling agreements with broker-dealers that are lawfully registered under federal law and any applicable state law and with third party administrators and institutions that are lawfully able to distribute securities (all of which are referred to as "Selling Dealers") that provide for the Selling Dealers to obtain unconditional orders for purchases of the Fund's shares from investors. Part Two: SALE OF FUND SHARES (1) With respect to the offering for sale and sale of shares of each class to be issued by the Fund, it is mutually understood and agreed that such shares are to be sold on the following terms: RiverSource Fund Distributors, Inc. - Distribution Agreement (Retail) Page 2 (a) For orders for Fund shares placed with Distributor by Selling Dealers, Distributor has the right, as principal, to buy from the Fund the shares needed to fill unconditional orders from Selling Dealers. (b) The price Distributor will pay to the Fund is the net asset value, determined as set forth in the prospectus. (c) The shares will be resold by Distributor to Selling Dealers for the public offering price determined as set forth in the prospectus. Shares may be sold to certain groups or in certain transactions without a sales charge or at a reduced sales charge, as described in the prospectus. Neither Distributor nor any Selling Dealer shall give any information or make any representations, other than those contained in the prospectus, statement of additional information or any sales literature specifically approved by the Fund. (d) The Fund or its transfer agent shall be promptly advised of all orders received. (e) The net asset value of the shares will be determined by the Fund or any agent of the Fund in accordance with the method set forth in the prospectus. In the event the Fund suspends the determination of the net asset value as permitted under Section 22(c) of the Investment Company Act, the computation of the net asset value for the purpose of determining the number of shares or fractional shares to be acquired may be deferred until the close of business on the first full business day upon which the net asset value is next computed. (f) Distributor or the Fund may in its discretion refuse to accept orders for shares and the Distributor may provide similar discretion to Selling Dealers. (g) Distributor in its sole discretion and as disclosed in the prospectus or as otherwise required will determine the compensation paid to Selling Dealers. (h) Distributor will make such reports as may be requested from time to time by the Fund regarding Selling Dealers. (2) The Fund agrees to make prompt and reasonable effort to do any and all things necessary, in the opinion of Distributor, to have and to keep the Fund and the shares properly registered or qualified in all appropriate jurisdictions and, as to shares, in such amounts as Distributor may from time to time designate in order that the Fund's shares may be offered or sold in such jurisdictions. (3) Distributor agrees to cause to be delivered to each purchaser a prospectus or such other disclosure document as may be required by law. (4) Distributor agrees to comply with the requirements of Rule 22c-2 of the 1940 Act, including entering into Shareholder Information Agreements with authorized Selling Dealers. Part Three: REPURCHASE OR REDEMPTION OF FUND SHARES (1) In connection with the repurchase of shares, Distributor will act as agent of the Fund. Any outstanding shares may be tendered for redemption at any time and the Fund agrees to repurchase or redeem the shares in accordance with the terms and conditions of the prospectus. The Fund will pay the amount of the redemption price to shareholders on or before the seventh business day after receiving the notice of redemption in proper form except as provided for in paragraph (2). Any RiverSource Fund Distributors, Inc. - Distribution Agreement (Retail) Page 3 applicable contingent deferred sales charge will be paid to Distributor and the balance will be paid to or for the account of the shareholder. (2) The net asset value of the shares will be determined by the Fund or any agent of the Fund in accordance with the method set forth in the prospectus. In the event the Fund suspends the determination of the net asset value as permitted under Section 22(c) of the Investment Company Act, as amended, the computation of the net asset value for the purpose of determining the redemption price on the number of shares or fractional shares to be redeemed or repurchased may be deferred until the close of business on the first full business day upon which the net asset value is next computed. Part Four: ALLOCATION OF EXPENSES AND COMPENSATION (1) Except as provided for by a plan of distribution pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan"), Distributor's compensation as principal underwriter shall be (a) that part of the sales charge retained by Distributor and (b) amounts payable as contingent deferred sales charges on certain redemptions of shares. (2) Distributor shall bear all expenses incurred by it in connection with its duties and activities under this Agreement including the payment to Selling Dealers of any sales commissions, service fees, revenue sharing, and expenses for sales of a Fund's Shares (except such expenses as are specifically undertaken herein by a Fund) incurred or paid by Selling Dealers, including affiliated Selling Dealers. Distributor shall bear the costs and expenses of preparing, printing and distributing prospectuses, statements of additional information, shareholder reports and any supplementary sales literature used by the Distributor or furnished by it for use by Selling Dealers in connection with the offering of the shares for sale. Any expenses of advertising incurred in connection with such offering will also be the obligation of the Distributor. It is understood and agreed that, so long as a Fund's Rule 12b-1 Plan continues in effect, any expenses incurred by the Distributor hereunder may be paid in accordance with the terms of such Rule 12b-1 Plan. (3) The Fund shall pay the filing fees and the cost and expenses payable to each state for continuing to offer shares therein. Part Five: MISCELLANEOUS (1) Distributor shall be deemed to be an independent contractor and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Fund. (2) Distributor agrees to perform such agreed anti-money laundering ("AML") functions with respect to purchases of the Funds' shares as the Funds or their agent may delegate to Distributor from time to time or as Distributor is otherwise obligated to perform. In accordance with mutually-agreed procedures, Distributor shall use its best efforts in carrying out such agreed functions consistent with the requirements of the Funds' AML program. The Funds acknowledge that their shareholders (which for this purpose shall mean only shareholders of record) are customers of the Funds and not customers of Distributor and the Funds retain legal responsibility under the USA PATRIOT Act for AML compliance with respect to transactions in their shares. Distributor agrees to cooperate with any request from examiners of United States Government agencies having jurisdiction over the Funds for information and records relating to the Funds' AML program and consents to inspection by such examiners for this purpose. RiverSource Fund Distributors, Inc. - Distribution Agreement (Retail) Page 4 (3) Distributor and the Fund agree to conform with all applicable state and federal laws and regulations relating to any rights or obligations under the terms of this Agreement. (4) The Fund agrees that it will furnish Distributor with information with respect to the affairs and accounts of the Fund, and in such form as Distributor may from time to time reasonably require, and further agrees that Distributor, at all reasonable times, shall be permitted to inspect the books and records of the Fund. (5) Distributor agrees to indemnify and hold harmless the Fund and each person who has been, is, or may hereafter be a Board member of the Fund against expenses reasonably incurred by any of them in connection with any claim or in connection with any action, suit or proceeding to which any of them may be a party, which arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact, or out of any alleged misrepresentation or omission to state a material fact, on the part of Distributor or any agent or employee of Distributor or any other person for whose acts Distributor is responsible or is alleged to be responsible, unless such misrepresentation or omission was made in reliance upon information furnished by the Fund. Distributor likewise agrees to indemnify and hold harmless the Fund and each such person in connection with any claim or in connection with any action, suit or proceeding which arises out of or is alleged to arise out of Distributor's (or an affiliate of Distributor's) failure to exercise reasonable care and diligence. The term "expenses" includes amounts paid in satisfaction of judgments or in settlements which are made with Distributor's consent. The foregoing rights of indemnification shall be in addition to any other rights to which the Fund or a Board member may be entitled as a matter of law. (6) Neither this Agreement nor any transaction had pursuant hereto shall be invalidated or in any way affected by the fact that Board members, officers, agents and/or shareholders of the Fund are or may be interested persons of Distributor as directors, officers, shareholders or otherwise; that directors, officers, shareholders or agents of Distributor are or may be interested persons of the Fund as Board members, officers, shareholders or otherwise; or that Distributor is or may be interested in the Fund as shareholder or otherwise, provided, however, that neither Distributor nor any officer or director of Distributor or any officers or Board members of the Fund shall sell to or buy from the Fund any property or security other than a security issued by the Fund, except in accordance with a rule, regulation or order of the U.S. Securities and Exchange Commission (the "SEC"). (7) For the purposes of this Agreement, a "business day" shall have the same meaning as is given to the term in the By-laws of the Fund. (8) Any notice under this Agreement shall be given in writing, addressed and delivered, or mailed postpaid, to the parties to this Agreement at each company's principal place of business in Minneapolis, Minnesota, or to such other address as either party may designate in writing mailed to the other. (9) Distributor agrees that no officer, director or employee of Distributor will deal for or on behalf of the Fund with himself as principal or agent, or with any corporation or partnership in which he may have a financial interest, except that this shall not prohibit: (a) Officers, directors and employees of Distributor from having a financial interest in the Fund or in Distributor. (b) The purchase of securities for the Fund, or the sale of securities owned by the Fund, through a security broker or dealer, one or more of whose partners, officers, directors or employees is an officer, director or employee of Distributor, provided such transactions are handled in the RiverSource Fund Distributors, Inc. - Distribution Agreement (Retail) Page 5 capacity of broker only and provided commissions charged do not exceed customary brokerage charges for such services. (c) Transactions with the Fund by a broker-dealer affiliate of Distributor if allowed by rule or order of the SEC and if made pursuant to procedures adopted by the Fund's Board. (10) Distributor agrees that, except as otherwise provided in this Agreement or as may be permitted consistent with the use of a broker-dealer affiliate of Distributor under applicable provisions of the federal securities laws, neither it nor any of its officers, directors or employees shall at any time during the period of this Agreement make, accept or receive, directly or indirectly, any fees, profits or emoluments of any character in connection with the purchase or sale of securities (except securities issued by the Fund) or other assets by or for the Fund. (11) This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties. (12) This Agreement is governed by the laws of the State of Minnesota. (13) For each Fund that is organized as a Massachusetts Business Trust, a copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund, personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust. Part Six: TERMINATION (1) This Agreement shall continue in effect from year to year unless and until terminated by Distributor or the Fund, except that such continuance shall be specifically approved at least annually by a vote of a majority of the board members who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and by a majority of the board members or by vote of a majority of the outstanding voting securities of the Fund. As used in this paragraph, the term "interested person" shall have the meaning as set forth in the 1940 Act. (2) This Agreement may be terminated by Distributor or the Fund at any time by giving the other party sixty (60) days written notice of such intention to terminate. (3) This agreement shall terminate in the event of its assignment, the term "assignment" for this purpose having the same meaning as set forth in the 1940 Act. RiverSource Fund Distributors, Inc. - Distribution Agreement (Retail) Page 6 IN WITNESS WHEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written. RIVERSOURCE BOND SERIES, INC. RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RIVERSOURCE DIMENSIONS SERIES, INC. RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RIVERSOURCE EQUITY SERIES, INC. RIVERSOURCE GLOBAL SERIES, INC. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RIVERSOURCE INCOME SERIES, INC. RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RIVERSOURCE INTERNATIONAL SERIES, INC. RIVERSOURCE INVESTMENT SERIES, INC. RIVERSOURCE LARGE CAP SERIES, INC. RIVERSOURCE MANAGERS SERIES, INC. RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RIVERSOURCE MONEY MARKET SERIES, INC. RIVERSOURCE SECTOR SERIES, INC. RIVERSOURCE SELECTED SERIES, INC. RIVERSOURCE SERIES TRUST RIVESROURCE SHORT TERM INVESTMENTS SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RIVERSOURCE STRATEGY SERIES, INC. RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC. RIVERSOURCE TAX-EXEMPT SERIES, INC. SELIGMAN ASSET ALLOCATION SERIES, INC. SELIGMAN CAPITAL FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMON STOCK FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. SELIGMAN GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. SELIGMAN MUNICIPAL FUND SERIES, INC. SELIGMAN MUNICIPAL SERIES TRUST SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. SELIGMAN VALUE FUND SERIES, INC. By: /s/ Patrick T. Bannigan --------------------------------- Patrick T. Bannigan President RIVERSOURCE FUND DISTRIBUTORS, INC. By: /s/ William F. Truscott --------------------------------- William F. Truscott Chairman of the Board and Chief Executive Officer RiverSource Fund Distributors, Inc. - Distribution Agreement (Retail) Page 7 SCHEDULE A FUNDS Each Registrant is a Minnesota corporation except Seligman Asset Allocation Series, Inc., Seligman Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Core Fixed Income Fund, Inc., Seligman Frontier Fund, Inc., Seligman Global Fund Series, Inc., Seligman Growth Fund, Inc., Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman Municipal Fund Series, Inc., Seligman TargetHorizon ETF Portfolios, Inc., Seligman Value Fund Series, Inc., and RiverSource LaSalle International Real Estate Fund, Inc., which are Maryland corporations, and RiverSource California Tax-Exempt Trust, RiverSource Special Tax-Exempt Series Trust, RiverSource Series Trust, Seligman High Income Fund Series and Seligman Municipal Series Trust, which are Massachusetts business trusts: RIVERSOURCE BOND SERIES, INC. RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RIVERSOURCE DIMENSIONS SERIES, INC. RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RIVERSOURCE EQUITY SERIES, INC. RIVERSOURCE GLOBAL SERIES, INC. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RIVERSOURCE INCOME SERIES, INC. RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RIVERSOURCE INTERNATIONAL SERIES, INC. RIVERSOURCE INVESTMENT SERIES, INC. RIVERSOURCE LARGE CAP SERIES, INC. RIVERSOURCE MANAGERS SERIES, INC. RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RIVERSOURCE MONEY MARKET SERIES, INC. RIVERSOURCE SECTOR SERIES, INC. RIVERSOURCE SELECTED SERIES, INC. RIVERSOURCE SERIES TRUST RIVESROURCE SHORT TERM INVESTMENTS SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RIVERSOURCE STRATEGY SERIES, INC. RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC. RIVERSOURCE TAX-EXEMPT SERIES, INC. SELIGMAN ASSET ALLOCATION SERIES, INC. SELIGMAN CAPITAL FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMON STOCK FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. SELIGMAN GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. SELIGMAN MUNICIPAL FUND SERIES, INC. SELIGMAN MUNICIPAL SERIES TRUST SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. SELIGMAN VALUE FUND SERIES, INC. EX-99.H.1 4 c51790exv99whw1.txt ADMINISTRATIVE SERVICES AGREEMENT ADMINISTRATIVE SERVICES AGREEMENT AMENDED AND RESTATED This Administrative Services Agreement ("Agreement"), effective as of October 1, 2005, amended and restated July 13, 2009, is by and between Ameriprise Financial, Inc. ("Administrator"), a Delaware corporation, and the Corporations and Trusts ("Registrants") listed in Schedule A, each on behalf of its underlying series. The terms "Fund" or "Funds" are used to refer to either the Registrant or the underlying series as context requires. PART ONE: SERVICES (1) The Fund hereby retains Administrator, and Administrator hereby agrees, for the period of this Agreement and under the terms and conditions set forth in this Agreement, to furnish the Fund continuously with all administrative, accounting, and other services, as set forth in more detail, below: (a) Administration services necessary and appropriate for the business of the Fund, including but not limited to: (i) Preparing all general or routine shareholder communications including notices of dividends and capital gains distributions; (ii) Preparing and filing of shareholder reports and other required regulatory reports and communications; (iii) Preparing and filing of tax reports, including the Fund's income tax returns; (iv) Monitoring the Fund's compliance with Subchapter M of the Internal Revenue Code, and other applicable tax laws and regulations; (v) Executing the pricing process and monitoring the reliability of the valuation information received from the independent third-party pricing services and brokers; (vi) Coordinating and supervising relations with, and monitoring the performance of, custodians, depositories, transfer and pricing agents, accountants, underwriters, brokers and dealers, insurers, printers, Fund auditors, and other persons serving the Fund, deemed to be necessary or desirable; (vii) Maintaining Fund registration statement updates, and maintaining registration in the jurisdictions in which shares of the Fund are offered for sale; (viii) Preparing reports, information, surveys, or other analyses to third parties as deemed necessary or desirable by the Fund; and (ix) Preparing reports, evaluations, information, surveys, statistical analysis or other analysis of the Fund as the Boards of Directors/Trustees of the Fund ("Board") may request from time to time. (x) Providing support for the Board in connection with the Board's efforts to vote proxies on behalf of the Fund. (b) Accounting and recordkeeping services necessary and appropriate for the business of the Fund, including but not limited to: (i) Calculating and supervising publication of the Fund's daily net asset value quotations, pricing, performance and yield information, periodic earnings reports, and other financial data, consistent with federal securities laws and the Fund's current prospectus; and (ii) Monitoring the Fund's compliance with accounting operations control processes. (c) Other services necessary and appropriate for the operations of the Fund, not listed above, including but not limited to: (i) Providing compliance services, as directed by the Fund's Chief Compliance Officer, which may include monitoring the Fund's compliance with applicable federal, state and foreign securities laws, and the rules and regulations thereunder, as applicable, including, without limitation, the Investment Company Act of 1940, the Securities and Exchange Act of 1934 and the Securities Act of 1933, each as amended from time to time, and the rules promulgated under each of the foregoing; (ii) Providing legal support for closed-end funds to ensure compliance with the New York Stock Exchange listing standards, as they may be amended from time to time; (iii) Providing legal support of all administration services provided by Administrator under this Agreement; (iv) Providing other services related to this Agreement, including drafting, filing and maintaining Fund's charter documents with regulatory authorities; drafting, negotiating and maintaining any necessary Fund agreements; assisting in the preparation of regulatory filings; and arranging for and preparing or coordinating materials in connection with shareholder meetings, as necessary; (v) Providing services to the Fund and to the Board including coordinating and preparing materials for Board and Committee meetings; providing guidance and preparing materials on corporate and legal issues relevant to the Fund's business; and assisting in the Fund's procurement of fidelity bond coverage and error and omissions/directors (trustees) and officers insurance coverage; (vi) Maintaining the Fund's books and records in accordance with all applicable federal and state securities laws and regulations; and (vii) Maintaining, together with affiliated companies, a business continuation and recovery program for the Fund, provided that, to the extent consistent with applicable law and regulation, any services provided pursuant to clauses (iii) and (iv) in this Part (1)(d) shall, in the reasonable discretion of the chairperson of the Board (the "Chair"), be subject to review and oversight of the Board, any committee thereof or the Chair. (2) Administrator agrees to pay on behalf of the Fund such expenses as may be provided for in Part Three; subject always to the direction and control of the Board, the Executive Committee and the authorized officers of the Fund and to maintain an adequate organization of competent persons. Administrator agrees to meet with any persons at such times as the Board deems appropriate for the purpose of reviewing Administrator's performance under this Agreement. (3) The Fund agrees that it will furnish to Administrator any information that the latter may reasonably request with respect to the services performed or to be performed by Administrator under this Agreement. (4) It is understood and agreed that in furnishing the Fund with services under this Agreement, neither Administrator, nor any officer, director or agent thereof shall be held liable to shareholders of the Fund, the Fund or its creditors for errors of judgment or for anything except willful misfeasance, bad faith, or negligence in the performance of its duties, or reckless disregard of its obligations and duties under the terms of this Agreement. It is further understood and agreed that Administrator may rely upon information furnished to it reasonably believed to be accurate and reliable. PART TWO: COMPENSATION FOR SERVICES (1) The Fund agrees to pay to Administrator, and Administrator covenants and agrees to accept from the Fund in full payment for the services furnished, a fee as described in Schedule A. The fee for each calendar day of each year shall be equal to 1/365th (1/366th in each leap year) of the total amount computed. The computation shall be made for each day on the basis of net assets as of the close of the preceding day. In the case of the suspension of the computation of net asset value, the administrative fee for each day during the suspension shall be computed as of the close of business on the last full day on which the net assets were computed. As used in this Agreement "net assets" as of the close of a full day includes all transactions in shares of the Fund recorded on the books of the Fund for that day. (2) The administrative fee shall be paid on a monthly basis and, in the event of the termination of this Agreement, in whole or in part with respect to any Fund, the administrative fee accrued shall be prorated on the basis of the number of days that this Agreement is in effect during the month with respect to which such payment is made. (3) The administrative fee shall be paid in cash by the Fund to Administrator within five (5) business days after the last day of each month. PART THREE: ALLOCATION OF EXPENSES (1) The Fund agrees to pay: (a) Administrative fees payable to Administrator for its services under the terms of this Agreement. (b) Taxes. (c) Fees and charges of its independent certified public accountants for services the Fund requests. (d) Commitment fees on lines of credit. (e) Fees and expenses of attorneys (i) it employs in matters not involving the assertion of a claim by a third party against the Fund, its Board members and officers, (ii) it employs in conjunction with a claim asserted by the Board against Administrator, except that Administrator shall reimburse the Fund for such fees and expenses if it is ultimately determined by a court of competent jurisdiction, or Administrator agrees, that it is liable in whole or in part to the Fund, (iii) it employs to assert a claim against a third party, and (iv) it or Administrator employs, with the approval of the Board, to assist in the evaluation of certain investments or other matters related to the administration of the Fund. (f) Fees paid for the qualification and registration for public sale of the securities of the Fund under the laws of the United States and of the several states in which such securities shall be offered for sale. (g) Fees of consultants employed by the Fund. (h) Board member, officer and employee expenses which shall include fees, salaries, memberships, dues, travel, seminars, pension, profit sharing, and all other benefits paid to or provided for Board members, officers and employees, directors and officers liability insurance, errors and omissions liability insurance, worker's compensation insurance and other expenses applicable to the Board members, officers and employees, except the Fund will not pay any fees or expenses of any person who is an officer or employee of Administrator or its affiliates. (i) Filing fees and charges incurred by the Fund in connection with filing any amendment to its organizational documents, or incurred in filing any other document with the state where the Fund is organized or its political subdivisions. (j) Organizational expenses of the Fund. (k) Fund Board and Fund office expenses, separate from Administrator or affiliates of Administrator, which shall include a charge for occupancy, insurance on the premises, furniture and equipment, telephone, telegraph, electronic information services, books, periodicals, published services, and office supplies used by the Fund. (l) Other expenses properly payable by the Fund, approved by the Board. (2) Administrator agrees to pay all expenses associated with the services it provides under the terms of this Agreement PART FOUR: MISCELLANEOUS (1) Administrator shall be deemed to be an independent contractor and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Fund. (2) A "full business day" shall be as defined in the By-laws of the Fund. (3) The Fund recognizes that Administrator and its affiliates, pursuant to separate agreements, now render and may continue to render services to other investment companies and persons which may or may not have policies similar to those of the Fund and that Administrator provides services for its own investments and/or those of its affiliates. Administrator shall be free to provide such services and the Fund hereby consents thereto. (4) Neither this Agreement nor any transaction had pursuant hereto shall be invalidated or in any way affected by the fact that Board members, officers, agents and/or shareholders of the Fund are or may be interested in Administrator or any successor or assignee thereof, as directors, officers, stockholders or otherwise; that directors, officers, stockholders or agents of Administrator are or may be interested in the Fund as Board members, officers, shareholders, or otherwise; or that Administrator or any successor or assignee, is or may be interested in the Fund as shareholder or otherwise, provided, however, that neither Administrator, nor any officer, Board member or employee thereof or of the Fund, shall sell to or buy from the Fund any property or security other than shares issued by the Fund, except in accordance with applicable regulations or orders of the United States Securities and Exchange Commission. (5) Any notice under this Agreement shall be given in writing, addressed, and delivered, or mailed postpaid, to the party to this Agreement entitled to receive such, at such party's principal place of business in Minneapolis, Minnesota, or to such other address as either party may designate in writing mailed to the other. (6) Administrator agrees that no officer, director or employee of Administrator will deal for or on behalf of the Fund with himself as principal or agent, or with any corporation or partnership in which he may have a financial interest, except that this shall not prohibit officers, directors or employees of the Administrator's affiliated companies from having a financial interest in the Fund or in Administrator. (7) The Fund agrees that Administrator may subcontract for certain of the services described under this Agreement with the understanding that there shall be no diminution in the quality or level of the services and that Administrator remains fully responsible for the services. (8) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other party. This Agreement shall be governed by the laws of the State of Minnesota. (9) For each Fund that is organized as a Massachusetts business trust, a copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund, personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust. PART FIVE: RENEWAL AND TERMINATION (1) This Agreement shall continue in effect for two years and, thereafter, from year to year as the parties may mutually agree, provided that either party may terminate this Agreement by giving the other party notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. (2) Non-material amendments or modifications to this Agreement will only be made effective upon written agreement executed by the Administrator and the Fund. IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written. RIVERSOURCE BOND SERIES, INC. RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RIVERSOURCE DIMENSIONS SERIES, INC. RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RIVERSOURCE EQUITY SERIES, INC. RIVERSOURCE GLOBAL SERIES, INC. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RIVERSOURCE INCOME SERIES, INC. RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RIVERSOURCE INTERNATIONAL SERIES, INC. RIVERSOURCE INVESTMENT SERIES, INC. RIVERSOURCE LARGE CAP SERIES, INC. RIVERSOURCE MANAGERS SERIES, INC. RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RIVERSOURCE MONEY MARKET SERIES, INC. RIVERSOURCE SECTOR SERIES, INC. RIVERSOURCE SELECTED SERIES, INC. RIVERSOURCE SERIES TRUST RIVERSOURCE SHORT TERM INVESTMENTS SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RIVERSOURCE STRATEGY SERIES, INC. RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC. RIVERSOURCE TAX-EXEMPT SERIES, INC. RIVERSOURCE VARIABLE SERIES TRUST SELIGMAN CAPITAL FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. SELIGMAN GROWTH FUND, INC. SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. SELIGMAN MUNICIPAL FUND SERIES, INC. SELIGMAN MUNICIPAL SERIES TRUST SELIGMAN PORTFOLIOS, INC. SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. SELIGMAN VALUE FUND SERIES, INC. RIVERSOURCE LASALLE INTERNATIONAL REAL ESTATE FUND, INC. TRI-CONTINENTAL CORPORATION By: /s/ Patrick Bannigan --------------------------------- Patrick Bannigan President AMERIPRISE FINANCIAL, INC. By: /s/ William F. Truscott --------------------------------- William F. Truscott President - U.S. Asset Management and Chief Investment Officer SCHEDULE A FEE SCHEDULE Each Registrant is a Minnesota corporation except Seligman Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Frontier Fund, Inc., Seligman Global Fund Series, Inc., Seligman Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman Municipal Fund Series, Inc., Seligman Portfolios, Inc., Seligman TargetHorizon ETF Portfolios, Inc., Seligman Value Fund Series, Inc., RiverSource LaSalle International Real Estate Fund, Inc. and Tri-Continental Corporation, which are Maryland corporations and RiverSource California Tax-Exempt Trust, RiverSource Special Tax-Exempt Series Trust, RiverSource Series Trust, RiverSource Variable Series Trust and Seligman Municipal Series Trust, which are Massachusetts business trusts: The fee is based on the net assets of the Fund as set forth in the following table:
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ----------------------------------------------------------------------------------------- 500,000,001 - 1,000,000,001 - 3,000,000,001 - FUNDS 0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 12,000,000,001 + - --------------------------------------- --------------- ------------- --------------- --------------- ---------------- SCHEDULE I 0.080% 0.075% 0.070% 0.060% 0.050% 120/20 Contrarian Equity 0.080% 0.075% 0.070% 0.060% 0.050% Absolute Return Currency and Income 0.080% 0.075% 0.070% 0.060% 0.050% Disciplined International Equity 0.080% 0.075% 0.070% 0.060% 0.050% Disciplined Small Cap Value 0.080% 0.075% 0.070% 0.060% 0.050% Emerging Markets Bond 0.080% 0.075% 0.070% 0.060% 0.050% Global Bond 0.080% 0.075% 0.070% 0.060% 0.050% LaSalle Global Real Estate 0.080% 0.075% 0.070% 0.060% 0.050% LaSalle International Real Estate 0.080% 0.075% 0.070% 0.060% 0.050% Partners International Select Growth 0.080% 0.075% 0.070% 0.060% 0.050% Partners International Select Value 0.080% 0.075% 0.070% 0.060% 0.050% Partners International Small Cap 0.080% 0.075% 0.070% 0.060% 0.050% Partners Small Cap Equity 0.080% 0.075% 0.070% 0.060% 0.050% Partners Small Cap Growth 0.080% 0.075% 0.070% 0.060% 0.050% Partners Small Cap Value 0.080% 0.075% 0.070% 0.060% 0.050% Partners Variable Portfolio - Small Cap Value 0.080% 0.075% 0.070% 0.060% 0.050% Small Cap Advantage 0.080% 0.075% 0.070% 0.060% 0.050% Seligman Frontier 0.080% 0.075% 0.070% 0.060% 0.050% Seligman Global Smaller Companies 0.080% 0.075% 0.070% 0.060% 0.050% Seligman Global Technology 0.080% 0.075% 0.070% 0.060% 0.050% Seligman Global Technology Portfolio 0.080% 0.075% 0.070% 0.060% 0.050% Seligman International Growth Portfolio 0.080% 0.075% 0.070% 0.060% 0.050% Seligman Smaller-Cap Value 0.080% 0.075% 0.070% 0.060% 0.050% Seligman Smaller-Cap Value Portfolio 0.080% 0.075% 0.070% 0.060% 0.050% Seligman Variable Portfolio-Smaller-Cap Value 0.080% 0.075% 0.070% 0.060% 0.050% Small Company Index 0.080% 0.075% 0.070% 0.060% 0.050% Strategic Allocation 0.080% 0.075% 0.070% 0.060% 0.050%
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ----------------------------------------------------------------------------------------- 500,000,001 - 1,000,000,001 - 3,000,000,001 - FUNDS 0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 12,000,000,001 + - --------------------------------------- --------------- ------------- --------------- --------------- ---------------- Threadneedle Asia Pacific 0.080% 0.075% 0.070% 0.060% 0.050% Threadneedle Emerging Markets 0.080% 0.075% 0.070% 0.06% 0.050% Threadneedle European Equity 0.080% 0.075% 0.070% 0.060% 0.050% Threadneedle Global Equity 0.080% 0.075% 0.070% 0.060% 0.050% Threadneedle Global Equity Income 0.080% 0.075% 0.070% 0.060% 0.050% Threadneedle Global Extended Alpha 0.080% 0.075% 0.070% 0.060% 0.050% Threadneedle International Opportunity 0.080% 0.075% 0.070% 0.060% 0.050% Threadneedle Variable Portfolio- Emerging Markets 0.080% 0.075% 0.070% 0.060% 0.050% Threadneedle Variable Portfolio- International Opportunity 0.080% 0.075% 0.070% 0.060% 0.050% Variable Portfolio-Global Bond 0.080% 0.075% 0.070% 0.060% 0.050% SCHEDULE II 0.070% 0.065% 0.060% 0.050% 0.040% California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040% Diversified Bond 0.070% 0.065% 0.060% 0.050% 0.040% Floating Rate 0.070% 0.065% 0.060% 0.050% 0.040% High-Yield Bond 0.070% 0.065% 0.060% 0.050% 0.040% Income Opportunities 0.070% 0.065% 0.060% 0.050% 0.040% Inflation Protected Securities 0.070% 0.065% 0.060% 0.050% 0.040% Intermediate Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040% Limited Duration Bond 0.070% 0.065% 0.060% 0.050% 0.040% Minnesota Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040% New York Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040% Seligman California Municipal High Yield 0.070% 0.065% 0.060% 0.050% 0.040% Seligman California Municipal Quality 0.070% 0.065% 0.060% 0.050% 0.040% Seligman Investment Grade Fixed Income Portfolio 0.070% 0.065% 0.060% 0.050% 0.040% Seligman Minnesota Municipal 0.070% 0.065% 0.060% 0.050% 0.040% Seligman New York Municipal 0.070% 0.065% 0.060% 0.050% 0.040% Short Duration U.S. Government 0.070% 0.065% 0.060% 0.050% 0.040% Strategic Income Allocation 0.070% 0.065% 0.060% 0.050% 0.040% Tax-Exempt Bond 0.070% 0.065% 0.060% 0.050% 0.040% Tax-Exempt High Income 0.070% 0.065% 0.060% 0.050% 0.040% U.S. Government Mortgage 0.070% 0.065% 0.060% 0.050% 0.040% Variable Portfolio-Diversified Bond 0.070% 0.065% 0.060% 0.050% 0.040% Variable Portfolio-Global Inflation Protected Securities 0.070% 0.065% 0.060% 0.050% 0.040% Variable Portfolio-High Yield Bond 0.070% 0.065% 0.060% 0.050% 0.040% Variable Portfolio-Income Opportunities 0.070% 0.065% 0.060% 0.050% 0.040% Variable Portfolio-Short Duration U.S. Government 0.070% 0.065% 0.060% 0.050% 0.040% SCHEDULE III 0.060% 0.055% 0.050% 0.040% 0.030% Balanced 0.060% 0.055% 0.050% 0.040% 0.030%
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ----------------------------------------------------------------------------------------- 500,000,001 - 1,000,000,001 - 3,000,000,001 - FUNDS 0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 12,000,000,001 + - --------------------------------------- --------------- ------------- --------------- --------------- ---------------- Cash Management (RiverSource) 0.060% 0.055% 0.050% 0.040% 0.030% Disciplined Equity 0.060% 0.055% 0.050% 0.040% 0.030% Disciplined Large Cap Growth 0.060% 0.055% 0.050% 0.040% 0.030% Disciplined Large Cap Value 0.060% 0.055% 0.050% 0.040% 0.030% Disciplined Small and Mid Cap Equity 0.060% 0.055% 0.050% 0.040% 0.030% Diversified Equity Income 0.060% 0.055% 0.050% 0.040% 0.030% Dividend Opportunity 0.060% 0.055% 0.050% 0.040% 0.030% Equity Value 0.060% 0.055% 0.050% 0.040% 0.030% Global Technology 0.060% 0.055% 0.050% 0.040% 0.030% Growth 0.060% 0.055% 0.050% 0.040% 0.030% Large Cap Equity 0.060% 0.055% 0.050% 0.040% 0.030% Large Cap Value 0.060% 0.055% 0.050% 0.040% 0.030% LaSalle Monthly Dividend Real Estate 0.060% 0.055% 0.050% 0.040% 0.30% Mid Cap Growth 0.060% 0.055% 0.050% 0.040% 0.030% Mid Cap Value 0.060% 0.055% 0.050% 0.040% 0.030% Partners Aggressive Growth 0.060% 0.055% 0.050% 0.040% 0.030% Partners Fundamental Value 0.060% 0.055% 0.050% 0.040% 0.030% Partners Select Value 0.060% 0.055% 0.050% 0.040% 0.030% Partners Variable Portfolio-Fundamental Value 0.060% 0.055% 0.050% 0.040% 0.030% Partners Variable Portfolio-Select Value 0.060% 0.055% 0.050% 0.040% 0.030% Precious Metals and Mining 0.060% 0.055% 0.050% 0.040% 0.030% Real Estate 0.060% 0.055% 0.050% 0.040% 0.030% Recovery and Infrastructure 0.060% 0.055% 0.050% 0.040% 0.030% S&P 500 Index 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Capital 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Capital Portfolio 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Cash Management 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Cash Management Portfolio 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Common Stock Portfolio 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Communications and Information Fund 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Communications and Information Portfolio 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Growth 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Large-Cap Value 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Large-Cap Value Portfolio 0.060% 0.055% 0.050% 0.040% 0.030% Seligman TargETFund 2015 0.060% 0.055% 0.050% 0.040% 0.030% Seligman TargETFund 2025 0.060% 0.055% 0.050% 0.040% 0.030% Seligman TargETFund 2035 0.060% 0.055% 0.050% 0.040% 0.030% Seligman TargETFund 2045 0.060% 0.055% 0.050% 0.040% 0.030% Seligman TargETFund Core 0.060% 0.055% 0.050% 0.040% 0.030% Seligman Variable Portfolio-Growth 0.060% 0.055% 0.050% 0.040% Seligman Variable Portfolio-Larger-Cap Value 0.060% 0.055% 0.050% 0.040% 0.030%
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ----------------------------------------------------------------------------------------- 500,000,001 - 1,000,000,001 - 3,000,000,001 - FUNDS 0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 12,000,000,001 + - --------------------------------------- --------------- ------------- --------------- --------------- ---------------- Tax-Exempt Money Market 0.060% 0.055% 0.050% 0.040% 0.030% Tri-Continental Corporation 0.060% 0.055% 0.050% 0.040% 0.030% Variable Portfolio-Balanced 0.060% 0.055% 0.050% 0.040% 0.030% Variable Portfolio-Cash Management 0.060% 0.055% 0.050% 0.040% 0.030% Variable Portfolio-Diversified Equity Income 0.060% 0.055% 0.050% 0.040% 0.030% Variable Portfolio-Dynamic Equity 0.060% 0.055% 0.050% 0.040% 0.030% Variable Portfolio-Mid Cap Growth 0.060% 0.055% 0.050% 0.040% 0.030% Variable Portfolio-Mid Cap Value 0.060% 0.055% 0.050% 0.040% 0.030% Variable Portfolio-S&P 500 Index 0.060% 0.055% 0.050% 0.040% 0.030% SCHEDULE IV 0.020% 0.020% 0.020% 0.020% 0.020% Disciplined Asset Allocation Portfolios - Aggressive 0.020% 0.020% 0.020% 0.020% 0.020% Disciplined Asset Allocation Portfolios - Conservative 0.020% 0.020% 0.020% 0.020% 0.020% Disciplined Asset Allocation Portfolios - Moderate 0.020% 0.020% 0.020% 0.020% 0.020% Disciplined Asset Allocation Portfolios - Moderately Aggressive 0.020% 0.020% 0.020% 0.020% 0.020% Disciplined Asset Allocation Portfolios - Moderately Conservative 0.020% 0.020% 0.020% 0.020% 0.020% Income Builder Basic Income 0.020% 0.020% 0.020% 0.020% 0.020% Income Builder Enhanced Income 0.020% 0.020% 0.020% 0.020% 0.020% Income Builder Moderate Income 0.020% 0.020% 0.020% 0.020% 0.020% Portfolio Builder Aggressive 0.020% 0.020% 0.020% 0.020% 0.020% Portfolio Builder Conservative 0.020% 0.020% 0.020% 0.020% 0.020% Portfolio Builder Moderate 0.020% 0.020% 0.020% 0.020% 0.020% Portfolio Builder Moderate Aggressive 0.020% 0.020% 0.020% 0.020% 0.020% Portfolio Builder Moderate Conservative 0.020% 0.020% 0.020% 0.020% 0.020% Portfolio Builder Total Equity 0.020% 0.020% 0.020% 0.020% 0.020% Retirement Plus 2010 0.020% 0.020% 0.020% 0.020% 0.020% Retirement Plus 2015 0.020% 0.020% 0.020% 0.020% 0.020% Retirement Plus 2020 0.020% 0.020% 0.020% 0.020% 0.020% Retirement Plus 2025 0.020% 0.020% 0.020% 0.020% 0.020% Retirement Plus 2030 0.020% 0.020% 0.020% 0.020% 0.020% Retirement Plus 2035 0.020% 0.020% 0.020% 0.020% 0.020% Retirement Plus 2040 0.020% 0.020% 0.020% 0.020% 0.020% Retirement Plus 2045 0.020% 0.020% 0.020% 0.020% 0.020% SCHEDULE V 0 0 0 0 0 Short-Term Cash N/A N/A N/A N/A N/A
EX-99.H.2 5 c51790exv99whw2.txt TRANSFER AGENCY AGREEMENT TRANSFER AGENT AGREEMENT AMENDED AND RESTATED This Transfer Agent Agreement, effective as of October 1, 2005, amended and restated July 13, 2009 ("Agreement"), is by and between RiverSource Service Corporation ("Transfer Agent"), a Minnesota corporation, and each of the Corporations and Trusts ("Registrants"), each on behalf of their underlying series listed in Schedule A. The terms "Fund" or "Funds" are used to refer to either the Registrants or the underlying series as context requires. In consideration of the mutual promises set forth below, the Fund and the Transfer Agent agree as follows: 1. Appointment of the Transfer Agent. The Fund hereby appoints the Transfer Agent, as transfer agent for its shares ("shares") and as shareholder servicing agent for the Fund, and the Transfer Agent accepts such appointment and agrees to perform the duties set forth below. 2. Compensation. (a) The Fund will compensate the Transfer Agent for the performance of its obligations as set forth in Schedule B. Schedule B does not include out-of-pocket disbursements of the Transfer Agent for which the Transfer Agent shall be entitled to bill the Fund separately. (b) The Transfer Agent will bill the Fund at the end of each period, as described in Schedule B. The fee provided for hereunder shall be paid in cash by the Fund to the Transfer Agent within five (5) business days after the last day of each period. (c) Out-of-pocket disbursements shall include, but shall not be limited to, the items specified in Schedule C. Reimbursement by the Fund for expenses incurred by the Transfer Agent in any month shall be made as soon as practicable after the receipt of an itemized bill from the Transfer Agent. (d) Any compensation jointly agreed to hereunder may be adjusted from time to time by attaching to this Agreement a revised Schedule B, dated and signed by an officer of the parties. 3. Documents. The Fund will furnish from time to time such certificates, documents or opinions as the Transfer Agent deems to be appropriate or necessary for the proper performance of its duties. 4. Representations of the Fund and the Transfer Agent. (a) The Fund represents to the Transfer Agent that all outstanding shares are validly issued, fully paid and non-assessable by the Fund. (b) The Transfer Agent represents that it is registered under Section 17A(c) of the Securities Exchange Act of 1934. The Transfer Agent agrees to maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement and to comply with all applicable laws. 5. Duties of the Transfer Agent. The Transfer Agent shall be responsible, separately and through its subsidiaries or affiliates, or authorized designees, including affiliated and unaffiliated financial intermediaries ("Subcontractors") for the following functions: (a) Sale of Fund Shares. (1) On receipt of an application and payment, wired instructions and payment, or payment identified as being for the account of a shareholder ("shareholder"), the Transfer Agent will deposit the payment, prepare and present the necessary report to the company selected by the Boards of Directors/Trustees of the Fund ("Board") for the safekeeping of the Fund's assets (the "Custodian") and record the purchase of shares in a timely fashion in accordance with the terms of a Fund's prospectus. All shares shall be held in book entry form, and no certificate shall be issued except as has been previously issued. (2) On receipt of notice that payment was dishonored, the Transfer Agent shall stop redemptions of all shares owned by the shareholder related to that payment, place a stop payment on any checks that have been issued to redeem shares of the shareholder, cancel such shares for which payment was dishonored and take such other action as it deems appropriate. (b) Redemption of Fund Shares. On receipt of instructions to redeem shares in accordance with the terms of a Fund's prospectus, the Transfer Agent will record the redemption of shares of the Fund, prepare and present the necessary report to the Custodian and pay the proceeds of the redemption to the shareholder, or an authorized agent or legal representative upon the receipt of the monies from the Custodian. (c) Transfer or Other Change Pertaining to Fund Shares. On receipt of instructions or forms acceptable to the Transfer Agent to transfer the shares to the name of a new owner, change the name or address of the present owner or take other legal action, the Transfer Agent will take such action as is requested. (d) Exchange of Fund Shares. On receipt of instructions to exchange the shares of a Fund for the shares of another Fund or other affiliated product in accordance with the terms of the prospectus, the Transfer Agent will process the exchange in the same manner as a redemption and sale of shares. (e) Right to Seek Assurance. The Transfer Agent may refuse to transfer, exchange or redeem shares of the Fund or take any action requested by a shareholder until it is satisfied that the requested transaction or action is legally authorized or until it is satisfied there is no basis for any claims adverse to the transaction or action. It may rely on the provisions of the Uniform Act for the Simplification of Fiduciary Security Transfers or the Uniform Commercial Code. The Fund shall indemnify the Transfer Agent for any act done or omitted to be done in reliance on such laws or for refusing to transfer, exchange or redeem shares or taking any requested action if it acts on a good faith belief that the transaction or action is illegal or unauthorized. (f) Shareholder Records, Reports and Services. (1) The Transfer Agent shall maintain all shareholder accounts, which shall contain all required tax, legally imposed and regulatory information; shall provide shareholders, and file with federal and state agencies, all required tax and other reports pertaining to shareholder accounts; shall prepare or cause to be prepared shareholder mailing lists and shall cause to be delivered or cooperate with the Fund or its designated agent with respect to the required delivery of all required prospectuses, annual reports, semiannual reports, statements of additional information (upon request), proxies and other communications to shareholders; and shall cause proxies to be tabulated. (2) The Transfer Agent shall respond to all valid inquiries related to its duties under this Agreement. (3) The Transfer Agent shall perform or cause to be performed any other duties required of it in its capacity as Transfer Agent for the Fund, as required under applicable federal and state law. (4) The Transfer Agent shall create and maintain all records in accordance with all applicable laws, rules and regulations, including, but not limited to, the records required by Section 31(a) of the Investment Company Act of 1940, as amended. (g) Dividends and Distributions. The Transfer Agent shall prepare and present the necessary report to the Custodian and shall cause to be prepared and transmitted the payment of income dividends and capital gains distributions or cause to be recorded the investment of such dividends and distributions in additional shares of the Fund or as directed by instructions or forms acceptable to the Transfer Agent. (h) Confirmations and Statements. The Transfer Agent shall confirm, as required, each transaction either at the time of the transaction or through periodic reports as may be legally permitted. (i) Lost or Stolen Checks. The Transfer Agent will replace lost or stolen checks issued to shareholders upon receipt of proper notification and will maintain any stop payment orders against the lost or stolen checks as it is economically desirable to do. (j) Reports to Fund. The Transfer Agent will provide reports pertaining to the services provided under this Agreement as the Fund may request to ascertain the quality and level of services being provided or as required by law. (k) Market Timing. The Transfer Agent will assist other Fund service providers as necessary in the implementation of the Fund's market timing policy adopted by the Board, as set forth in the Fund's prospectus. (l) Money Laundering Prevention Program. The Transfer Agent agrees to perform such agreed anti-money laundering ("AML") functions with respect to purchases of the Funds' shares as the Funds or their agent may delegate to the Transfer Agent from time to time or as the Transfer Agent is otherwise obligated to perform. In accordance with mutually-agreed procedures, the Transfer Agent shall use its best efforts in carrying out such agreed functions consistent with the requirements of the Funds' AML program. The Funds acknowledge that their shareholders (which for this purpose shall mean only shareholders of record) are customers of the Funds and not customers of the Transfer Agent and the Funds retain legal responsibility under the USA PATRIOT Act for AML compliance with respect to transactions in their shares. The Transfer Agent agrees to cooperate with any request from examiners of United States Government agencies having jurisdiction over the Funds for information and records relating to the Funds' AML program and consents to inspection by such examiners for this purpose. (m) Other Duties. The Transfer Agent may perform other duties for additional compensation if agreed to in writing by the parties to this Agreement as described in Schedule D. 6. Ownership and Confidentiality of Records. (a) General. The Transfer Agent agrees that all records prepared or maintained by it relating to the services to be performed by it under the terms of this Agreement are the property of the Fund and may be inspected by the Fund or any person retained by the Fund at reasonable times. The Fund and Transfer Agent agree to protect the confidentiality of those records. (b) Regulation S-P. (1) In accordance with Regulation S-P of the Securities and Exchange Commission, "Nonpublic Personal Information" includes (1) all personally identifiable financial information; (2) any list, description, or other grouping of consumers (and publicly available information pertaining to them) that is derived using any personally identifiable financial information that is not publicly available information; and (3) any information derived therefrom. (2) The Transfer Agent must not use or disclose Nonpublic Personal Information for any purpose other than to carry out the purpose for which Nonpublic Personal Information was provided to the Transfer Agent as set forth in this Agreement, and agrees to cause the Transfer Agent, and its employees, agents, representatives, or any other party to whom the Transfer Agent may provide access to or disclose Nonpublic Personal Information to limit the use and disclosure of Nonpublic Personal Information to that purpose. (3) The Transfer Agent agrees to implement appropriate measures designed to ensure the security and confidentiality of Nonpublic Personal Information, to protect such information against any anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to, or use of, Nonpublic Personal Information that could result in substantial harm or inconvenience to any customer of the Fund; the Transfer Agent further agrees to cause all its agents, representatives, Subcontractors, or any other party to whom the Transfer Agent may provide access to, or disclose, Nonpublic Personal Information to implement appropriate measures designed to meet the objectives set forth in this paragraph. (4) With respect only to the provisions of this Section 6(b), the Transfer Agent agrees to indemnify and hold harmless the Fund and any officer or director/trustee of the Board ("Board member"), against losses, claims, damages, expenses, or liabilities to which the Fund, or any officer or Board member of the Fund, may become subject as the result of (1) a material breach of the provisions of this section of the Agreement or (2) any acts or omissions of the Transfer Agent, or of any of its officers, directors, employees, representatives, Subcontractors or agents, that are not in accordance with this Agreement, including, but not limited to, any violation of any federal statute or regulation. Notwithstanding the foregoing, no party shall be entitled to indemnification pursuant to this Section 6(b)(4) if such loss, claim, damage, expense, or liability is due to the willful misfeasance, bad faith, gross negligence, or reckless disregard of duty by the party seeking indemnification. 7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on resolutions of the Board or the Executive Committee of the Board and an opinion of counsel for the Fund. 8. Duty of Care. It is understood and agreed that, in furnishing the Fund with the services as herein provided, neither the Transfer Agent, nor any officer, director or agent thereof shall be held liable for any loss arising out of or in connection with their actions under this Agreement so long as they act in good faith and with due diligence, and are not negligent or guilty of any willful misconduct. It is further understood and agreed that the Transfer Agent may rely upon information furnished to it reasonably believed to be accurate and reliable. In the event the Transfer Agent is unable to perform its obligations under the terms of this Agreement because of an act of God, strike or equipment or transmission failure reasonably beyond its control, the Transfer Agent shall not be liable for any damages resulting from such failure. 9. Term and Termination. This Agreement shall continue in effect from year to year as the parties may mutually agree, provided that either party may terminate this Agreement by giving the other party notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. In the event such notice is given by the Fund, it shall be accompanied by a vote of the Board, certified by the Secretary, electing to terminate this Agreement and designating a successor transfer agent or transfer agents. Upon such termination and at the expense of the Fund, the Transfer Agent will promptly deliver to such successor a certified list of shareholders of the Fund (with name, address and taxpayer identification or Social Security number), a historical record of the account of each shareholder and the status thereof, and all other relevant books, records, correspondence, and other data established or maintained by the Transfer Agent under this Agreement in the form reasonably acceptable to the Fund, and will cooperate in the transfer of such duties and responsibilities, including provisions for assistance from the Transfer Agent's personnel in the establishment of books, records and other data by such successor or successors. 10. Amendment. This Agreement may not be amended or modified in any manner except by a written agreement executed by the parties. 11. Subcontractors. The Fund agrees that the Transfer Agent may subcontract for services described under this Agreement with the understanding that there shall be no diminution in the quality or level of the services as determined by the Fund and that the Transfer Agent remains fully responsible for the services. Except for out-of-pocket expenses identified in Schedule C, the Transfer Agent shall bear the cost of subcontracting such services, unless otherwise agreed by the parties. The Fund agrees that the Transfer Agent may use revenues from the Agreement to pay subcontractors for the services they provide. 12. Miscellaneous. (a) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other party. (b) This Agreement shall be governed by the laws of the State of Minnesota. (c) For each Fund that is organized as a Massachusetts Business Trust, a copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund, personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers as of the day and year written above. RIVERSOURCE BOND SERIES, INC. RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RIVERSOURCE DIMENSIONS SERIES, INC. RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RIVERSOURCE EQUITY SERIES, INC. RIVERSOURCE GLOBAL SERIES, INC. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RIVERSOURCE INCOME SERIES, INC. RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RIVERSOURCE INTERNATIONAL SERIES, INC. RIVERSOURCE INVESTMENT SERIES, INC. RIVERSOURCE LARGE CAP SERIES, INC. RIVERSOURCE MANAGERS SERIES, INC. RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RIVERSOURCE MONEY MARKET SERIES, INC. RIVERSOURCE SECTOR SERIES, INC. RIVERSOURCE SELECTED SERIES, INC. RIVERSOURCE SERIES TRUST RIVERSOURCE SHORT TERM INVESTMENTS SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST. RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RIVERSOURCE STRATEGY SERIES, INC. RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE TAX-EXEMPT SERIES, INC. RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC. SELIGMAN ASSET ALLOCATION SERIES, INC. SELIGMAN CAPITAL FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMON STOCK FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. SELIGMAN GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. SELIGMAN MUNICIPAL FUND SERIES, INC. SELIGMAN MUNICIPAL SERIES TRUST SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. SELIGMAN VALUE FUND SERIES, INC. By: /s/ Patrick T. Bannigan --------------------------------- Patrick T. Bannigan President RIVERSOURCE SERVICE CORPORATION By: /s/ Lyn Kephart-Strong -------------------------------- Lyn Kephart-Strong President SCHEDULE A As of June 15, 2009 FUNDS Each Registrant is a Minnesota corporation except Seligman Asset Allocation Series, Inc., Seligman Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Core Fixed Income Fund, Inc., Seligman Frontier Fund, Inc., Seligman Global Fund Series, Inc., Seligman Growth Fund, Inc., Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman Municipal Fund Series, Inc., Seligman TargetHorizon ETF Portfolios, Inc., and Seligman Value Fund Series, Inc., which are Maryland corporations, and RiverSource California Tax-Exempt Trust, RiverSource Special Tax-Exempt Series Trust, RiverSource Series Trust, Seligman High Income Fund Series and Seligman Municipal Series Trust, which are Massachusetts business trusts: EQUITY FUNDS
CLASSES ---------------------------------------------------------- FUNDS A B C D E I R2 R3 R4 R5 W Y - ----------------------------------------------- --- --- --- --- --- --- --- --- --- --- --- --- RiverSource Dimensions Series, Inc. RiverSource Disciplined Small and Mid Cap Equity A B C -- -- I -- -- R4 -- W -- RiverSource Disciplined Small Cap Value A B C -- -- I R2 R3 R4 R5 -- -- RiverSource Equity Series, Inc. RiverSource Mid Cap Growth A B C -- -- I -- -- R4 -- -- -- RiverSource Global Series, Inc. RiverSource Global Technology A B C -- -- I -- -- R4 -- -- -- Threadneedle Emerging Markets A B C -- -- I R2 -- R4 R5 -- -- Threadneedle Global Equity A B C -- -- I R2 R3 R4 R5 W -- Threadneedle Global Equity Income A B C -- -- I R2 R3 R4 R5 -- -- Threadneedle Global Extended Alpha A B C -- -- I R2 R3 R4 R5 -- -- RiverSource International Series, Inc. RiverSource Disciplined International Equity A B C -- -- I R2 R3 R4 R5 W -- Threadneedle Asia Pacific -- -- -- -- -- -- -- -- -- R5 -- -- Threadneedle European Equity A B C -- -- I -- -- R4 -- -- -- Threadneedle International Opportunity A B C -- -- I R2 R3 R4 R5 -- -- RiverSource International Managers Series, Inc. RiverSource Partners International Select Growth A B C -- -- I R2 -- R4 R5 -- -- RiverSource Partners International Select Value A B C -- -- I -- -- R4 -- -- -- RiverSource Partners International Small Cap A B C -- -- I -- -- R4 -- -- -- RiverSource Investment Series, Inc. RiverSource Balanced A B C -- -- -- R2 -- R4 R5 -- -- RiverSource Disciplined Large Cap Growth A B C -- -- I R2 R3 R4 R5 W -- RiverSource Disciplined Large Cap Value A B C -- -- I R2 R3 R4 R5 W -- RiverSource Diversified Equity Income A B C -- -- I R2 R3 R4 R5 W -- RiverSource Mid Cap Value A B C -- -- I R2 R3 R4 R5 W -- RiverSource Large Cap Series, Inc. RiverSource Disciplined Equity A B C -- -- I R2 R3 R4 R5 W -- RiverSource Growth A B C -- -- I R2 R3 R4 R5 W -- RiverSource Large Cap Equity A B C -- -- I R2 R3 R4 R5 -- --
EQUITY FUNDS
CLASSES ---------------------------------------------------------- FUNDS A B C D E I R2 R3 R4 R5 W Y - ----------------------------------------------- --- --- --- --- --- --- --- --- --- --- --- --- RiverSource Large Cap Value A B C -- -- I R2 R3 R4 R5 -- -- RiverSource Managers Series, Inc. RiverSource Partners Aggressive Growth A B C -- -- I R2 R3 R4 R5 -- -- RiverSource Partners Fundamental Value A B C -- -- I -- -- R4 -- -- -- RiverSource Partners Select Value A B C -- -- I -- -- R4 -- -- -- RiverSource Partners Small Cap Equity A B C -- -- I -- -- R4 -- -- -- RiverSource Partners Small Cap Value A B C -- -- I R2 R3 R4 R5 -- -- RiverSource Market Advantage Series, Inc. RiverSource Portfolio Builder Aggressive A B C -- -- -- -- -- R4 -- -- -- RiverSource Portfolio Builder Moderate A B C -- -- -- -- -- R4 -- -- -- RiverSource Portfolio Builder Moderate Aggressive A B C -- -- -- -- -- R4 -- -- -- RiverSource Portfolio Builder Total Equity A B C -- -- -- -- -- R4 -- -- -- RiverSource S&P 500 Index -- -- -- D E -- -- -- -- -- -- -- RiverSource Small Company Index A B -- -- -- -- -- -- R4 -- -- -- RiverSource Sector Series, Inc. RiverSource Dividend Opportunity A B C -- -- I R2 R3 R4 R5 W -- RiverSource Real Estate A B C -- -- I -- -- R4 -- W -- RiverSource Selected Series, Inc. RiverSource Precious Metals and Mining A B C -- -- I -- -- R4 -- -- -- RiverSource Series Trust RiverSource 120/20 Contrarian Equity A B C -- -- I -- -- -- R5 -- -- RiverSource Recovery and Infrastructure A B C I R2 R3 R4 R5 RiverSource Retirement Plus 2010 A -- -- -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2015 A -- -- -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2020 A -- -- -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2025 A -- -- -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2030 A -- -- -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2035 A -- -- -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2040 A -- -- -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2045 A -- -- -- -- -- R2 R3 R4 R5 -- Y RiverSource Strategy Series, Inc. RiverSource Equity Value A B C -- -- I R2 R3 R4 R5 W -- RiverSource Partners Small Cap Growth A B C -- -- I R2 R3 R4 R5 -- -- RiverSource Small Cap Advantage A B C -- -- I R2 R3 R4 R5 -- -- RiverSource Strategic Allocation Series, Inc. RiverSource Strategic Allocation A B C -- -- I R2 R3 R4 R5 -- --
EQUITY FUNDS
CLASSES ---------------------------------------------------------- FUNDS A B C D E I R2 R3 R4 R5 W Y - ----------------------------------------------- --- --- --- --- --- --- --- --- --- --- --- --- Seligman Asset Allocation Series, Inc. Seligman Asset Allocation Aggressive Growth A B C -- -- -- -- -- -- -- -- -- Seligman Asset Allocation Balanced A B C -- -- -- -- -- -- -- -- -- Seligman Asset Allocation Growth A B C -- -- -- -- -- -- -- -- -- Seligman Asset Allocation Moderate Growth A B C -- -- -- -- -- -- -- -- -- Seligman Capital Fund, Inc. A B C -- -- I R2 R3 R4 R5 -- -- Seligman Communications and Information Fund, Inc. A B C -- -- I R2 R3 R4 R5 -- --
EQUITY FUNDS
CLASSES ---------------------------------------------------------- FUNDS A B C D E I R2 R3 R4 R5 W Y - ----------------------------------------------- --- --- --- --- --- --- --- --- --- --- --- --- Seligman Common Stock Fund, Inc. A B C -- -- -- R2 -- -- R5 -- -- Seligman Frontier Fund, Inc. A B C -- -- I R2 R3 R4 R5 -- -- Seligman Global Fund Series, Inc. Seligman Global Smaller Companies Fund A B C -- -- -- R2 -- -- R5 -- -- Seligman Global Technology Fund A B C -- -- I R2 R3 R4 R5 -- -- Seligman Emerging Markets A B C -- -- -- R2 -- -- R5 -- -- Seligman Global Growth A B C -- -- -- R2 -- -- R5 -- -- Seligman International Growth A B C -- -- -- R2 -- -- R5 -- -- Seligman Growth Fund, Inc. A B C -- -- I R2 R3 R4 R5 -- -- Seligman Income and Growth Fund, Inc. A B C -- -- -- R2 -- -- R5 -- -- Seligman LaSalle Real Estate Fund Series, Inc. Seligman LasSalle Global Real Estate Fund (to be known as RiverSource LaSalle Global Real Estate Fund) A B C -- -- I R2 R3 R4 R5 -- -- Seligman LasSalle Monthly Dividend Real Estate Fund (to be known RiverSource LaSalle Monthly Dividend Real Estate Fund) A B C -- -- I R2 R3 R4 R5 -- -- Seligman TargetHorizon ETF Portfolios, Inc. Seligman TargETFund 2045 A -- C -- -- -- R2 -- -- -- -- -- Seligman TargETFund 2035 A -- C -- -- -- R2 -- -- -- -- -- Seligman TargETFund 2025 A -- C -- -- -- R2 -- -- -- -- -- Seligman TargETFund 2015 A -- C -- -- -- R2 -- -- -- -- -- Seligman TargETFund Core A -- C -- -- -- R2 -- -- -- -- -- Seligman Value Fund Series, Inc. Seligman Large-Cap Value Fund A B C -- -- I R2 R3 R4 R5 -- -- Seligman Smaller-Cap Value Fund A B C -- -- I R2 R3 R4 R5 -- --
FIXED INCOME FUNDS
CLASSES ---------------------------------------------------------- FUNDS A B C D E I R2 R3 R4 R5 W Y - ----------------------------------------------- --- --- --- --- --- --- --- --- --- --- --- --- RiverSource Bond Series, Inc. RiverSource Floating Rate A B C -- -- I -- -- R4 R5 W -- RiverSource Income Opportunities A B C -- -- I -- -- R4 -- -- -- RiverSource Inflation Protected Securities A B C -- -- I R2 -- R4 -- W -- RiverSource Limited Duration Bond A B C -- -- I -- -- R4 -- W -- RiverSource California Tax-Exempt Trust RiverSource California Tax-Exempt A B C -- -- -- -- -- -- -- -- -- RiverSource Diversified Income Series, Inc. RiverSource Diversified Bond A B C -- -- I R2 R3 R4 R5 W -- RiverSource Global Series, Inc. RiverSource Absolute Return Currency and Income A B C -- -- I -- -- R4 R5 W -- RiverSource Emerging Markets Bond A B C -- -- I -- -- R4 -- W -- RiverSource Global Bond A B C -- -- I -- -- R4 -- W -- RiverSource Government Income Series, Inc. RiverSource Short Duration U.S. Government A B C -- -- I R2 -- R4 -- W -- RiverSource U.S. Government Mortgage A B C -- -- I -- -- R4 -- -- -- RiverSource High Yield Income Series, Inc. RiverSource High Yield Bond A B C -- -- I R2 R3 R4 R5 W --
FIXED INCOME FUNDS
CLASSES ---------------------------------------------------------- FUNDS A B C D E I R2 R3 R4 R5 W Y - ----------------------------------------------- --- --- --- --- --- --- --- --- --- --- --- --- RiverSource Income Series, Inc. RiverSource Income Builder Basic Income A B C -- -- -- -- -- R4 -- -- -- RiverSource Income Builder Enhanced Income A B C -- -- -- -- -- R4 -- -- -- RiverSource Income Builder Moderate Income A B C -- -- -- -- -- R4 -- -- -- RiverSource Market Advantage Series, Inc. RiverSource Portfolio Builder Conservative A B C -- -- -- -- -- R4 -- -- -- RiverSource Portfolio Builder Moderate Conservative A B C -- -- -- -- -- R4 -- -- -- RiverSource Special Tax-Exempt Series Trust RiverSource Minnesota Tax-Exempt A B C -- -- -- -- -- -- -- -- -- RiverSource New York Tax-Exempt A B C -- -- -- -- -- -- -- -- -- RiverSource Strategic Allocation Series, Inc. RiverSource Strategic Income Allocation A B C -- -- -- R2 R3 R4 R5 -- -- RiverSource Tax-Exempt Income Series, Inc. RiverSource Tax-Exempt High Income A B C -- -- -- -- -- -- -- -- -- RiverSource Tax-Exempt Series, Inc. RiverSource Intermediate Tax-Exempt A B C -- -- -- -- -- -- -- -- -- RiverSource Tax-Exempt Bond A B C -- -- -- -- -- -- -- -- --
FIXED INCOME FUNDS
CLASSES ---------------------------------------------------------- FUNDS A B C D E I R2 R3 R4 R5 W Y - ----------------------------------------------- --- --- --- --- --- --- --- --- --- --- --- --- Seligman Core Fixed Income Fund, Inc. A B C -- -- -- R2 -- -- R5 -- -- Seligman High Income Fund Series Seligman High-Yield A B C -- -- -- R2 -- -- R5 -- -- Seligman U.S. Government Securities A B C -- -- -- R2 -- -- -- -- -- Seligman Municipal Fund Series, Inc. Seligman National Municipal Class (National Fund) A -- C -- -- -- -- -- -- -- -- -- Seligman Minnesota Municipal Class (Minnesota Fund) A -- C -- -- -- -- -- -- -- -- -- Seligman New York Municipal Class (New York Fund) A -- C -- -- -- -- -- -- -- -- -- Seligman Municipal Series Trust Seligman California Municipal High Yield Series A -- C -- -- -- -- -- -- -- -- -- Seligman California Municipal Quality Series A -- C -- -- -- -- -- -- -- -- --
MONEY MARKET FUNDS
CLASSES ---------------------------------------------------------- FUNDS A B C D E I R2 R3 R4 R5 W Y - ----------------------------------------------- --- --- --- --- --- --- --- --- --- --- --- --- RiverSource Money Market Series, Inc. RiverSource Cash Management A B C -- -- I R2 -- -- R5 W Y RiverSource Tax-Exempt Money Market Series, Inc. RiverSource Tax-Exempt Money Market Fund A -- -- -- -- -- -- -- -- -- -- -- Seligman Cash Management Fund, Inc. A B C -- -- -- R2 -- -- R5 -- --
NON - PUBLIC FUND RiverSource Short Term Investments Series, Inc. RiverSource Short-Term Cash Fund SCHEDULE B FEE SCHEDULE The annual fee for services under this Agreement, accrued daily and payable monthly, for the classes applicable to the Fund, is as follows: 1. PER ACCOUNT FEE - CLASSES A, B, C AND D EQUITY FUNDS* The annual per account fee is as follows:
Class A Class B Class C Class D - ------- ------- ------- ------- $19.50 $20.50 $20.00 $19.50
FIXED INCOME FUNDS* The annual per account fee is as follows:
Class A Class B Class C - ------- ------- ------- $20.50 $21.50 $21.00
MONEY MARKET FUNDS* The annual per account fee is as follows:
Class A Class B Class C - ------- ------- ------- $22.00 $23.00 $22.50
* For Class A, Class B and Class C shares an annual direct-at-fund per account surcharge of $3.00 per account. 2. ASSET BASED FEE - CLASSES E, I, R2, R3, R4, R5, W AND Y The annual asset-based fee is as follows:
FEE (asset-based fees are calculated based on average daily net assets CLASS attributable to the applicable class) - ----- -------------------------------------------- E 0.05% I None R2 0.05% R3 0.05% R4 0.05% R5 0.05% W 0.20% Y 0.05%
FOR ALL FUNDS: An annual closed-account fee of $5.00 per inactive account, charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system. SCHEDULE C OUT-OF-POCKET EXPENSES The Fund shall reimburse the Transfer Agent monthly for the following out-of-pocket expenses: - - typesetting, printing, paper, envelopes, postage and return postage for proxy soliciting material, and proxy tabulation costs - - printing, paper, envelopes and postage for dividend notices, dividend checks, records of account, purchase confirmations, exchange confirmations and exchange prospectuses, redemption confirmations, redemption checks, confirmations on changes of address and any other communication required to be sent to shareholders - - typesetting, printing, paper, envelopes and postage for prospectuses, annual and semiannual reports, statements of additional information, supplements for prospectuses and statements of additional information and other required mailings to shareholders - - stop orders - - outgoing wire charges - - National Securities Clearing Corporation charges related to fund transactions - - vendor services in support of outside distribution and servicing direct-at-fund shareholders including, for example, automated servicing via telephone and financial intermediary on-line access to account information and transaction history - - other expenses incurred at the request or with the consent of the Fund EX-99.H.4 6 c51790exv99whw4.txt MASTER FEE CAP/FEE WAIVER AGREEMENT FEE CAP/FEE WAIVER AGREEMENT AMENDED AND RESTATED This Agreement, dated Oct. 1, 2005, as amended and restated July 13, 2009, is between each of the investment companies (each a "Registrant"), on behalf of its underlying series funds, as listed in Schedule A (the term "FUND" is used to refer to either the Registrant or the series as context requires), and RiverSource Investments, LLC, in its capacity as investment manager of the Funds, Ameriprise Financial, Inc, in its capacity as administrator of the Funds, RiverSource Service Corporation, in its capacity as transfer agent of the Funds, and RiverSource Fund Distributors, Inc. and RiverSource Distributors, Inc, in their capacity as principal underwriters and distributors of the Funds (collectively referred to as the "SERVICE PROVIDERS"). Under this Agreement, the Service Providers hereby agree to waive all or a portion of the fees they earn and/or cap or reimburse expenses of each Fund incurred in connection with the services they provide to the Funds, in an amount equal to the amount by which the Fund's total operating expense, before giving effect to any applicable performance incentive adjustment (excluding foreign transaction taxes, income paid to brokers related to securities lending program, dividend expenses associated with securities sold short, inverse floater program fees and interest expenses, transaction or brokerage fees, fees and expenses associated with investment in other pooled investment vehicles, including exchange traded funds, other affiliated and unaffiliated mutual funds, and certain other expenses as may be approved by the Funds' Board of Directors/Trustees) exceed the thresholds set forth in the attached Schedule B ("FEE CAPS") for any particular Fund, and the Fund hereby agrees to such Fee Caps. 1. FEE CAPS/FEE WAIVERS. Any allocation of fee waivers and expenses reimbursements among the Service Providers in order to meet the Fee Caps will be determined by the Service Providers. 2. TERMINATION. With respect to any Fund, this Agreement will terminate on the date listed in Schedule B unless modified by written agreement of the Fund and the Service Providers or terminated earlier at the sole discretion of the Fund's Board of Directors/Trustees. The Service Providers acknowledge that they (1) shall not be entitled to collect on, or make a claim for, waived fees at any time in the future, and (2) shall not be entitled to collect on, or make a claim for, reimbursed Fund expenses at any time in the future. Fee Cap/Fee Waiver Agreement IN WITNESS WHEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written. RIVERSOURCE BOND SERIES, INC. RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RIVERSOURCE DIMENSIONS SERIES, INC. RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RIVERSOURCE EQUITY SERIES, INC. RIVERSOURCE GLOBAL SERIES, INC. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RIVERSOURCE INCOME SERIES, INC. RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RIVERSOURCE INTERNATIONAL SERIES, INC. RIVERSOURCE INVESTMENT SERIES, INC. RIVERSOURCE LARGE CAP SERIES, INC. RIVERSOURCE MANAGERS SERIES, INC. RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RIVERSOURCE MONEY MARKET SERIES, INC. RIVERSOURCE SECTOR SERIES, INC. RIVERSOURCE SELECTED SERIES, INC. RIVERSOURCE SERIES TRUST RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RIVERSOURCE STRATEGY SERIES, INC. RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC. RIVERSOURCE TAX-EXEMPT SERIES, INC. SELIGMAN ASSET ALLOCATION SERIES, INC. SELIGMAN CAPITAL FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMON STOCK FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. SELIGMAN GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. SELIGMAN MUNICIPAL FUND SERIES, INC. SELIGMAN MUNICIPAL SERIES TRUST SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. SELIGMAN VALUE FUND SERIES, INC. By: /s/ Patrick T. Bannigan --------------------------------- Patrick T. Bannigan President AMERIPRISE FINANCIAL, INC. RIVERSOURCE INVESTMENTS, LLC. By: /s/ William F. Truscott By: /s/ William F. Truscott --------------------------------- ------------------------------------ William F. Truscott William F. Truscott President - U.S. Asset Management President and Chief Investment and Chief Investment Officer Officer RIVEROURCE FUND DISTRIBUTORS, INC. RIVEROURCE SERVICE CORPORATION By: /s/ William F. Truscott By: /s/ Lyn Kephart-Strong --------------------------------- ------------------------------------ William F. Truscott Lyn Kephart-Strong Chairman of the Board and President Chief Executive Officer SCHEDULE A - FUNDS Each Registrant is a Minnesota corporation except Seligman Asset Allocation Series, Inc., Seligman Capital Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Core Fixed Income Fund, Inc., Seligman Frontier Fund, Inc., Seligman Global Fund Series, Inc., Seligman Growth Fund, Inc., Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman Municipal Fund Series, Inc., Seligman TargetHorizon ETF Portfolios, Inc., and Seligman Value Fund Series, Inc., which are Maryland corporations, and RiverSource California Tax-Exempt Trust, RiverSource Special Tax-Exempt Series Trust, RiverSource Series Trust, Seligman High Income Fund Series and Seligman Municipal Series Trust, which are Massachusetts business trusts: RIVERSOURCE BOND SERIES, INC. RiverSource Floating Rate Fund RiverSource Income Opportunities Fund RiverSource Inflation Protected Securities Fund RiverSource Limited Duration Bond Fund RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RiverSource California Tax-Exempt Fund RIVERSOURCE DIMENSIONS SERIES, INC. RiverSource Disciplined Small and Mid Cap Equity Fund RiverSource Disciplined Small Cap Value Fund RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RiverSource Diversified Bond Fund RIVERSOURCE EQUITY SERIES, INC. RiverSource Mid Cap Growth Fund RIVERSOURCE GLOBAL SERIES, INC. RiverSource Absolute Return Currency and Income Fund RiverSource Emerging Markets Bond Fund RiverSource Global Bond Fund RiverSource Global Technology Fund Threadneedle Emerging Markets Fund Threadneedle Global Equity Fund Threadneedle Global Equity Income Fund Threadneedle Global Extended Alpha Fund RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RiverSource Short Duration U.S. Government Fund RiverSource U.S. Government Mortgage Fund RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RiverSource High Yield Bond Fund RIVERSOURCE INCOME SERIES, INC. RiverSource Income Builder Basic Income Fund RiverSource Income Builder Enhanced Income Fund RiverSource Income Builder Moderate Income Fund RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RiverSource Partners International Select Growth Fund RiverSource Partners International Select Value Fund RiverSource Partners International Small Cap Fund RIVERSOURCE INTERNATIONAL SERIES, INC. RiverSource Disciplined International Equity Fund Threadneedle Asia Pacific Fund Threadneedle European Equity Fund Threadneedle International Opportunity Fund RIVERSOURCE INVESTMENT SERIES, INC. RiverSource Balanced Fund RiverSource Disciplined Large Cap Growth Fund RiverSource Disciplined Large Cap Value Fund RiverSource Diversified Equity Income Fund RiverSource Mid Cap Value Fund RIVERSOURCE LARGE CAP SERIES, INC. RiverSource Disciplined Equity Fund RiverSource Growth Fund RiverSource Large Cap Equity Fund RiverSource Large Cap Value Fund RIVERSOURCE MANAGERS SERIES, INC. RiverSource Partners Aggressive Growth Fund RiverSource Partners Fundamental Value Fund RiverSource Partners Select Value Fund RiverSource Partners Small Cap Equity Fund RiverSource Partners Small Cap Value Fund RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RiverSource Portfolio Builder Aggressive Fund RiverSource Portfolio Builder Conservative Fund RiverSource Portfolio Builder Moderate Aggressive Fund RiverSource Portfolio Builder Moderate Conservative Fund RiverSource Portfolio Builder Moderate Fund RiverSource Portfolio Builder Total Equity Fund RiverSource S&P 500 Index Fund RiverSource Small Company Index Fund RIVERSOURCE MONEY MARKET SERIES, INC. RiverSource Cash Management Fund RIVERSOURCE SECTOR SERIES, INC. RiverSource Dividend Opportunity Fund RiverSource Real Estate Fund RIVERSOURCE SELECTED SERIES, INC. RiverSource Precious Metals and Mining Fund RIVERSOURCE SERIES TRUST RiverSource 120/20 Contrarian Equity Fund RiverSource Recovery and Infrastructure Fund= RiverSource Retirement Plus 2010 Fund RiverSource Retirement Plus 2015 Fund RiverSource Retirement Plus 2020 Fund RiverSource Retirement Plus 2025 Fund RiverSource Retirement Plus 2030 Fund RiverSource Retirement Plus 2035 Fund RiverSource Retirement Plus 2040 Fund RiverSource Retirement Plus 2045 Fund RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST RiverSource Minnesota Tax-Exempt Fund RiverSource New York Tax-Exempt Fund RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RiverSource Strategic Allocation Fund RiverSource Strategic Income Allocation Fund RIVERSOURCE STRATEGY SERIES, INC. RiverSource Equity Value Fund RiverSource Partners Small Cap Growth Fund RiverSource Small Cap Advantage Fund RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RiverSource Tax-Exempt High Income Fund RIVERSOURCE TAX-EXEMPT SERIES, INC. RiverSource Intermediate Tax-Exempt Fund RiverSource Tax-Exempt Bond Fund RIVERSOURCE VARIABLE SERIES TRUST Discipline Asset Allocation Portfolios - Aggressive Discipline Asset Allocation Portfolios - Conservative Discipline Asset Allocation Portfolios - Moderate Discipline Asset Allocation Portfolios - Moderately Aggressive Discipline Asset Allocation Portfolios - Moderately Conservative RiverSource Partners Variable Portfolio - Fundamental Value Fund RiverSource Partners Variable Portfolio - Select Value Fund RiverSource Partners Variable Portfolio - Small Cap Value Fund RiverSource Variable Portfolio - Balanced Fund RiverSource Variable Portfolio - Cash Management Fund RiverSource Variable Portfolio - Core Equity Fund RiverSource Variable Portfolio - Diversified Bond Fund RiverSource Variable Portfolio - Diversified Equity Income Fund RiverSource Variable Portfolio - Dynamic Equity Fund RiverSource Variable Portfolio - Global Bond Fund RiverSource Variable Portfolio - Global Inflation Protected Securities Fund RiverSource Variable Portfolio - High Yield Bond Fund RiverSource Variable Portfolio - Income Opportunities Fund RiverSource Variable Portfolio - Mid Cap Growth Fund RiverSource Variable Portfolio - Mid Cap Value Fund RiverSource Variable Portfolio - S&P 500 Index Fund RiverSource Variable Portfolio - Short Duration U.S. Government Fund Seligman Variable Portfolio - Growth Fund Seligman Variable Portfolio - Larger-Cap Value Fund Seligman Variable Portfolio - Smaller-Cap Value Fund Threadneedle Variable Portfolio - Emerging Markets Fund Threadneedle Variable Portfolio - International Opportunity Fund SELIGMAN ASSET ALLOCATION SERIES, INC. Seligman Asset Allocation Aggressive Growth Fund Seligman Asset Allocation Balanced Fund Seligman Asset Allocation Growth Fund Seligman Asset Allocation Moderate Growth Fund SELIGMAN CAPITAL FUND, INC. SELIGMAN COMMON STOCK FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. Seligman Global Smaller Companies Fund Seligman Global Technology Fund Seligman Emerging Markets Fund Seligman Global Growth Fund Seligman International Growth Fund SELIGMAN GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES Seligman High-Yield Fund Seligman U.S. Government Securities Fund SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. Seligman LaSalle Global Real Estate Fund (to be known RiverSource LaSalle Global Real Estate Fund) Seligman LaSalle Monthly Dividend Real Estate Fund (to be known RiverSource LaSalle Monthly Dividend Real Estate Fund) Seligman Oregon Municipal Class SELIGMAN MUNICIPAL FUND SERIES, INC. Seligman National Municipal Class Seligman Minnesota Municipal Class Seligman New York Municipal Class SELIGMAN MUNICIPAL SERIES TRUST Seligman California Municipal High Yield Series Seligman California Municipal Quality Series SELIGMAN PORTFOLIOS, INC. Seligman Capital Portfolio Seligman Cash Management Portfolio Seligman Common Stock Portfolio Seligman Communications and Information Portfolio Seligman Global Technology Portfolio Seligman International Growth Portfolio Seligman Investment Grade Fixed Income Portfolio Seligman Large-Cap Value Portfolio Seligman Smaller-Cap Value Portfolio SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. Seligman TargETFund 2045 Seligman TargETFund 2035 Seligman TargETFund 2025 Seligman TargETFund 2015 Seligman TargETFund Core SELIGMAN VALUE FUND SERIES, INC. Seligman Large-Cap Value Fund Seligman Smaller-Cap Value Fund SCHEDULE B - FEE CAPS/FEE WAIVERS Schedule B is separately maintained and updated from time to time to reflect current fee cap/fee waiver commitments, as they have been approved by the Funds' Board of Directors/Trustees. Current fee cap/fee waiver commitments are reflected in Fund registration statements as applicable. EX-99.H.6 7 c51790exv99whw6.txt AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization dated as of January 10, 2009 (the "Agreement") is between each selling entity identified in Schedule A hereto (each a "Selling Corporation")(1), on behalf of each series thereof identified in Schedule A hereto as a Selling Fund (each a "Selling Fund"), each corresponding buying entity identified in Schedule A hereto (each a "Buying Corporation")(2), on behalf of each series thereof identified in Schedule A hereto as the corresponding Buying Fund (each a "Buying Fund"), and RiverSource Investments, LLC (solely for the purposes of Sections 3c and 11 of the Agreement). This Agreement shall be treated for all purposes as if each reorganization between a Selling Fund and its corresponding Buying Fund contemplated hereby had been the subject of a separate agreement. As context requires a Buying Corporation or Selling Corporation that is not organized as a series fund and that may not be considered or meet the definition of "Buying Fund" and "Selling Fund" as set forth above, may be referred to as a "Buying Fund" or a "Selling Fund," respectively, for purposes of this Agreement. In consideration of their mutual promises, the parties agree as follows: 1. SHAREHOLDER APPROVAL. Each Selling Fund will call a meeting of its shareholders for the purpose of approving the Agreement and the transactions it contemplates (each a "Reorganization"). Each Buying Fund agrees to furnish data and information, as reasonably requested, for the proxy statement to be furnished to shareholders of the corresponding Selling Fund. 2. REORGANIZATION. a. Plan of Reorganization. Each Reorganization will be a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). At the Closing, each Selling Corporation will convey all of the assets of each Selling Fund to the corresponding Buying Fund. Each Buying Fund will assume all liabilities of the corresponding Selling Fund. At the Closing, each Buying Corporation will deliver shares of each Buying Fund, including fractional shares, to the corresponding Selling Corporation on behalf of the corresponding Selling Fund. The number of shares will be determined by dividing the value of the net assets attributable to each class of shares of each Selling Fund, computed as described in paragraph 3(a), by the net asset value of one share of the corresponding class of the corresponding Buying Fund, computed as described in paragraph 3(b). Each Selling Fund will not pay a sales charge on the receipt of the corresponding Buying Fund's shares in exchange for the assets of such Selling Fund. In addition, the shareholders of each Selling Fund will not pay a sales charge on distribution to them of shares of the corresponding Buying Fund. b. Closing and Effective Time of the Reorganization. The Reorganization and all related acts necessary to complete the Reorganization (the "Closing") will occur on the first day on which the New York Stock Exchange (the "NYSE") is open for business following approval of shareholders of each Selling Fund and receipt of all necessary regulatory approvals, or such later date as the officers of the Selling Corporation and Buying Corporation may agree. 3. VALUATION OF NET ASSETS. a. The net asset value of each Selling Fund will be computed as of the close of regular trading on the NYSE on the business day immediately preceding the day of Closing (the "Valuation Date") using the valuation procedures set forth in the corresponding Buying Fund's then current prospectus. b. The net asset value per share of shares of each Buying Fund will be determined as of the close of regular trading on the NYSE on the Valuation Date, using the valuation procedures in each Buying Fund's then current prospectus. - ---------- (1) The Selling Corporation for the Reorganization of Seligman Emerging Markets Fund, Seligman Global Growth Fund and Seligman International Growth Fund is a Maryland corporation. The Selling Corporation for the Reorganization of Seligman High-Yield Fund and Seligman U.S. Government Securities Fund is a Massachusetts business trust. Seligman Core Fixed Income Fund, Inc. and Seligman Income and Growth Fund, Inc. are each Maryland Corporations. (2) The Buying Corporation for each Buying Fund, RiverSource Diversified Bond Fund, Threadneedle Emerging Markets Fund, Threadneedle Global Equity Fund, RiverSource High Yield Bond Fund, RiverSource Balanced Fund, RiverSource Partners International Select Growth Fund and RiverSource Short Duration U.S. Government Fund, is a Minnesota corporation. 2 c. At the Closing, each Selling Fund will provide the corresponding Buying Fund with a copy of the computation showing the valuation of the net asset value per share of such Selling Fund on the Valuation Date, and each Buying Fund will provide the corresponding Selling Fund with a copy of the computation showing the determination of the net asset value per share of such Buying Fund on the Valuation Date. Both computations will be certified by an officer of RiverSource Investments, LLC, the investment manager. 4. LIQUIDATION AND DISSOLUTION OF THE SELLING FUND. a. On the date of the Closing, each Selling Corporation will liquidate each Selling Fund and distribute shares of each class of the corresponding Buying Fund to the shareholders of record of such Selling Fund's corresponding class. Each Buying Fund will establish shareholder accounts in the names of each corresponding Selling Fund shareholder, representing the respective pro rata number of full and fractional shares of such class of the Buying Fund due to each such shareholder. All issued and outstanding shares of each Selling Fund will simultaneously be cancelled on the books of each Selling Corporation. Each Buying Fund or its transfer agent will establish shareholder accounts in accordance with instructions from the corresponding Selling Corporation. b. Immediately after the close of business on the Valuation Date, the share transfer books of each Selling Corporation relating to each Selling Fund will be closed and no further transfer of shares will be made. c. Promptly after the Closing, each Buying Fund or its transfer agent will notify each shareholder of the corresponding Selling Fund of the number of shares distributed to the shareholder and confirm the registration in the shareholder's name. d. As promptly as practicable after the Closing, and in no event later than twelve months from the date of the Closing, each Selling Fund will be dissolved. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYING CORPORATION. With respect to each Reorganization, the Buying Corporation represents and warrants to the Selling Fund as follows: a. Organization, Existence, etc. The Buying Corporation is a corporation duly organized, validly existing and in good standing under the laws of the state of Minnesota and has the power to carry on its business as it is now being conducted. b. Registration as Investment Company. The Buying Corporation, or in the case of separate series funds, the buying Corporation, of which the Buying Fund is a series, is registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end, management investment company. c. Capitalization. The Buying Corporation has authorized capital of 10,000,000,000 shares of common stock, par value $0.01 per share. All of the outstanding shares of the Buying Corporation have been duly authorized and are validly issued, fully paid and non-assessable. Since the Buying Fund is engaged in the continuous offering and redemption of its shares, the number of outstanding shares may vary daily. d. Financial Statements. The Buying Fund's audited financial statements as of the end of the last fiscal year, and the subsequent unaudited semi-annual financial statements, if any (the "Buying Fund Financial Statements"), fairly present the financial position of the Buying Fund and the results of its operations and changes in its net assets for the periods shown. e. Shares to be Issued Upon Reorganization. The shares to be issued in connection with the Reorganization will be duly authorized and, at the time of the Closing, will be validly issued, fully paid and non-assessable. f. Authority Relative to the Agreement. The Buying Corporation has the power to enter into and carry out the obligations described in this Agreement. The Agreement and the transactions contemplated by it have been duly authorized by the Board of Directors of the Buying Corporation and no other proceedings by the Buying Corporation or the Buying Fund are necessary. g. No Violation. The Buying Corporation is not in violation of its Articles of Incorporation or By-Laws (the "Articles") or in default in the performance of any material agreement to which it is a party. The execution of this Agreement and the completion of the transactions contemplated by it will not conflict with, or constitute a breach of, any material contract or other instrument to which the Buying Fund is subject. The 3 transactions will not result in any violation of the provisions of the Articles or any law, administrative regulation or administrative or court decree applicable to the Buying Fund. h. Liabilities. The Buying Fund has no known liabilities of a material amount, contingent or otherwise, other than liabilities disclosed in the Buying Fund Financial Statements, liabilities incurred in the ordinary course of business subsequent to the date of the latest annual or semi-annual financial statements, or liabilities previously disclosed to the Selling Fund. i. Litigation. There is no litigation, administrative proceeding or investigation before any court or governmental body currently pending or, to the knowledge of the Buying Fund, threatened, that would materially and adversely affect the Buying Fund, its financial condition or the conduct of its business, or that would prevent or hinder completion of the transactions contemplated by this Agreement. The Buying Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding or investigation and the Buying Fund is not a party to or subject to the provisions of any order, decree or judgment. j. Contracts. Except for contracts and agreements previously disclosed to the Selling Corporation, the Buying Fund is not a party to or subject to any material contract, debt instrument, plan, lease, franchise, license or permit. k. Regulated Investment Company Qualification. The Buying Fund has qualified and met the requirements for treatment as a "regulated investment company" within the meaning of Section 851 of the Code with respect to each taxable year since commencement of its operations and will continue to meet such requirements and to so qualify at all times through the Closing. l. Taxes. As of the Closing, the Buying Fund will (i) have filed all federal and other tax returns and reports that have been required to be filed, (ii) have paid or provided for payment of all federal and other taxes shown to be due on such returns or on any assessments received, (iii) have adequately provided for all tax liabilities on its books, (iv) except as disclosed to the Selling Fund, not have had any tax deficiency or liability asserted against it or question with respect thereto raised, and (v) except as disclosed to the Selling Fund, not be under audit by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid. m. Registration Statement. The Buying Fund will file a registration statement on Form N-14 (the "Registration Statement") with the Securities and Exchange Commission under the Securities Act of 1933 (the "1933 Act") relating to the shares to be issued in the Reorganization. At the time the Registration Statement becomes effective, at the time of the shareholders' meeting described in paragraph 1 and at the Closing, the Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. However, none of the representations and warranties in this subsection apply to statements in, or omissions from, the Registration Statement made in reliance on information furnished by the Selling Fund for use in the Registration Statement. n. Business Activities. The Buying Fund will operate its business in the ordinary course between the date hereof and the date of the Closing, it being understood that such ordinary course of business will include regular and customary periodic dividends and distributions and any other distribution that may be advisable. 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING CORPORATION. With respect to each Reorganization, the Selling Corporation represents and warrants to the Buying Fund as follows: a. Organization, Existence, etc. For Seligman Core Fixed Income Fund, Inc., Seligman Income and Growth Fund, Inc., Seligman Emerging Markets Fund, Seligman Global Growth Fund and Seligman International Growth Fund, the Selling Corporation is a corporation duly organized, validly existing and in good standing under the laws of the state of Maryland and has the power to carry on its business as it is now being conducted. For Seligman High-Yield Fund and Seligman U.S. Government Securities Fund, the Selling Corporation is a business trust duly organized, validly existing and in good standing under the laws of the commonwealth of Massachusetts and has the power to carry on its business as it is now being conducted. 4 b. Registration as Investment Company. The Selling Corporation, or in the case of a separate series funds, the Selling Corporation, of which the Selling Fund is a series, is registered under the 1940 Act as an open-end, management investment company. c. Capitalization. The Selling Corporation has authorized capital as follows: Seligman Core Fixed Income Fund, Inc. has 1,000,000,000 shares of common stock, par value $0.001 per share; Seligman Global Fund Series, Inc. has 2,000,000,000 shares of common stock, par value $0.001, of which 400,000,000 shares are authorized for each of Seligman Emerging Markets Fund, Seligman Global Growth Fund and Seligman International Growth Fund; Seligman Income and Growth Fund, Inc. has 500,000,000 shares of common stock, par value $1.00; and Seligman High-Yield Fund and Seligman U.S. Government Securities Fund each have an unlimited number of shares of common stock, par value $0.001. All of the outstanding shares have been duly authorized and are validly issued, fully paid and nonassessable. Since the Selling Fund is engaged in the continuous offering and redemption of its shares, the number of outstanding shares may vary daily. d. Financial Statements. The Selling Fund's audited financial statements as of the end of the last fiscal year, and the subsequent unaudited semi-annual financial statements, if any (the "Selling Fund Financial Statements"), fairly present the financial position of the Selling Fund, and the results of its operations and changes in its net assets for the periods shown. e. Authority Relative to the Agreement. The Selling Corporation has the power to enter into and to carry out its obligations under this Agreement. The Agreement and the transactions contemplated by it have been duly authorized by the Board of Directors of the Selling Corporation and no other proceedings by the Selling Corporation or the Selling Fund are necessary, other than the approval of shareholders contemplated in paragraph 1. f. No Violation. The Selling Corporation is not in violation of its Articles or Declaration of Trust, as applicable, or in default in the performance of any material agreement to which it is a party or in default in the performance of any material agreement to which it is a party). The execution of this Agreement and the completion of the transactions contemplated by it will not conflict with or constitute a breach of, any material contract to which the Selling Fund is subject. The transactions will not result in any violation of the provisions of the Articles or Declaration of Trust, as the case may be, or any law, administrative regulation or administrative or court decree applicable to the Selling Fund. g. Liabilities. The Selling Fund has no known liabilities of a material amount, contingent or otherwise, other than liabilities disclosed in the Selling Fund Financial Statements, liabilities incurred in the ordinary course of business subsequent to the date of the latest annual or semi-annual financial statements, or liabilities previously disclosed to the Buying Fund. h. Litigation. There is no litigation, administrative proceeding or investigation before any court or governmental body currently pending or, to the knowledge of the Selling Fund, threatened, that would materially and adversely affect the Selling Fund, its financial condition or the conduct of its business, or that would prevent or hinder completion of the transactions contemplated by this Agreement. The Selling Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding or investigation and is not a party to or subject to the provisions of any order, decree or judgment. i. Contracts. Except for contracts and agreements previously disclosed to the Buying Corporation, the Selling Fund is not a party to or subject to any material contract, debt instrument, plan, lease, franchise, license or permit. j. Regulated Investment Company Qualification. The Selling Fund has qualified and met the requirements for treatment as a "regulated investment company" within the meaning of Section 851 of the Code with respect to each taxable year since commencement of its operations and will continue to meet such requirements and to so qualify at all times through the Closing. k. Taxes. As of the Closing, the Selling Fund will (i) have filed all federal and other tax returns and reports that have been required to be filed, (ii) have paid or provided for payment of all federal and other taxes shown to be due on such returns or on any assessments received, (iii) have adequately provided for all tax liabilities on its books, (iv) except as disclosed to the Buying Fund, not have had any tax deficiency or liability asserted against it or question with respect thereto raised, and (v) except as disclosed to the Buying 5 Fund, not be under audit by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid. l. Fund Securities. All securities listed in the schedule of investments of the Selling Fund as of the Closing will be owned by the Selling Fund free and clear of any encumbrances, except as indicated in the schedule. m. Registration Statement. The Selling Fund will cooperate with the Buying Fund and will furnish information relating to the Selling Corporation and the Selling Fund required in the Registration Statement. At the time the Registration Statement becomes effective, at the time of the shareholders' meeting described in paragraph 1 and at the Closing, the Registration Statement, as it relates to the Selling Corporation or the Selling Fund, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. However, the representations and warranties in this subsection apply only to statements in or omissions from the Registration Statement made in reliance upon information furnished by the Selling Corporation or the Selling Fund for use in the Registration Statement. n. Provision of Books and Records. The Selling Fund will provide its books and records to the corresponding Buying Fund for purposes of preparing any tax returns required by law to be filed after the Closing date, including (1) the tax return for the period ending on the Closing date, and (2) the tax return for the period beginning the day after the Closing and ending the earlier of the current fiscal year-end of the corresponding Buying Fund and the taxable year end chosen by the corresponding Buying Fund following the Reorganization. o. Business Activities. The Selling Fund will operate its business in the ordinary course between the date hereof and the date of the Closing, it being understood that such ordinary course of business will include regular and customary periodic dividends and distributions and any other distribution that may be advisable. 7. CONDITIONS TO OBLIGATIONS OF THE BUYING CORPORATION. The obligations of the Buying Corporation with respect to each Reorganization are subject to the satisfaction of the following conditions: a. Shareholder Approval. This Agreement will have been approved by the affirmative vote of the holders of the majority of the voting power of all Selling Fund shares entitled to vote. b. Representations, Warranties and Agreements. The Selling Corporation and the Selling Fund will have complied with this Agreement and each of the representations and warranties in this Agreement will be true in all material respects as of the date of the Closing. An officer of the Selling Corporation will provide a certificate to each Buying Fund confirming that, as of the Closing, the representations and warranties set forth in Section 6 are true and correct and that there have been no material adverse changes in the financial condition, results of operations, business, properties or assets of the corresponding Selling Fund since the date of its last financial statement, except as otherwise indicated in any financial statements, certified by an officer of the Selling Corporation, and delivered to such Buying Fund on the date of the Closing. c. Regulatory Approvals. - The Registration Statement referred to in Sections 5(m) and 6(m) will be effective and no stop orders under the 1933 Act will have been issued. - All necessary approvals, consents and exemptions from federal and state regulatory authorities will have been obtained. d. Opinion of Counsel. The Buying Corporation will have received an opinion of counsel for the Selling Corporation, dated as of the date of the Closing, to the effect that: (i) the Selling Corporation is a corporation duly organized and validly existing under the laws of the state of Maryland; (ii) each Selling Fund is a series of the Selling Corporation, an open-end management investment company registered under the 1940 Act, as applicable; (iii) this Agreement and the Reorganization has been duly authorized and approved by all requisite action of the Selling Corporation and each Selling Fund and this Agreement has been duly executed by, and is a valid and binding obligation of, the Selling Corporation. e. Declaration of Dividend. The Selling Fund will have declared, prior to the Closing, a dividend or dividends, which, together with all previous such dividends, shall have the effect of distributing to the Selling Fund shareholders (i) all of the excess of (x) the Selling Fund's investment income excludable from 6 gross income under Section 103 of the Code over (y) the Selling Fund's deductions disallowed under Sections 265 and 171 of the Code, (ii) all of the Selling Fund's investment company taxable income as defined in Section 852 of the Code (in each case computed without regard to any deduction for dividends paid) and (iii) all of the Selling Fund's net capital gain realized (after reduction for any capital loss carryover), in each case for the current taxable year (which will end on the Closing date) and any preceding taxable years for which such a dividend is eligible to be made under Section 855 of the Code. 8. CONDITIONS TO OBLIGATIONS OF THE SELLING CORPORATION. The obligations of the Selling Corporation with respect to each Reorganization are subject to the satisfaction of the following conditions: a. Shareholder Approval. This Agreement will have been approved by the affirmative vote of the holders of the majority of the voting power of all Selling Fund shares entitled to vote. b. Representations, Warranties and Agreements. The Buying Fund will have complied with this Agreement and each of the representations and warranties in this Agreement will be true in all material respects as of the date of the Closing. An officer of the Buying Corporation will provide a certificate to each Selling Fund confirming that, as of the Closing, the representations and warranties set forth in Section 5 are true and correct and that there have been no material adverse changes in the financial condition, results of operations, business, properties or assets of the corresponding Buying Fund since the date of its last financial statement, except as otherwise indicated in any financial statements, certified by an officer of the Buying Corporation, and delivered to such Selling Fund on or prior to the last business day before the Closing. c. Regulatory Approvals. - The Registration Statement referred to in Sections 5(m) and 6(m) will be effective and no stop orders under the 1933 Act will have been issued. - All necessary approvals, consents and exemptions from federal and state regulatory authorities will have been obtained. d. Opinion of Counsel. The Selling Corporation will have received the opinion of counsel for the Buying Corporation, dated as of the date of the Closing, to the effect that: (i) the Buying Corporation is a corporation duly organized and validly existing under the laws of the state of Minnesota; (ii) each Buying Fund is a series of the Buying Corporation, an open-end management investment company registered under the 1940 Act; (iii) this Agreement and the Reorganization has been authorized and approved by all requisite action of the Buying Corporation and each Buying Fund and this Agreement has been duly executed by, and is a valid and binding obligation of, the Buying Corporation; and (iv) the shares to be issued in the Reorganization are duly authorized and upon issuance in accordance with this Agreement will be validly issued, fully paid and non-assessable shares of each Buying Fund. 9. CONDITIONS TO OBLIGATIONS OF THE SELLING CORPORATION AND THE BUYING CORPORATION. The obligations of each of the Selling Corporation and the Buying Corporation with respect to each Reorganization are subject to the satisfaction of the following conditions: Tax Opinion. With respect to the Reorganization between a Selling Fund and its corresponding Buying Fund, the Selling Fund shall have received an opinion of Ropes & Gray LLP satisfactory to such Selling Fund, and the Buying Fund shall have received an opinion of Ropes & Gray LLP satisfactory to such Buying Fund, each substantially to the effect that, on the basis of existing provisions of the Code, Treasury regulations promulgated thereunder, current administrative rules, pronouncements and court decisions, although the matter is not free from doubt, generally for federal income tax purposes: a. The acquisition by the Buying Fund of the assets of the Selling Fund in exchange for the Buying Fund's assumption of all liabilities of the Selling Fund and delivery to the Selling Fund of the acquisition shares, followed by the distribution by the Selling Fund of the acquisition shares to the shareholders of the Selling Fund in exchange for their Selling Fund shares, all as provided in paragraph 2(a) and 4(a) hereof, will constitute a reorganization within the meaning of Section 368(a) of the Code, and the Selling Fund and the Buying Fund will each be "a party to a reorganization" within the meaning of Section 368(b) of the Code; b. No gain or loss will be recognized by the Selling Fund upon (i) the transfer of its assets to the Buying Fund in exchange for the acquisition shares and the assumption by the Buying Fund of all liabilities of the 7 Selling Fund or (ii) the distribution of the acquisition shares by the Selling Fund to its shareholders in liquidation, as contemplated in paragraph 4(a) hereof; c. No gain or loss will be recognized by the Buying Fund upon receipt of the assets of the Selling Fund in exchange for acquisition shares and the assumption by the Buying Fund of all liabilities of the Selling Fund as contemplated in paragraph 2(a) hereof; d. The tax basis in the hands of the Buying Fund of the assets of the Selling Fund transferred to the Buying Fund in the Reorganization will be the same as the tax basis of such assets in the hands of the Selling Fund immediately prior to the transfer; e. The holding periods of the assets of the Selling Fund in the hands of the Buying Fund will include the periods during which such assets were held by the Selling Fund; f. No gain or loss will be recognized by the Selling Fund's shareholders upon the exchange of their shares of the Selling Fund for the acquisition shares; g. The aggregate tax basis of the acquisition shares the Selling Fund shareholder receives in the Reorganization will be the same as the aggregate tax basis of his or her Selling Fund's shares exchanged therefor; h. The Selling Fund shareholder's holding period for the acquisition shares will include the period for which he or she held the Selling Fund's shares exchanged therefor, provided that the shareholder held such Selling Fund's shares as capital assets on the date of the exchange; and i. The Buying Fund will succeed to and take into account the items of the Selling Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the regulations thereunder. Ropes & Gray LLP will express no view with respect to the effect of the Reorganization on any transferred asset as to which any unrealized gain or loss is required to be recognized under federal income tax principles (i) at the end of a taxable year or upon the termination thereof or (ii) upon the transfer of such asset regardless of whether such a transfer would otherwise be a non-taxable transaction. Each opinion will be based on certain factual certifications made by officers of the Selling Fund and the Buying Fund, and will also be based on customary assumptions. The opinions are not guarantees that the tax consequences of the Reorganizations will be as described above. The opinions will note and distinguish certain published precedent. There is no assurance that the Internal Revenue Service or a court would agree with the opinions. 10. AMENDMENT; TERMINATION; NON-SURVIVAL OF COVENANTS, WARRANTIES AND REPRESENTATIONS. a. This Agreement may be amended in writing if authorized by the respective Boards of Directors. The Agreement may be so amended at any time before or after the shareholder approval contemplated by paragraph 1 is obtained. b. At any time prior to the Closing, any of the parties may waive in writing (i) any inaccuracies in the representations and warranties made to it and (ii) compliance with any of the covenants or conditions made for its benefit. c. Each party hereto may terminate this Agreement at any time prior to the Closing by notice to the other party if a material condition to its performance or a material covenant of the other party is not fulfilled on or before the date specified for its fulfillment or a material breach of this Agreement is made by the other party and is not cured. d. This Agreement may be terminated by any party at any time prior to the Closing, whether before or after approval by the shareholders of each Selling Fund, without any liability on the part of any party or its respective directors, officers, or shareholders, on written notice to the other party, and shall be terminated without liability as of the close of business on April 30, 2010, or a later date agreed upon by the officers of the Selling Corporation and the Buying Corporation, if the Closing is not effected on or prior to that date. e. The representations, warranties and covenants contained in this Agreement, or in any document delivered in connection with this Agreement, will survive the Reorganization. 8 11. EXPENSES. All fees paid to governmental authorities for the registration or qualification of the acquisition shares and all transfer agency costs related to the acquisition shares shall be borne by the relevant Buying Fund. Certain non-recurring Reorganization costs and related Reorganization expenses may be borne by a Selling Fund to the extent the Reorganization is expected to result in a reduction to the expense ratio for such Selling Fund. Reorganization costs and related Reorganization expenses include (i) legal and auditor or accounting fees ("Professional Fees") associated with the preparation and filing of the proxy statement/prospectus and (ii) expenses associated with the printing and mailing of any shareholder communications, including the proxy statement/prospectus that forms a part of the Registration Statement, and fees and expenses of any proxy solicitation firm retained in connection with the Reorganization ("Proxy Vendor Expenses"). Professional Fees shall be allocated among each Selling Fund on an equal weighted basis regardless of asset size or number of accounts. Proxy Vendor Expenses shall be allocated among the Selling Funds based on number of shareholder accounts. Notwithstanding the foregoing, the fees and expenses borne by any Selling Fund will not exceed the excess of (i) the total anticipated reduction in fees and expenses expected to be borne by such Selling Fund over the first twelve months following its Reorganization over (ii) the cost expected to be borne by such Selling Fund related to the discontinuance of operations of Seligman Data Corp. Any fees and expenses that would have been eligible to be borne by a Selling Fund but for the preceding sentence and all other Reorganization related costs and expenses will be borne by RiverSource Investments, LLC. Each Selling Fund will bear the full cost of any brokerage or other transaction costs associated with the sale or purchase of portfolio securities in connection with its Reorganization. Should any Reorganization fail to occur, RiverSource Investments, LLC will bear all costs associated with the Reorganization. 12. GENERAL. a. Headings. The headings contained in this Agreement are for reference purposes only and will not affect the meaning or interpretation of this Agreement. Nothing in this Agreement is intended to confer upon any other person any rights or remedies by reason of this Agreement. b. Governing Law. This Agreement will be governed by the laws of the state of Minnesota. 9 IN WITNESS WHEREOF, each of the parties, individually and not jointly, has caused this Agreement to be signed. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC., on behalf of Seligman Emerging Markets Fund Seligman Global Growth Fund Seligman International Growth Fund SELIGMAN HIGH INCOME FUND SERIES, on behalf of Seligman High-Yield Fund Seligman U.S. Government Securities Fund SELIGMAN INCOME AND GROWTH FUND, INC. By: /s/ Patrick T. Bannigan -------------------------------- Name: Patrick T. Bannigan Title: President RIVERSOURCE DIVERSIFIED INCOME SERIES, INC., on behalf of RiverSource Diversified Bond Fund RIVERSOURCE GLOBAL SERIES, INC., on behalf of Threadneedle Emerging Markets Fund Threadneedle Global Equity Fund RIVERSOURCE HIGH YIELD INCOME SERIES, INC., on behalf of RiverSource High Yield Bond Fund RIVERSOURCE INVESTMENT SERIES, INC., on behalf of RiverSource Balanced Fund RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC., on behalf of RiverSource Partners International Select Growth Fund RIVERSOURCE GOVERNMENT INCOME SERIES, INC., on behalf of RiverSource Short Duration U.S. Government Fund By: /s/ Patrick T. Bannigan -------------------------------- Name: Patrick T. Bannigan Title: President The undersigned is a party to this Agreement for the purposes of Section 3c and 11 only. RIVERSOURCE INVESTMENTS, LLC By: /s/ William F. Truscott -------------------------------- Name: William F. Truscott Title: President 10 SCHEDULE A
SELLING ENTITY SELLING FUND BUYING ENTITY BUYING FUND - -------------- ------------------------- ------------------------- ------------------------- Seligman Core Fixed Income Seligman Core Fixed RiverSource Diversified RiverSource Diversified Fund, Inc. Income Fund, Inc. Income Series, Inc. Bond Fund Seligman Global Fund Series, Seligman Emerging Markets RiverSource Global Threadneedle Emerging Inc. Fund Series, Inc. Markets Fund Seligman Global Fund Series, Seligman Global Growth RiverSource Global Threadneedle Global Inc. Fund Series, Inc. Equity Fund Seligman High Income Fund Seligman High-Yield Fund RiverSource High Income RiverSource High Yield Series (a Massachusetts Series, Inc. Bond Fund business trust) Seligman Income and Growth Seligman Income and RiverSource Investment RiverSource Balanced Fund Fund, Inc. Growth Fund, Inc. Series, Inc. Seligman Global Fund Series, Seligman International RiverSource International RiverSource Partners Inc. Growth Fund Managers Series, Inc. International Select Growth Fund Seligman High Income Fund Seligman U.S. Government RiverSource Government RiverSource Short Series (a Massachusetts Securities Fund Income Series, Inc. Duration U.S. Government business trust) Fund
EX-99.I 8 c51790exv99wi.txt OPINION AND CONSENT OF COUNSEL July 27, 2009 RiverSource Government Income Series, Inc. 50606 Ameriprise Financial Center Minneapolis, Minnesota 55474 Gentlemen: I have examined the Articles of Incorporation and the By-Laws of RiverSource Government Income Series, Inc. (the Company) and all necessary certificates, permits, minute books, documents and records of the Company, and the applicable statutes of the State of Minnesota, and it is my opinion that the shares sold in accordance with applicable federal and state securities laws will be legally issued, fully paid, and nonassessable. This opinion may be used in connection with the Post-Effective Amendment. Sincerely, /s/ Scott R. Plummer - ------------------------------------- Scott R. Plummer General Counsel RiverSource Government Income Series, Inc. EX-99.J 9 c51790exv99wj.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Consent of Independent Registered Public Accounting Firm We consent to the references to our firm under the captions "Financial Highlights" in the Prospectus and "Independent Registered Public Accounting Firm" in the Statement of Additional Information and to the use and incorporation by reference of our reports dated July 21, 2009 on the financial statements of the RiverSource Short Duration U.S. Government Fund and the RiverSource U.S. Government Mortgage Fund of the RiverSource Government Income Series, Inc. included in the Annual Report for the period ended May 31, 2009, as filed with the Securities and Exchange Commission in Post-Effective Amendment No. 47 to the Registration Statement (Form N-1A, No. 2-96512) of the RiverSource Government Income Series, Inc. /s/ Ernst & Young LLP Minneapolis, Minnesota July 27, 2009 EX-99.M 10 c51790exv99wm.txt PLAN OF DISTRIBUTIONS AND AGREEMENT OF DISTRIBUTION PLAN OF DISTRIBUTION AND AMENDED AND RESTATED AGREEMENT OF DISTRIBUTION The Plan of Distribution ("Plan") and the Agreement of Distribution ("Agreement") effective November 7, 2008, amended and restated July 13, 2009 (together "Plan and Agreement"), is by and between RiverSource Fund Distributors, Inc. ("RiverSource Fund Distributors" or the "Distributor"), a Delaware corporation, principal underwriter of the Corporations and Trusts ("Registrants") listed in Schedule A pursuant to a separate distribution agreement ("Distribution Agreement"), for distribution services to the Funds, and the Registrants, each acting separately on behalf of its underlying series (each a "fund" and collectively the "funds") and share classes, listed in Schedule A. The terms "Fund" or "Funds" are used to refer to either the Registrants or the underlying series as context requires. The Plan and Agreement are separate and each has been adopted or approved by members of the Board of Directors or Trustees (the "Board") of the Funds who are not interested persons of the Funds and have no direct or indirect financial interest in the operation of the Plan and Agreement, or any related agreement ("independent Board members"), and all of the members of the Board, in person, at a meeting called for the purpose of voting on the Plan and Agreement. 1. Reimbursement Plan 1.1 The Funds will reimburse the Distributor for expenses incurred in connection with distributing the Funds' shares, providing personal service to shareholders, and maintaining shareholder accounts, as set forth in the fee schedule included in Schedule A. 2. Services Provided and Expenses Borne by Distributor 2.1. The Distributor shall provide distribution and underwriting services and shall bear all distribution related expenses to the extent specified in the Distribution Agreement. 2.2. Each Fund recognizes and agrees that the Distributor (or an affiliate of the Distributor) may compensate financial intermediaries, including brokers, dealers, banks, registered investment advisers, financial advisors, retirement plan administrators, third party administrators and any others having a selling, administration or similar agreement with the Distributor (a "financial intermediary") for providing services to record or beneficial owners of Fund shares or otherwise in connection with the distribution or servicing of Fund shares. 3. Distribution Fees and Service Fees 3.1 Service Fees. As partial consideration for the shareholder and account maintenance services performed by the Distributor directly or through a financial intermediary in the performance of its obligations under an agreement with the Distributor, the Funds shall reimburse the Distributor at a rate not to exceed the rates set forth in Schedule A. These services include assisting in establishing and maintaining shareholder accounts and records, assisting with purchase, redemption and exchange requests, arranging for bank wires, monitoring dividend payments from the Funds on behalf of shareholders, forwarding certain shareholder communications from Funds to shareholders, receiving and responding to inquiries and answering questions regarding the Funds, and aiding in maintaining the investment of shareholders in the Funds. 3.2. Distribution Fees. As partial consideration for the services performed as specified in the Distribution Agreement and expenses incurred in the performance of its obligations directly or, through a financial intermediary, under the Distribution Agreement, the Funds shall reimburse the Distributor at a rate not to exceed the rates set forth in Schedule A. Distribution fees reimburse the Distributor for its expenses incurred in connection with any activity that is principally intended to result in the sale of Fund shares. These expenses include payment of RiverSource Fund Distributors - 12b-1 Plan and Agreement Page 2 commissions (including pre-paid commissions) to financial intermediaries for the sale of Fund shares, including interest or imputed interest on pre-paid commissions, printing prospectuses and reports used for sales purposes, the preparation, printing and distribution of advertising and sales literature, personnel, travel, office expense and equipment, and other distribution-related expenses. 3.3. Reimbursement. Expenses incurred as a result of services provided under Sections 3.1 and 3.2, may be carried forward as unreimbursed expenses and shall continue to be eligible for reimbursement subject to termination of the Agreement or the Plan as provided under Section 8.1. 3.4. Notwithstanding any other provision of this Plan and Agreement, the Funds are not obligated and are in no way liable to make any payment to any person or entity other than directly to the Distributor. 4. Reports 4.1 The Distributor agrees to monitor implementation of the Plan and the level and quality of services it provides. 4.2 The Distributor agrees to provide at least quarterly an analysis of expenses under this Agreement, including any payments to financial intermediaries, and to meet with representatives of the Funds as reasonably requested to provide additional information. 5. Contingent Deferred Sales Charges 5.1. For Funds with Class B shares, for each purchase of Class B shares, the Class B shares will be converted to Class A shares in the ninth year of ownership. 5.2. For Funds with Class B shares, the Funds understand that if a shareholder redeems Class B shares before they are converted to Class A shares, the Distributor will impose a sales charge directly on the redemption proceeds to cover those distribution expenses (including pre-paid commissions) it has previously incurred on the sale of those shares. 5.3. For Funds with Class C shares, the Funds understand that if a shareholder redeems Class C shares in the first year of ownership, the Distributor will impose a sales charge directly on the redemption proceeds to cover those distribution expenses (including pre-paid commissions) it has previously incurred on the sale of those shares. 6. Duration of the Plan and Agreement 6.1. The Plan and Agreement shall continue in effect for a period of more than one year provided it is approved at least annually in the manner provided in the Investment Company Act of 1940 (the "1940 Act"). 7. Amendments to the Plan and Agreement 7.1. Neither the Plan nor the Agreement may be amended to increase materially the amount that may be paid by the Funds without the approval of at least a majority of the outstanding shares of the relevant class. Neither the Plan nor the Agreement may be amended in any other material respect except with the approval of a majority of independent Board members. Amendments required to conform the Plan or the Agreement to changes in rule 12b-1 or to other changes in RiverSource Fund Distributors - 12b-1 Plan and Agreement Page 3 the 1940 Act or the rules and regulations under the 1940 Act are not deemed to be material amendments. 8. Termination 8.1. This Agreement may be terminated as to any class of the Funds at any time without payment of any penalty by a vote of a majority of the independent Board members, or by vote of a majority of the outstanding shares of the relevant class, or by the Distributor. The Plan shall continue until terminated by action of the independent Board members, and the related Agreement will terminate automatically in the event of its assignment as that term is defined in the 1940 Act. 9. Severability 9.1. The provisions of this Plan are severable with respect to each class of shares offered by a Fund and with respect to each Fund. 10. Massachusetts Business Trusts. 10.1. For each Fund that is organized as a Massachusetts Business Trust, a copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund, personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust. 11. Applicable Law 11.1. This Plan and Agreement shall be governed by the laws of the State of Minnesota. RiverSource Fund Distributors - 12b-1 Plan and Agreement Page 4 IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written. RIVERSOURCE BOND SERIES, INC. RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RIVERSOURCE DIMENSIONS SERIES, INC. RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RIVERSOURCE EQUITY SERIES, INC. RIVERSOURCE GLOBAL SERIES, INC. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RIVERSOURCE INCOME SERIES, INC. RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RIVERSOURCE INTERNATIONAL SERIES, INC. RIVERSOURCE INVESTMENT SERIES, INC. RIVERSOURCE LARGE CAP SERIES, INC. RIVERSOURCE MANAGERS SERIES, INC. RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RIVERSOURCE MONEY MARKET SERIES, INC. RIVERSOURCE SECTOR SERIES, INC. RIVERSOURCE SELECTED SERIES, INC. RIVERSOURCE SERIES TRUST RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RIVERSOURCE STRATEGY SERIES, INC. RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC. RIVERSOURCE TAX-EXEMPT SERIES, INC. SELIGMAN ASSET ALLOCATION SERIES, INC. SELIGMAN CAPITAL FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMON STOCK FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. SELIGMAN GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. SELIGMAN MUNICIPAL FUND SERIES, INC. SELIGMAN MUNICIPAL SERIES TRUST SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. SELIGMAN VALUE FUND SERIES, INC. /s/ Patrick T. Bannigan - ------------------------------------ Patrick T. Bannigan President RIVERSOURCE FUND DISTRIBUTORS, INC. /s/ William T. Bannigan - ------------------------------------ William F. Truscott Chairman of the Board and Chief Executive Officer RiverSource Fund Distributors - 12b-1 Plan and Agreement Page 5 SCHEDULE A FOR FUNDS OTHER THAN MONEY MARKET FUNDS: Each Registrant is a Minnesota corporation except Seligman Asset Allocation Series, Inc., Seligman Capital Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Core Fixed Income Fund, Inc., Seligman Frontier Fund, Inc., Seligman Global Fund Series, Inc., Seligman Growth Fund, Inc., Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman Municipal Fund Series, Inc., Seligman TargetHorizon ETF Portfolios, Inc., and Seligman Value Fund Series, Inc., which are Maryland corporations, and RiverSource California Tax-Exempt Trust, RiverSource Special Tax-Exempt Series Trust, RiverSource Series Trust, Seligman High Income Fund Series and Seligman Municipal Series Trust, which are Massachusetts business trusts:
CLASSES ----------------------------------------------------- FUNDS A B C D R2 R3 W ----- ----- ----- ----- ----- ----- ----- ----- RiverSource Bond Series, Inc. RiverSource Floating Rate A B C -- -- -- W RiverSource Income Opportunities A B C -- -- -- -- RiverSource Inflation Protected Securities A B C -- R2 -- W RiverSource Limited Duration Bond A B C -- -- -- W RiverSource California Tax-Exempt Trust RiverSource California Tax-Exempt A B C -- -- -- -- RiverSource Dimensions Series, Inc. RiverSource Disciplined Small and Mid Cap Equity A B C -- -- -- W RiverSource Disciplined Small Cap Value A B C -- R2 R3 -- RiverSource Diversified Income Series, Inc. RiverSource Diversified Bond A B C -- R2 R3 W RiverSource Equity Series, Inc. RiverSource Mid Cap Growth A B C -- -- -- -- RiverSource Global Series, Inc. RiverSource Absolute Return Currency and Income A B C -- -- -- W RiverSource Emerging Markets Bond A B C -- R2 -- W RiverSource Global Bond A B C -- -- -- W RiverSource Global Technology A B C -- -- -- -- Threadneedle Emerging Markets A B C -- -- -- -- Threadneedle Global Equity A B C -- R2 R3 W Threadneedle Global Equity Income A B C -- R2 R3 -- Threadneedle Global Extended Alpha A B C -- R2 R3 -- RiverSource Government Income Series, Inc. RiverSource Short Duration U.S. Government A B C -- R2 -- W RiverSource U.S. Government Mortgage A B C -- -- -- -- RiverSource High Yield Income Series, Inc. RiverSource High Yield Bond A B C -- R2 R3 W RiverSource Income Series, Inc. RiverSource Income Builder Basic Income A B C -- -- -- -- RiverSource Income Builder Moderate Income A B C -- -- -- -- RiverSource Income Builder Enhanced Income A B C -- -- -- -- RiverSource International Series, Inc. RiverSource Disciplined International Equity A B C -- R2 R3 W Threadneedle European Equity A B C -- -- -- -- Threadneedle International Opportunity A B C -- R2 R3 --
RiverSource Fund Distributors - 12b-1 Plan and Agreement Page 6
CLASSES ----------------------------------------------------- FUNDS A B C D R2 R3 W ----- ----- ----- ----- ----- ----- ----- ----- RiverSource International Managers Series, Inc. RiverSource Partners International Select Growth A B C -- R2 -- -- RiverSource Partners International Select Value A B C -- -- -- -- RiverSource Partners International Small Cap A B C -- -- -- -- RiverSource Investment Series, Inc. RiverSource Balanced A B C -- R2 -- -- RiverSource Disciplined Large Cap Growth A B C -- R2 R3 W RiverSource Disciplined Large Cap Value A B C -- R2 R3 W RiverSource Diversified Equity Income A B C -- R2 R3 W RiverSource Mid Cap Value A B C -- R2 R3 W RiverSource Large Cap Series, Inc. RiverSource Disciplined Equity A B C -- R2 R3 W RiverSource Growth A B C -- R2 R3 W RiverSource Large Cap Equity A B C -- R2 R3 -- RiverSource Large Cap Value A B C -- R2 R3 -- RiverSource Managers Series, Inc. RiverSource Partners Aggressive Growth A B C -- R2 R3 -- RiverSource Partners Fundamental Value A B C -- -- -- -- RiverSource Partners Select Value A B C -- -- -- -- RiverSource Partners Small Cap Equity A B C -- -- RiverSource Partners Small Cap Value A B C -- -- RiverSource Market Advantage Series, Inc. RiverSource Portfolio Builder Conservative A B C -- -- -- -- RiverSource Portfolio Builder Moderate Conservative A B C -- -- -- -- RiverSource Portfolio Builder Moderate A B C -- -- -- -- RiverSource Portfolio Builder Moderate Aggressive A B C -- -- -- -- RiverSource Portfolio Builder Aggressive A B C -- -- -- -- RiverSource Portfolio Builder Total Equity A B C -- -- -- -- RiverSource S&P 500 Index -- -- -- D -- -- -- RiverSource Small Company Index A B -- -- -- -- -- RiverSource Sector Series, Inc. RiverSource Dividend Opportunity A B C -- R2 R3 W RiverSource Real Estate A B C -- -- -- W RiverSource Selected Series, Inc. RiverSource Precious Metals and Mining A B C -- -- -- -- RiverSource Series Trust RiverSource 120/20 Contrarian Equity A B C -- -- -- -- RiverSource Recovery and Infrastructure A B C -- R2 R3 -- RiverSource Retirement Plus 2015 A -- -- -- R2 R3 -- RiverSource Retirement Plus 2020 A -- -- -- R2 R3 -- RiverSource Retirement Plus 2025 A -- -- -- R2 R3 -- RiverSource Retirement Plus 2030 A -- -- -- R2 R3 -- RiverSource Retirement Plus 2035 A -- -- -- R2 R3 -- RiverSource Retirement Plus 2040 A -- -- -- R2 R3 -- RiverSource Retirement Plus 2045 -- -- -- R2 R3 -- RiverSource Special Tax-Exempt Series Trust RiverSource Minnesota Tax-Exempt A B C -- -- -- -- RiverSource New York Tax-Exempt A B C -- -- -- -- RiverSource Strategy Series, Inc. RiverSource Equity Value A B C -- R2 R3 W RiverSource Partners Small Cap Growth A B C -- R2 R3 -- RiverSource Small Cap Advantage A B C -- R2 R3 --
RiverSource Fund Distributors - 12b-1 Plan and Agreement Page 7
CLASSES ----------------------------------------------------- FUNDS A B C D R2 R3 W ----- ----- ----- ----- ----- ----- ----- ----- RiverSource Strategic Allocation Series, Inc. RiverSource Strategic Allocation A B C -- R2 R3 -- RiverSource Strategic Income Allocation A B C -- R2 R3 -- RiverSource Tax-Exempt Income Series, Inc. RiverSource Tax-Exempt High Income A B C -- -- -- -- RiverSource Tax-Exempt Series, Inc. RiverSource Intermediate Tax-Exempt A B C -- -- -- -- RiverSource Tax-Exempt Bond A B C -- -- -- --
CLASSES -------------------------------------------------------- R (TO BE KNOWN AS FUNDS A B C D R2) R3 W ----- ----- ----- ----- -------- ----- ----- Seligman Asset Allocation Series, Inc. Seligman Asset Allocation Aggressive Growth Fund A B C -- -- -- -- Seligman Asset Allocation Balanced Fund A B C -- -- -- -- Seligman Asset Allocation Growth Fund A B C -- -- -- -- Seligman Asset Allocation Moderate Growth Fund A B C -- -- -- -- Seligman Capital Fund, Inc. A B C -- R2 R3 -- Seligman Common Stock, Inc. A B C -- R2 -- -- Seligman Communications and Information Fund, Inc. A B C -- R2 R3 -- Seligman Core Fixed Income Fund, Inc. A B C -- R2 -- -- Seligman Frontier Fund, Inc. A B C -- R2 R3 -- Seligman Global Fund Series, Inc. Seligman Global Smaller Companies Fund A B C -- R2 R3 -- Seligman Global Technology Fund A B C -- R2 R3 -- Seligman Emerging Markets Fund A B C -- R2 -- -- Seligman Global Growth Fund A B C -- R2 -- -- Seligman International Growth Fund A B C -- R2 -- -- Seligman Growth Fund, Inc. A B C -- R2 R3 -- Seligman High Income Fund Series Seligman High-Yield Fund A B C -- R2 -- -- Seligman U.S. Government Securities Fund A B C -- R2 -- -- Seligman Income and Growth Fund, Inc. A B C -- R2 -- -- Seligman LaSalle Real Estate Fund Series, Inc. Seligman LaSalle Global Real Estate Fund (to be known as RiverSource LaSalle Global Real Estate Fund) A B C -- R2 R3 -- Seligman LaSalle Monthly Dividend Real Estate Fund (to be known as RiverSource LaSalle Monthly Dividend Real Estate Fund) A B C -- R2 R3 -- Seligman Municipal Fund Series, Inc. Seligman National Municipal Class (National Fund) A -- C -- -- -- -- Seligman Minnesota Municipal Class (Minnesota Fund) A -- C -- -- -- -- Seligman New York Municipal Class (New York Fund) A -- C -- -- -- -- Seligman Municipal Series Trust Seligman California Municipal High Yield Series A -- C -- -- -- -- Seligman California Municipal Quality Series A -- C -- -- -- -- Seligman TargetHorizon ETF Portfolios, Inc. Seligman TargETFund 2045 A -- C -- R2 -- -- Seligman TargETFund 2035 A -- C -- R2 -- -- Seligman TargETFund 2025 A -- C -- R2 -- -- Seligman TargETFund 2015 A -- C -- R2 -- -- Seligman TargETFund Core A -- C -- R2 -- -- Seligman Value Fund Series, Inc. Seligman Large-Cap Value Fund A B C -- R2 R3 -- Seligman Smaller-Cap Value Fund A B C -- R2 R3 --
RiverSource Fund Distributors - 12b-1 Plan and Agreement Page 8 FEE SCHEDULE The fee maximum for services under this Plan and Agreement shall be the lesser of the amount of expenses eligible for reimbursement (including any unreimbursed expenses) or a rate equal on an annual basis to the following percentage of the average daily net assets of the Fund attributable to the applicable class:
CLASS FEE - ----- ----- A 0.25% B 1.00% C 1.00% D 0.25% R2 0.50% R3 0.25% W 0.25%
For Class A, Class D and Class W shares, the fee shall be paid to the Distributor in cash within five (5) business days after the last day of each quarter. For Class B and Class C shares, the maximum fee under this Plan and Agreement will be equal on an annual basis to 1.00% of the average daily net assets of the Funds attributable to Class B shares and Class C share, respectively. Of that amount, up to 0.75% shall be reimbursed for distribution expenses. The fee shall be paid to the Distributor in cash within five (5) business days after the last day of each month. Up to an additional 0.25% shall be reimbursed for shareholder servicing expenses. The fee shall be paid to the Distributor in cash within five (5) business days after the last day of each quarter. For Class R2 and Class R3, the maximum fee under this Plan and Agreement, which shall be reimbursed for distribution expenses, will be equal on an annual basis of 0.50% of the average daily net assets of the Funds attributable to Class R2 shares and 0.25% of the average daily net assets of the Funds attributable to Class R3 shares. Of that amount, for Class R2, up to 0.25% may be reimbursed for shareholder servicing expenses. The fee shall be paid to the Distributor in cash within five (5) business days after the last day of each quarter. RiverSource Fund Distributors - 12b-1 Plan and Agreement Page 9 FOR MONEY MARKET FUNDS: Each Registrant is a Minnesota corporation, except Seligman Cash Management Fund, which is a Maryland corporation:
CLASSES ------------------------------------- FUNDS A B C R2 W ----- ----- ----- ----- ----- ----- RiverSource Money Market Series, Inc. RiverSource Cash Management A B C R2 W RiverSource Tax-Exempt Money Market Series, Inc. RiverSource Tax-Exempt Money Market Fund A -- -- -- -- Seligman Cash Management Fund, Inc. A B C R2 --
FEE SCHEDULE The maximum fee for services under this Plan and Agreement shall be the lesser of the amount of expenses eligible for reimbursement (including any unreimbursed expenses) or a rate equal on an annual basis to the following percentage of the average daily net assets of the Fund attributable to the applicable class. FOR RIVERSOURCE CASH MANAGEMENT FUND AND RIVERSOURCE TAX-EXEMPT MONEY MARKET FUND:
CLASS FEE - ----- ----- A 0.10% B 0.85% C 0.75% R2 0.50% W 0.10%
FOR SELIGMAN CASH MANAGEMENT FUND, INC.:
CLASS FEE - ----- ----- A 0.25% B 1.00% C 1.00% R2 0.50%
For Class A and Class W shares, the fee shall be paid to the Distributor in cash within five (5) business days after the last day of each quarter. For Class B shares, the maximum fee under this Plan and Agreement will be equal on an annual basis to 0.85% of the average daily net assets of the Fund attributable to Class B shares. Of that amount, up to 0.75% shall be reimbursed for distribution expenses. The fee shall be paid to the Distributor in cash within five (5) business days after the last day of each month. Up to an additional 0.10% shall be reimbursed for shareholder servicing expenses. The fee shall be paid to the Distributor in cash within five (5) business days after the last day of each quarter. For Class C shares, the maximum fee under this Agreement will be equal on an annual basis to 0.75% of the average daily net assets of the Funds attributable to Class C shares for distribution expenses. The fee shall be paid to the Distributor in cash within five (5) business days after the last day of each month. RiverSource Fund Distributors - 12b-1 Plan and Agreement Page 10 For Class R2, the maximum fee under this Plan and Agreement, which shall be reimbursed for distribution expenses, will be equal on an annual basis of 0.50% of the average daily net assets of the Funds attributable to Class R2 shares. Of that amount, for Class R2, up to 0.25% may be reimbursed for shareholder servicing expenses. The fee shall be paid to the Distributor in cash within five (5) business days after the last day of each quarter. EX-99.N 11 c51790exv99wn.txt RULE 18F-3(D) PLAN PLAN UNDER SECTION 18F-3(D) AMENDED AND RESTATED AS OF JULY 13, 2009 Filed pursuant to Item 23(n) of Form N-1A SECTION I. FOR THE FUNDS LISTED IN SCHEDULE I (THOSE WITH SOME COMBINATION OF CLASSES A, B, C, I, R2, R3, R4, R5, W AND Y) SEPARATE ARRANGEMENTS Each class of shares will represent interests in the same portfolio of investments of the Fund and be identical except those differences that relate to (a) the impact of the disproportionate payments made under the Rule 12b-1 plan; (b) the impact of the disproportionate payments made because of service fees; (c) the differences in class expenses including transfer agent fees and any other expense determined by the board to be a class expense; and (d) the difference in voting rights on the 12b-1 plan, exchange privileges and class designations. The current classes of shares are as follows: SALES CHARGES
FIXED INCOME* AND EQUITY FUNDS ALTERNATIVE FUNDS FIXED INCOME* MONEY MARKET FUNDS ------------------- ------------------- ------------------- ------------------ Class A 5.75% initial sales 4.75% initial sales 3.00% initial sales No sales charge. charge waived or charge waived or charge waiver or reduced for certain reduced for certain reduced for certain purchases. purchases. purchases. Class B Contingent deferred sales charge ranging from 5% down to 0% after six years. Class C Contingent deferred sales charge of 1% on redemptions of shares held for one year or less. Class I No sales charge Class R2 No sales charge Class R3 No sales charge Class R4 No sales charge Class R5 No sales charge Class W No sales charge Class Y No sales charge
* The following fixed income funds have a 3.00% Class A initial sales charge: Absolute Return Currency Income, Floating Rate Inflation Protected Securities, Intermediate Tax-Exempt, Limited Duration Bond and Short Duration U.S. Government. EXPENSE ALLOCATION PROCEDURES Ameriprise Financial, Inc. ("Ameriprise Financial"), as the Fund's administrator, on a daily basis shall allocate the income, expenses, and realized and unrealized gains and losses of the Fund on the basis of the relative percentage of net assets of each class of shares, except class specific expenses for plan administration services fees, 12b-1 fees, transfer agent fees and any other class specific fees, which shall be paid directly by the applicable class as follows: Page 2 PLAN ADMINISTRATION SERVICES FEE: Class A None Class B None Class C None Class I None Class R2 25 basis points Class R3 25 basis points Class R4 25 basis points Class R5 None Class Y 15 basis points
12B-1 FEE:
FIXED INCOME AND EQUITY FUNDS ALTERNATIVE FUNDS MONEY MARKET FUNDS ---------------- ----------------- ------------------ Class A 25 basis points 25 basis points 10 basis points Class B 100 basis points 100 basis points 85 basis points Class C 100 basis points 100 basis points 75 basis points Class I None None None Class R2 50 basis points 50 basis points None Class R3 25 basis points 25 basis points None Class R4 None None None Class R5 None None None Class W 25 basis points 25 basis points 10 basis points Class Y None None None
TRANSFER AGENT FEE: The annual fee is as follows:
FIXED INCOME AND EQUITY FUNDS ALTERNATIVE FUNDS MONEY MARKET FUNDS -------------- ----------------- ------------------ Class A $19.50/account $20.50/account $22.00/account Class B $20.50/account $21.50/account $23.00/account Class C $20.00/account $21.00/account $22.50/account Class I None Class R2 5 basis points of average daily net assets Class R3 5 basis points of average daily net assets Class R4 5 basis points of average daily net assets Class R5 5 basis points of average daily net assets Class W 20 basis points of average daily net assets Class Y 5 basis points of average daily net assets
The allocation of transfer agent fees is made as follows: FOR CLASSES A, B, AND C 1. A base fee, equal to the per account fee assessed to Class A, is multiplied by the total number of accounts in the three classes (A, B, and C). For example, the base fee for an equity fund is $19.50 times the total number of accounts in the three classes (A, B, and C). The total base fee for the three classes (A, B, and C) is then allocated between the three classes (A, B, and C) based on the average daily net assets of the respective classes. Page 3 2. For Classes B and C, an additional fee, equal to the difference between the per account fee listed in the table above and the base fee, is multiplied times the number of accounts in the class. For example, the additional fee attributable to Class B shares in an equity fund is $1.00 per account ($20.50 minus $19.50) times the number of Class B accounts. FOR CLASS I, there is no transfer agent fee. FOR CLASS R2, R3, R4 AND R5 the fee is 5 basis points based on average daily net assets of the applicable class. FOR CLASS W, the fee is 20 basis points based on average daily net assets of Class W. FOR CLASS Y, the fee is 5 basis points based on average daily net assets of Class Y. Should an expense of a class be waived or reimbursed, Ameriprise Financial first will determine that the waiver or reimbursement will not result in another class subsidizing the class, is fair and equitable to all classes and does not operate to the detriment of another class and then shall monitor the implementation and operation to assure the waiver or reimbursement operates consistent with the determination. The board shall monitor the actions of Ameriprise Financial. EXCHANGE PRIVILEGES Shares of a class may be exchanged for shares of the same class of another Fund that is part of the RiverSource Funds, including RiverSource Partners funds, Threadneedle funds and Seligman funds ("RiverSource Funds"). For Funds that invest in and own shares of other RiverSource Funds (Funds of Funds), Class A shares of a Fund may be exchanged for Class I shares of the same Fund. CONVERSION PRIVILEGES Class B shares, including a proportionate amount of shares acquired through reinvestment of distributions, will convert into Class A shares one month after the eighth anniversary of ownership at relative net asset values without the imposition of any fee. SECTION II. FOR THE FUNDS LISTED IN SCHEDULE II (THOSE WITH CLASSES D AND E) SEPARATE ARRANGEMENTS Each class of shares will represent interests in the same portfolio of investments of the Fund and be identical except those differences that relate to (a) the impact of the disproportionate payments made under the Rule 12b-1 plan; (b) the impact of the disproportionate payments made because of service fees; (c) the differences in class expenses including transfer agent fees and any other expense determined by the board to be a class expense; and (d) the difference in voting rights on the 12b-1 plan, exchange privileges and class designations. The current classes of shares are as follows: Class D shares Class E shares EXPENSE ALLOCATION PROCEDURES Ameriprise Financial, as the Fund's administrator, on a daily basis shall allocate the income, expenses, and realized and unrealized gains and losses of the Fund on the basis of the relative percentage of net assets of each class of shares, except class specific expenses for plan administration services fees, 12b-1 Page 4 fees, transfer agent fees, and any other class specific fee, which shall be paid directly by the applicable class as follows: PLAN ADMINISTRATION SERVICES FEE: Class D None Class E 15 basis points
12B-1 FEE: Class D 25 basis points of average daily net assets Class E None
TRANSFER AGENCY SERVICES FEE: For CLASS D, the fee is $19.50 multiplied by the total number of accounts for Class D. For CLASS E, the fee is 5 basis points based on average daily net assets of Class E. Should an expense of a class be waived or reimbursed, Ameriprise Financial first will determine that the waiver or reimbursement will not result in another class subsidizing the class, is fair and equitable to all classes and does not operate to the detriment of another class and then shall monitor the implementation and operation to assure the waiver or reimbursement operates consistent with the determination. The board shall monitor the actions of Ameriprise Financial. EXCHANGE PRIVILEGES Shares of a class may be exchanged for shares of the same class of another fund that is part of the RiverSource Funds. SCHEDULE I DATED AS OF JULY 13, 2009 FUNDS WITH CLASSES A, B, C, I, R2, R3, R4, R5, W AND/OR Y EQUITY FUNDS
CLASSES --------------------------------------------------------- FUNDS A B C I R2 R3 R4 R5 W Y ----- --- --- --- --- --- --- --- --- --- --- RiverSource Dimensions Series, Inc. RiverSource Disciplined Small and Mid Cap Equity A B C I -- -- R4 -- W -- RiverSource Disciplined Small Cap Value A B C I R2 R3 R4 R5 -- -- RiverSource Equity Series, Inc. RiverSource Mid Cap Growth A B C I -- -- R4 -- -- -- RiverSource Global Series, Inc. Threadneedle Emerging Markets A B C I R2 -- R4 R5 -- -- Threadneedle Global Equity A B C I R2 R3 R4 R5 W -- Threadneedle Global Equity Income A B C I R2 R3 R4 R5 -- -- Threadneedle Global Extended Alpha A B C I R2 R3 R4 R5 -- -- RiverSource Global Technology A B C I -- -- R4 -- -- -- RiverSource International Series, Inc. RiverSource Disciplined International Equity A B C I R2 R3 R4 R5 W -- Threadneedle Asia Pacific -- -- -- -- -- -- -- R5 -- -- Threadneedle European Equity A B C I -- -- R4 -- -- -- Threadneedle International Opportunity A B C I R2 R3 R4 R5 -- -- RiverSource International Managers Series, Inc. RiverSource Partners International Select Growth A B C I R2 -- R4 R5 -- -- RiverSource Partners International Select Value A B C I -- -- R4 -- -- -- RiverSource Partners International Small Cap A B C I -- -- R4 -- -- -- RiverSource Investment Series, Inc. RiverSource Balanced A B C -- R2 -- R4 R5 -- -- RiverSource Disciplined Large Cap Growth A B C I R2 R3 R4 R5 W -- RiverSource Disciplined Large Cap Value A B C I R2 R3 R4 R5 W -- RiverSource Diversified Equity Income A B C I R2 R3 R4 R5 W -- RiverSource Mid Cap Value A B C I R2 R3 R4 R5 W -- RiverSource Large Cap Series, Inc. RiverSource Disciplined Equity A B C I R2 R3 R4 R5 W -- RiverSource Growth A B C I R2 R3 R4 R5 W -- RiverSource Large Cap Equity A B C I R2 R3 R4 R5 -- -- RiverSource Large Cap Value A B C I R2 R3 R4 R5 -- -- RiverSource Managers Series, Inc. RiverSource Partners Aggressive Growth A B C I R2 R3 R4 R5 -- -- RiverSource Partners Fundamental Value A B C I -- -- R4 -- -- -- RiverSource Partners Select Value A B C I -- -- R4 -- -- -- RiverSource Partners Small Cap Equity A B C I -- -- R4 -- -- -- RiverSource Partners Small Cap Value A B C I R2 R3 R4 R5 -- -- RiverSource Market Advantage Series, Inc. RiverSource Portfolio Builder Aggressive A B C -- -- -- R4 -- -- -- RiverSource Portfolio Builder Moderate A B C -- -- -- R4 -- -- -- RiverSource Portfolio Builder Moderate Aggressive A B C -- -- -- R4 -- -- -- RiverSource Portfolio Builder Total Equity A B C -- -- -- R4 -- -- -- RiverSource Small Company Index A B -- -- -- -- R4 -- -- -- RiverSource Sector Series, Inc. RiverSource Dividend Opportunity A B C I R2 R3 R4 R5 W -- RiverSource Real Estate A B C I -- -- R4 -- W -- RiverSource Selected Series, Inc. RiverSource Precious Metals and Mining A B C I -- -- R4 -- -- -- RiverSource Series Trust RiverSource 120/20 Contrarian Equity A B C I -- -- -- R5 -- -- RiverSource Recovery and Infrastructure A B C I R2 R3 R4 R5 -- --
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CLASSES --------------------------------------------------------- FUNDS A B C I R2 R3 R4 R5 W Y ----- --- --- --- --- --- --- --- --- --- --- RiverSource Retirement Plus 2010 A -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2015 A -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2020 A -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2025 A -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2030 A -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2035 A -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2040 A -- -- -- R2 R3 R4 R5 -- Y RiverSource Retirement Plus 2045 A -- -- -- R2 R3 R4 R5 -- Y RiverSource Strategic Allocation Series, Inc. RiverSource Strategic Allocation A B C I R2 R3 R4 R5 -- -- RiverSource Strategy Series, Inc. RiverSource Equity Value A B C I R2 R3 R4 R5 W -- RiverSource Partners Small Cap Growth A B C I R2 R3 R4 R5 -- -- RiverSource Small Cap Advantage A B C I R2 R3 R4 R5 -- --
CLASSES --------------------------------------------------------- FUNDS A B C I R2 R3 R4 R5 W Y ----- --- --- --- --- --- --- --- --- --- --- Seligman Asset Allocation Series, Inc. Seligman Asset Allocation Aggressive Growth A B C -- -- -- -- -- -- -- Seligman Asset Allocation Balanced A B C -- -- -- -- -- -- -- Seligman Asset Allocation Growth A B C -- -- -- -- -- -- -- Seligman Asset Allocation Moderate Growth A B C -- -- -- -- -- -- -- Seligman Capital Fund, Inc. A B C I R2 R3 R4 R5 -- -- Seligman Communications and Information Fund, Inc. A B C I R2 R3 R4 R5 -- -- Seligman Common Stock Fund, Inc. A B C -- R2 -- -- R5 -- -- Seligman Frontier Fund, Inc. A B C I R2 R3 R4 R5 -- -- Seligman Global Fund Series, Inc. Seligman Global Smaller Companies A B C I R2 R3 R4 R5 -- -- Seligman Global Technology A B C I R2 R3 R4 R5 -- -- Seligman Emerging Markets A B C -- R2 -- -- R5 -- -- Seligman Global Growth A B C -- R2 -- -- R5 -- -- Seligman International Growth A B C -- R2 -- -- R5 -- -- Seligman Growth Fund, Inc. A B C I R2 R3 R4 R5 -- -- Seligman Income and Growth Fund, Inc. A B C -- R2 -- -- R5 -- -- Seligman LaSalle Real Estate Fund Series, Inc. Seligman LaSalle Global Real Estate (to be known RiverSource LaSalle Global Real Estate) A -- C I R2 R3 R4 R5 -- -- Seligman LaSalle Monthly Dividend Real Estate (to be known RiverSource LaSalle Monthly Dividend Real Estate) A B C I R2 R3 R4 R5 -- -- Seligman TargetHorizon ETF Portfolios, Inc. Seligman TargETFund 2045 A -- C -- R2 -- -- -- -- -- Seligman TargETFund 2035 A -- C -- R2 -- -- -- -- -- Seligman TargETFund 2025 A -- C -- R2 -- -- -- -- -- Seligman TargETFund 2015 A -- C -- R2 -- -- -- -- -- Seligman TargETFund Core A -- C -- R2 -- -- -- -- -- Seligman Value Fund Series, Inc. Seligman Large-Cap Value Fund A B C I R2 R3 R4 R5 -- -- Seligman Smaller-Cap Value Fund A B C I R2 R3 R4 R5 -- --
FIXED INCOME AND ALTERNATIVE FUNDS
CLASSES --------------------------------------------------------- FUNDS A B C I R2 R3 R4 R5 W Y ----- --- --- --- --- --- --- --- --- --- --- RiverSource Bond Series, Inc. RiverSource Floating Rate A B C I -- -- R4 R5 W -- RiverSource Income Opportunities A B C I -- -- R4 -- -- -- RiverSource Inflation Protected Securities A B C I R2 -- R4 -- W -- RiverSource Limited Duration Bond A B C I -- -- R4 -- W -- RiverSource California Tax-Exempt Trust
Page 3
CLASSES --------------------------------------------------------- FUNDS A B C I R2 R3 R4 R5 W Y ----- --- --- --- --- --- --- --- --- --- --- RiverSource California Tax-Exempt A B C -- -- -- -- -- -- -- RiverSource Diversified Income Series, Inc. RiverSource Diversified Bond A B C I R2 R3 R4 R5 W -- RiverSource Global Series, Inc. RiverSource Absolute Return Currency and Income A B C I -- -- R4 R5 W -- RiverSource Emerging Markets Bond A B C I -- -- R4 -- W -- RiverSource Global Bond A B C I -- -- R4 -- W -- RiverSource Government Income Series, Inc. RiverSource Short Duration U.S. Government A B C I R2 -- R4 -- W -- RiverSource U.S. Government Mortgage A B C I -- -- R4 -- -- -- RiverSource High Yield Income Series, Inc. RiverSource High Yield Bond A B C I R2 R3 R4 R5 W -- RiverSource Income Series, Inc. RiverSource Income Builder Basic Income A B C -- -- -- R4 -- -- -- RiverSource Income Builder Moderate Income A B C -- -- -- R4 -- -- -- RiverSource Income Builder Enhanced Income A B C -- -- -- R4 -- -- -- RiverSource Market Advantage Series, Inc. RiverSource Portfolio Builder Conservative A B C -- -- -- R4 -- -- -- RiverSource Portfolio Builder Moderate Conservative A B C -- -- -- R4 -- -- -- RiverSource Special Tax-Exempt Series Trust RiverSource Minnesota Tax-Exempt A B C -- -- -- -- -- -- -- RiverSource New York Tax-Exempt A B C -- -- -- -- -- -- -- RiverSource Strategic Allocation Series, Inc. RiverSource Strategic Income Allocation A B C -- R2 R3 R4 R5 -- -- RiverSource Tax-Exempt Income Series, Inc. RiverSource Tax-Exempt High Income A B C -- -- -- -- -- -- -- RiverSource Tax-Exempt Series, Inc. RiverSource Intermediate Tax-Exempt A B C -- -- -- -- -- -- -- RiverSource Tax-Exempt Bond A B C -- -- -- -- -- -- --
CLASSES --------------------------------------------------------- FUNDS A B C I R2 R3 R4 R5 W Y ----- --- --- --- --- --- --- --- --- --- --- Seligman Core Fixed Income Fund, Inc. A B C -- R2 -- -- R5 -- -- Seligman High Income Fund Series Seligman High-Yield A B C -- R2 -- -- R5 -- -- Seligman U.S Government Securities A B C -- R2 -- -- -- -- -- Seligman Municipal Fund Series, Inc. Seligman Minnesota Municipal Class (Minnesota Fund) A -- C -- -- -- -- -- -- Seligman New York Municipal Class (New York Fund) A -- C -- -- -- -- -- -- Seligman National Municipal Class (National Municipal Fund) Seligman Municipal Series Trust Seligman California Municipal High Yield Series A -- C -- -- -- -- -- -- Seligman California Municipal Quality Series A -- C -- -- -- -- -- --
Page 4 MONEY MARKET FUNDS
CLASSES --------------------------------------------------------- FUNDS A B C I R2 R3 R4 R5 W Y ----- --- --- --- --- --- --- --- --- --- --- RiverSource Money Market Series, Inc. RiverSource Cash Management A B C I R2 -- -- R5 W Y RiverSource Tax-Exempt Money Market Series, Inc. RiverSource Tax-Exempt Money Market A -- -- -- -- -- -- -- -- -- Seligman Cash Management Fund, Inc. A B C -- R2 -- -- R5 -- --
SCHEDULE II FUNDS WITH CLASSES D AND E RiverSource Market Advantage Series, Inc. RiverSource S&P 500 Index Fund -----END PRIVACY-ENHANCED MESSAGE-----