-----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, BPYnaSR3HgpliB4Q+XZdHS84DgH/Tf3GcGFWvfG6z96tFrvjQtwMea6CdBUHWUQF diRmyNhBlxRf5DMi6ikEGg== 0000950137-08-009754.txt : 20080728 0000950137-08-009754.hdr.sgml : 20080728 20080728160002 ACCESSION NUMBER: 0000950137-08-009754 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20080728 DATE AS OF CHANGE: 20080728 EFFECTIVENESS DATE: 20080730 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: 08973075 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: 08973076 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 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 c26445be485bpos.txt POST-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT 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. 45 (File No. 2-96512) [X]
and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 47 (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, 2008 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, 2008 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, 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 institution if you have other accounts holding shares of RiverSource 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............................................ 6p Fees and Expenses........................................... 10p Other Investment Strategies and Risks....................... 12p Fund Management and Compensation............................ 13p FINANCIAL HIGHLIGHTS........................................ 15P BUYING AND SELLING SHARES................................... S.1 Description of Share Classes................................ S.2 Investment Options -- Classes of Shares ................. S.2 Sales Charges............................................ S.6 Opening an Account....................................... S.12 Exchanging or Selling Shares................................ S.15 Exchanges................................................ S.17 Selling Shares........................................... S.19 VALUING FUND SHARES......................................... S.20 DISTRIBUTIONS AND TAXES..................................... S.21 GENERAL INFORMATION......................................... S.24
RIVERSOURCE COMPLEX OF FUNDS The RiverSource complex of funds includes funds branded "RiverSource," "RiverSource Partners," and "Threadneedle." These funds share the same Board of Directors/Trustees, and the same policies and procedures including those set forth in the service section. RiverSource Variable Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated insurance companies. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds. - -------------------------------------------------------------------------------- 2P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 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%. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS 3P 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. - - Changes 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 - -------------------------------------------------------------------------------- 4P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS result in increased or unanticipated losses. 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. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS 5P 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. 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 -- 2008 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) +6.93% +1.13% +5.90% +6.77% +5.94% +1.03% +0.82% +1.33% +3.95% +5.28% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
During the periods shown in the bar chart, the highest return for a calendar quarter was +3.70% (quarter ended Sept. 30, 1998) 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, 2008 was +0.43%. 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 -- 2008 PROSPECTUS 7P AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2007)
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 +0.20% +1.46% +3.36% N/A N/A N/A Return after taxes on distributions -1.23% +0.37% +1.68% N/A N/A N/A Return after taxes on distributions and sale of fund shares +0.11% +0.60% +1.81% N/A N/A N/A Class B Return before taxes -0.52% +1.34% +3.12% N/A N/A N/A Class C Return before taxes +3.49% +1.70% N/A +3.32%(a) N/A N/A Class I Return before taxes +5.89% N/A N/A N/A +3.16%(b) N/A Class R4 Return before taxes +5.43% +2.64% +4.05% N/A N/A N/A Class W Return before taxes +5.21% N/A N/A N/A N/A +4.74%(c) Lehman Brothers 1-3 Year Government Index (reflects no deduction for fees, expenses or taxes) +7.10% +3.18% +4.84% +4.72%(d) +3.43%(e) +6.58%(f) Lipper Short U.S. Government Funds Index +5.56% +2.72% +4.28% +4.11%(d) +3.02%(e) +5.15%(f)
* On March 3, 2008, the maximum sales charge for Class A shares changed from 4.75% to 3.00%. Class A share total returns reflect the maximum sales charge of 4.75%, which was in effect at the beginning of all periods. (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 July 1, 2000. (e) Measurement period started March 1, 2004. (f) Measurement period started Dec. 1, 2006. The Lehman Brothers 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. - -------------------------------------------------------------------------------- 8P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS 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 -- 2008 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. Expenses are based on the Fund's most recent fiscal year. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I 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 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(b) 0.31% 0.32% 0.32% 0.33% Total annual fund operating expenses 1.04% 1.80% 1.80% 1.06% Fee waiver/expense reimbursement 0.15% 0.15% 0.15% 0.10% Total annual (net) fund operating expenses(c) 0.89% 1.65% 1.65% 0.96%
CLASS I CLASS R4 Management fees 0.48% 0.48% Distribution and/or service (12b-1) fees 0.00% 0.00% Other expenses(b) 0.12% 0.42% Total annual fund operating expenses 0.60% 0.90% Fee waiver/expense reimbursement 0.09% 0.14% Total annual (net) fund operating expenses(c) 0.51% 0.76%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) 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. (c) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until May 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), will not exceed 0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.51% for Class I, 0.76% for Class R4 and 0.96% for Class W. - -------------------------------------------------------------------------------- 10P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 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) $388 $607 $ 844 $1,524 Class B $668(b) $952(b) $1,162(b) $1,908(c) Class C $268(b) $552 $ 962 $2,109 Class I $ 52 $183 $ 327 $ 745 Class R4 $ 78 $273 $ 486 $1,099 Class W $ 98 $328 $ 576 $1,290
(a) Includes a 3.00% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares in the ninth 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) $388 $607 $ 844 $1,524 Class B $168 $552 $ 962 $1,908(b) Class C $168 $552 $ 962 $2,109 Class I $ 52 $183 $ 327 $ 745 Class R4 $ 78 $273 $ 486 $1,099 Class W $ 98 $328 $ 576 $1,290
(a) Includes a 3.00% sales charge. (b) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 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. Although ETFs are designed to replicate the price and yield of a specified market index, there is no guarantee that an ETF will track its specified market index, which may result in a loss. 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 money market fund. See "Cash Reserves" for more information. 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. - -------------------------------------------------------------------------------- 12P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS 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. 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 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 all of the RiverSource 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 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: Scott Kirby, Portfolio Manager - - Began managing the Fund in 2001. - - Leader of the structured assets sector team. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS 13P - - Employed by RiverSource Investments from 1979 to 1985 and from 1987 to present. - - Began investment career in 1979. - - MBA, University of Minnesota. Jamie Jackson, CFA, Portfolio Manager - - Began managing the Fund in 2003. - - Leader of the liquid assets sector team. - - Joined RiverSource Investments in 2003. - - Co-head of U.S. Investment Grade Fixed Income, UBS Global Asset Management, 1997 to 2003. - - Began investment career in 1988. - - MBA, Marquette University. The fixed income department of RiverSource Investments is divided into six sector teams, each of which includes a portfolio manager or portfolio managers and several analysts, and each of which specializes in a specific sector of the fixed income market. The Fund's portfolio managers lead the teams that specialize in the sectors in which the Fund primarily invests, and collectively determine allocation of Fund assets among the sectors. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. - -------------------------------------------------------------------------------- 14P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 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 YEAR ENDED 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 KPMG LLP. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS 15P CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .19 .15 .12 .11 Net gains (losses) (both realized and unrealized) .01 .05 (.10) (.03) (.12) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .20 .24 .05 .09 (.01) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.19) (.16) (.12) (.11) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $539 $514 $641 $894 $1,188 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.04% 1.03% 1.06% 1.01% .97% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .89% .89% .89% .93% .97% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.93% 3.99% 3.27% 2.49% 2.19% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return(g) 4.27% 5.12% 1.00% 1.92% (.24%) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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. 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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 16P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(b) .15 .12 .08 .07 Net gains (losses) (both realized and unrealized) .01 .05 (.11) (.03) (.12) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .16 .20 .01 .05 (.05) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.15) (.12) (.08) (.07) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $159 $216 $338 $588 $963 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.80% 1.79% 1.82% 1.76% 1.72% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.68% 1.72% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.18% 3.23% 2.50% 1.73% 1.44% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return(g) 3.48% 4.34% .26% 1.16% (.99%) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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. 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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS 17P CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(b) .15 .12 .08 .07 Net gains (losses) (both realized and unrealized) .02 .05 (.11) (.03) (.12) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .17 .20 .01 .05 (.05) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.15) (.12) (.08) (.07) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $10 $10 $15 $24 $38 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.80% 1.80% 1.83% 1.77% 1.73% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.68% 1.73% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.18% 3.24% 2.51% 1.73% 1.44% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return(g) 3.49% 4.34% .26% 1.16% (.99%) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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. 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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 18P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004(B) Net asset value, beginning of period $4.74 $4.69 $4.79 $4.83 $4.90 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .20(c) .20 .17 .14 .03 Net gains (losses) (both realized and unrealized) .01 .05 (.10) (.04) (.07) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .21 .25 .07 .10 (.04) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.20) (.17) (.14) (.03) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.74 $4.69 $4.79 $4.83 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $93 $55 $62 $31 $4 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .60% .59% .62% .57% .63%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .51% .54% .58% .57% .63%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.23% 4.37% 3.66% 2.98% 2.74%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return 4.45% 5.50% 1.56% 2.06% (.87%)(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to May 31, 2004. (c) Per share amount has 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. 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. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS 19P CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .19 .16 .13 .12 Net gains (losses) (both realized and unrealized) .02 .05 (.11) (.03) (.12) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .21 .24 .05 .10 -- - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.19) (.16) (.13) (.12) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $4 $19 $100 $115 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .90% .86% .88% .84% .81% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .76% .72% .72% .76% .81% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.06% 4.09% 3.27% 2.66% 2.35% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return 4.41% 5.31% 1.19% 2.10% (.08%) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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. 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. - -------------------------------------------------------------------------------- 20P RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007(B) Net asset value, beginning of period $4.73 $4.75 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18(c) .08 Net gains (losses) (both realized and unrealized) .02 (.02) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .20 .06 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.08) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $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) 1.06% 1.00%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .95% .95%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.87% 4.02%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% - ----------------------------------------------------------------------------------------------------------- Total return 4.21% 1.42%(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to May 31, 2007. (c) Per share amount has 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 for the year ended May 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 PROSPECTUS 21P RIVERSOURCE COMPLEX OF FUNDS THE RIVERSOURCE COMPLEX OF FUNDS INCLUDES FUNDS BRANDED "RIVERSOURCE," "RIVERSOURCE PARTNERS," AND "THREADNEEDLE" (EACH INDIVIDUALLY, A "FUND" OR A "RIVERSOURCE FUND" AND COLLECTIVELY, THE "FUNDS" OR THE "RIVERSOURCE FUNDS"). THESE FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD"), AND THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THIS SERVICE SECTION. 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 RIVERSOURCE FUNDS (INCLUDING "THREADNEEDLE" OR "RIVERSOURCE PARTNERS" BRANDED FUNDS), OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." BUYING AND SELLING SHARES The RiverSource funds are generally available directly and through broker-dealers, banks and other financial intermediaries or institutions (financial institutions), including certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial institutions. THESE FINANCIAL INSTITUTIONS 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 institutions through which your shares of the fund(s) are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial institution 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 institutions to carry out its obligations to its customers. - -------------------------------------------------------------------------------- S.1 S-6400-6 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The RiverSource 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 institution can help you with this decision. The following table shows the key features of each share class. (THE COVER OF THIS PROSPECTUS INDICATES WHICH SHARE CLASSES ARE CURRENTLY OFFERED FOR THIS FUND.) INVESTMENT OPTIONS SUMMARY
CONTINGENT PLAN INITIAL DEFERRED SALES DISTRIBUTION AND ADMINISTRATION AVAILABILITY(A) SALES CHARGE CHARGE (CDSC) SERVICE FEE(B) FEE - ------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No. Yes. No. all investors. time of purchase. 0.25% Lower or no sales charge for larger investments. - ------------------------------------------------------------------------------------------------------------- Class Available to No. Entire Maximum 5% CDSC during Yes. No. B(c)(d) all investors. purchase price is the first year decreasing 1.00% invested in to 0% after six years. shares of the fund. - ------------------------------------------------------------------------------------------------------------- Class C Available to No. Entire 1% CDSC may apply if you Yes. No. all investors. purchase price is sell shares within one 1.00% invested in year after purchase. shares of the fund. - ------------------------------------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- S.2
INVESTMENT OPTIONS SUMMARY (CONTINUED) CONTINGENT PLAN INITIAL DEFERRED SALES DISTRIBUTION AND ADMINISTRATION AVAILABILITY(A) SALES CHARGE CHARGE (CDSC) SERVICE FEE(B) FEE - ------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25% discretionary managed accounts. - -------------------------------------------------------------------------------------------------------------
(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) See "Buying and Selling Shares, Sales Charges, Class B and Class C -- contingent deferred sales charge 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. (d) 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.) 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 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 a fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and shareholder servicing fees to financial institutions 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 institutions also receive distribution 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 institutions that sell Class B shares, and to pay for other distribution related expenses. Financial institutions may compensate their financial advisors - -------------------------------------------------------------------------------- S.3 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 INSTITUTION OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES WILL BE RETAINED BY THE DISTRIBUTOR. PLAN ADMINISTRATION FEE Class R2, Class R3 and Class R4 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. DETERMINING WHICH CLASS OF SHARES TO PURCHASE CLASS A, CLASS B AND CLASS C SHARES. 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 (ROA)" 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 in the ninth year of ownership. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. Class C shares also have a higher annual distribution fee than Class A shares. 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 deferred sales charge option (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 institution. CLASS I SHARES. The following eligible investors may purchase Class I shares: - - Any fund distributed by RiverSource Distributors, Inc., if the fund seeks to achieve its investment objective by investing primarily in shares of the fund and other RiverSource funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS R SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4 and Class R5 shares: - -------------------------------------------------------------------------------- S.4 - - 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 (HSAs) 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 RiverSource funds). - - Bank Trust departments. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR- SEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. 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 institution. 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 AND CLASS W SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INSTITUTIONS TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. For more information, see the SAI. - -------------------------------------------------------------------------------- S.5 SALES CHARGES 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 institution 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 (not through a separately authorized financial institution). Sales charges vary depending on the amount of your purchase. SALES CHARGE* FOR CLASS A SHARES FOR FIXED INCOME FUNDS EXCEPT THOSE LISTED BELOW
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** 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***
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
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** 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***
* 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. ** Purchase price includes the sales charge. ***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 institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. - -------------------------------------------------------------------------------- S.6 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, as described below. The current market values of the following investments are eligible to be added together for purposes of determining the sales charge on your purchase: - - Your current investment in a fund; and - - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other RiverSource 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 sharing a mailing address. The following accounts are eligible to be included in determining 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 determining 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 D, Class E, 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. - -------------------------------------------------------------------------------- S.7 If you purchase RiverSource fund shares through different financial institutions, and you want to include those assets toward a reduced sales charge, you must inform your financial institution in writing about the other accounts when placing your purchase order. Contact your financial institution to determine what information is required. Unless you provide your financial institution 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 institution provide this information to the fund when placing your purchase order. For more information on rights of accumulation, please see the SAI. INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including 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 institution. 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 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 RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares 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 institution provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial institution 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 RiverSource funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - -------------------------------------------------------------------------------- S.8 - - current or retired Ameriprise Financial Services, Inc. (Ameriprise Financial Services) financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - registered representatives and other employees of financial institutions 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 RiverSource funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - retirement plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code, if those purchases are made through a broker, agent, or other financial institution. - - 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 RiverSource fund; - through or under a wrap fee product or other investment product sponsored by a financial institution having a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; - through bank trust departments. - - shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional purchases or categories of purchases. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. Unless you provide your financial institution 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 institution provide this information to the fund when placing your purchase order. Because the current prospectus is available on riversource.com free of charge, RiverSource Investments does not separately disclose information regarding breakpoint discounts on the website. - -------------------------------------------------------------------------------- S.9 CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE 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:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 4% 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. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial institutions 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. You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Purchases made prior to May 21, 2005 age on a calendar year basis. Purchases made 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 purchased prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased beginning May 21, 2005 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 institutions 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. - -------------------------------------------------------------------------------- S.10 For both Class B and Class C, if the amount you sell causes the value of your investment to fall below the cost of the shares you have purchased, the CDSC will be based on the lower of the cost of those shares purchased or market 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. 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; - - held in trust for an employee benefit plan; or - - held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, 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. 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. CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 AND CLASS W -- 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.11 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 financial institution through which you are investing in the fund may not be able to open an account for you. If the financial institution 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 institution. You may establish and maintain your account with an authorized financial institution 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 maintained by 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 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 INSTITUTION ALL REQUESTS The financial institution 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 institution through which you buy shares may establish an account directly with the fund. To establish an account in this fashion, complete a RiverSource funds account application with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained at - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.12 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) riversource.com or may be requested by calling (888) 791- 3380. 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 FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 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 (888) 791-3380 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 institution may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- BY EXCHANGE Call (888) 791-3380 or send signed written instructions to the address above. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.13 MINIMUM INVESTMENT AND ACCOUNT BALANCE
FOR ALL FUNDS, RIVERSOURCE FLOATING CLASSES AND RATE FUND ACCOUNTS EXCEPT RIVERSOURCE INFLATION THOSE LISTED TO THE TAX QUALIFIED PROTECTED SECURITIES RIGHT (NONQUALIFIED) ACCOUNTS FUND CLASS W - ---------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $5,000 $500 - ---------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 None - ---------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $300 None $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
FOR ALL FUNDS, RIVERSOURCE FLOATING CLASSES AND RATE FUND ACCOUNTS EXCEPT RIVERSOURCE INFLATION THOSE LISTED TO THE TAX QUALIFIED PROTECTED SECURITIES RIGHT (NONQUALIFIED) ACCOUNTS FUND CLASS W - ---------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100 $100 $5,000 $500 - ---------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 None - ---------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None None $2,500 $500
** If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. - -------------------------------------------------------------------------------- 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 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 institution 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 10 days to clear. If you request a sale within 10 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. - -------------------------------------------------------------------------------- S.14 EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial institution process your transaction. If your account is maintained directly with your financial institution, you must contact that financial institution 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 INSTITUTION ALL REQUESTS You can exchange or sell shares by having your financial institution process your transaction. The financial institution 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 FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.15 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) 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 yourself. - Your address 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 institution 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 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 (888) 791-3380. 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 or qualified retirement accounts. 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 $100,000 per day. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.16 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) 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 (888) 791-3380 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: $100 Your bank or financial institution may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- BY SCHEDULED PAYOUT PLAN You may elect to receive regular periodic payments through an automatic sale of shares. See the SAI for more information. - -------------------------------------------------------------------------------- EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered RiverSource fund 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. 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.17 FUNDS THAT INVEST IN SECURITIES THAT TRADE INFREQUENTLY MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF INEFFICIENCIES IN THE SECURITIES MARKETS. 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 HAS SIGNIFICANT HOLDINGS OF 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 "VALUING FUND SHARES" FOR A DISCUSSION OF THE RIVERSOURCE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE RIVERSOURCE 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 institution 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 institutions 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 institution, for example, a retirement plan administrator or similar financial institution authorized to distribute the funds, if it determines the policy and procedures of such financial institutions are sufficient to protect the fund and its shareholders. - -------------------------------------------------------------------------------- S.18 - - 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 institution. 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 institutions 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 new fund. - - 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. - - Shares of the new fund may not be used on the same day for another exchange or sale. - - Shares of the 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. 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. - -------------------------------------------------------------------------------- S.19 REPURCHASES. You can change your mind after requesting a sale and use all or part of the sale proceeds to purchase new shares in the same account, fund and class from which you sold. If you reinvest in Class A, you will purchase the new shares at NAV, up to the amount of the sale proceeds, instead of paying a sales charge on the date of a new purchase. If you reinvest in Class B or Class C, any CDSC you paid on the amount you are reinvesting also will be reinvested. In order for you to take advantage of this repurchase waiver, you must notify your financial institution within 90 days of the date your sale request was processed. Contact your financial institution 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. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. VALUING 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. For more information, contact your financial institution. 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. Securities are valued primarily on the basis of market quotations and floating rate loans are valued primarily on the basis of indicative bids. Both 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. - -------------------------------------------------------------------------------- S.20 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 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 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 has significant holdings of 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 RiverSource 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 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 shares may change on days when shareholders will not be able to purchase or sell the fund's shares. 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. 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. - -------------------------------------------------------------------------------- S.21 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 institution 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. 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 91(st) day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91(st) 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. 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. - -------------------------------------------------------------------------------- S.22 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 RIVERSOURCE INFLATION PROTECTED SECURITIES FUND. Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by Internal Revenue Service regulations to be taxable income in the year it occurs. The fund will distribute both interest income and the income attributable to principal adjustments, both of which are taxable to shareholders. 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. 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. 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. - -------------------------------------------------------------------------------- S.23 GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial institution to determine the availability of the RiverSource funds. RiverSource funds may only be purchased or sold directly or through financial institutions authorized by the distributor to offer the RiverSource funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE FUNDS. If you set up an account at a financial institution that does not have, and is unable to obtain, a selling agreement with the distributor of the RiverSource funds, you will not be able to transfer RiverSource fund holdings to that account. In that event, you must either maintain your RiverSource fund holdings with your current financial institution, find another financial institution 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. Administration Services. Ameriprise Financial, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides or compensates others to provide administrative services to the RiverSource 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." Custody Services. Ameriprise Trust Company, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides custody services to all but a limited number of the RiverSource funds, for which U.S. Bank National Association, The Bank of New York or JP Morgan Chase Bank, N.A. provide custody services. In addition to paying the custodian for these services, the RiverSource funds pay for certain transaction fees and out-of-pocket expenses incurred while providing custody 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." Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the distributor or RiverSource Distributors), provides underwriting and distribution services to the RiverSource 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 re-allows the remainder of these fees (or the full fee) to the financial institutions that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution (12b-1) fees" in the expense table under "Fees - -------------------------------------------------------------------------------- S.24 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 RiverSource 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 RiverSource funds. The RiverSource 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 institutions 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. 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 (HSAs). Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INSTITUTIONS 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 institutions, including inter-company allocation of resources or payments to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions 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 institution may elevate the prominence or profile of the fund within the financial institution's organization, and may - -------------------------------------------------------------------------------- S.25 provide the distributor and its affiliates with preferred access to the financial institution's registered representatives or preferred access to the financial institution'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 institution's pecuniary interest and its duties to its customers, for example, if the financial institution receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial institution 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. 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 institution, 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 institution, and the access the distributor or other representatives of the fund may have within the financial institution for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial institution and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions 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 institution charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial institution (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 - -------------------------------------------------------------------------------- S.26 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 institutions 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 RiverSource fund assets (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. 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 institutions 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 institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. The financial institution 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 institution may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial institution. The SAI contains additional detail regarding payments made by the distributor to financial institutions. - -------------------------------------------------------------------------------- S.27 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 institutions 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 institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution 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." ADDITIONAL MANAGEMENT INFORMATION MANAGER OF MANAGERS EXEMPTION. 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. - -------------------------------------------------------------------------------- S.28 AFFILIATED PRODUCTS. RiverSource Investments also serves as investment manager to RiverSource funds which are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other RiverSource funds (Funds of Funds) and to discretionary managed accounts that invest exclusively in RiverSource funds (collectively referred to as "affiliated products"). These affiliated products, individually or collectively, may own a significant percentage of the fund's outstanding shares. The fund may experience relatively large purchases or redemptions from the affiliated products. 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, the fund may experience increased expenses as it buys and sells securities to manage transactions for the affiliated products. In addition, because the affiliated products may own a substantial portion of the fund, a redemption by one or more affiliated products could cause the fund's expense ratio to increase as the fund's fixed costs would be spread over a smaller asset base. RiverSource Investments monitors expense levels 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. CASH RESERVES. A fund may invest its daily cash balance in RiverSource Short- Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of the RiverSource 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 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 - -------------------------------------------------------------------------------- S.29 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.30 RiverSource Funds can be purchased from authorized financial institutions. The fund can be found under the "RiverSource" banner in most mutual fund quotations. 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 Funds or your financial institution. To make a shareholder inquiry, contact the financial institution through whom you purchased the fund. RiverSource Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (888) 791-3380 RiverSource Funds information available at RiverSource Investments website address: riversource.com/funds 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. 20549-0102. Investment Company Act File #811-4260 TICKER SYMBOL Class A: IFINX Class B: ISHOX Class C: AXFCX Class I: AGMIX Class R4: IDFYX Class W: RSDWX
(RIVERSOURCE INVESTMENTS LOGO) S-6042-99 AE (7/08) Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND PROSPECTUS JULY 30, 2008 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 institution if you have other accounts holding shares of RiverSource 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............................................ 6p Fees and Expenses........................................... 9p Other Investment Strategies and Risks....................... 11p Fund Management and Compensation............................ 12p FINANCIAL HIGHLIGHTS........................................ 14P BUYING AND SELLING SHARES................................... S.1 Description of Share Classes................................ S.2 Investment Options -- Classes of Shares ................. S.2 Sales Charges............................................ S.6 Opening an Account....................................... S.12 Exchanging or Selling Shares................................ S.15 Exchanges................................................ S.17 Selling Shares........................................... S.19 VALUING FUND SHARES......................................... S.20 DISTRIBUTIONS AND TAXES..................................... S.21 GENERAL INFORMATION......................................... S.24
RIVERSOURCE COMPLEX OF FUNDS The RiverSource complex of funds includes funds branded "RiverSource," "RiverSource Partners," and "Threadneedle." These funds share the same Board of Directors/Trustees, and the same policies and procedures including those set forth in the service section. RiverSource Variable Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated insurance companies. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds. - -------------------------------------------------------------------------------- 2P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 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 -- 2008 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. - -------------------------------------------------------------------------------- 4P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS 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. 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. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS 5P 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. 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 -- 2008 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% 2003 2004 2005 2006 2007
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 -1.10% (quarter ended June 30, 2004). 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, 2008 was +0.21%. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS 7P AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2007)
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 +0.05% +2.72% +3.51%(a) N/A Return after taxes on distributions -1.51% +1.24% +1.99%(a) N/A Return after taxes on distributions and sale of fund shares +0.01% +1.44% +2.09%(a) N/A Class B Return before taxes -0.76% +2.61% +3.45%(a) N/A Class C Return before taxes +3.45% +3.00% +3.63%(a) N/A Class I Return before taxes +5.66% N/A N/A +4.07%(b) Class R4 Return before taxes +5.42% +3.91% +4.55%(a) N/A Lehman Brothers Mortgage-Backed Securities Index (reflects no deduction for fees, expenses or taxes) +6.90% +4.49% +4.97%(c) +4.67%(d) Lipper U.S. Mortgage Funds Index +5.24% +3.64% +4.17%(c) +3.71%(d)
(a) Inception date is Feb. 14, 2002. (b) Inception date is March 4, 2004. (c) Measurement period started March 1, 2002. (d) Measurement period started March 1, 2004. The Lehman Brothers 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 -- 2008 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. Expenses are based on the Fund's most recent 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 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 Management fees 0.48% 0.48% 0.48% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% Other expenses(b) 0.36% 0.38% 0.37% Total annual fund operating expenses 1.09% 1.86% 1.85% Fee waiver/expense reimbursement 0.20% 0.21% 0.20% Total annual (net) fund operating expenses(c) 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(b) 0.15% 0.45% Total annual fund operating expenses 0.63% 0.93% Fee waiver/expense reimbursement 0.15% 0.18% Total annual (net) fund operating expenses(c) 0.48% 0.75%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) 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. (c) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until May 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), will not exceed 0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.48% for Class I and 0.75% for Class R4. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS 9P 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 $786 $1,030 $1,728 Class B $668(b) $965(b) $1,187(b) $1,965(c) Class C $268(b) $563 $ 983 $2,158 Class I $ 49 $187 $ 337 $ 776 Class R4 $ 77 $279 $ 498 $1,131
(a) Includes a 4.75% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares in the ninth 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 $786 $1,030 $1,728 Class B $168 $565 $ 987 $1,965(b) Class C $168 $563 $ 983 $2,158 Class I $ 49 $187 $ 337 $ 776 Class R4 $ 77 $279 $ 498 $1,131
(a) Includes a 4.75% sales charge. (b) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. - -------------------------------------------------------------------------------- 10P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 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. Although ETFs are designed to replicate the price and yield of a specified market index, there is no guarantee that an ETF will track its specified market index, which may result in a loss. 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 money market fund. See "Cash Reserves" for more information. 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. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS 11P 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. 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 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 all of the RiverSource 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 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. - -------------------------------------------------------------------------------- 12P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS Portfolio Manager(s). The portfolio manager responsible for the day-to-day management of the Fund is: Scott Kirby, Portfolio Manager - - Managed the Fund since 2002. - - Leader of the structured assets sector team. - - Employed by RiverSource Investments from 1979 to 1985 and from 1987 to present. - - Began investment career in 1979. - - MBA, University of Minnesota. The fixed income department of RiverSource Investments is divided into six sector teams, each of which includes a portfolio manager or portfolio managers and several analysts, and each of which specializes in a specific sector of the fixed income market. The Fund's portfolio manager leads the team that specializes in the sector in which the Fund primarily invests. 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 -- 2008 PROSPECTUS 13P 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 YEAR ENDED 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 KPMG LLP. - -------------------------------------------------------------------------------- 14P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $5.00 $4.92 $5.12 $5.03 $5.19 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(b) .22 .21 .19 .16 Net gains (losses) (both realized and unrealized) (.02) .09 (.20) .10 (.09) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .21 .31 .01 .29 .07 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.23) (.20) (.20) (.16) Tax return of capital -- -- -- -- (.01) Distributions from realized gains -- -- (.01) -- (.06) - ----------------------------------------------------------------------------------------------------------- Total distributions (.22) (.23) (.21) (.20) (.23) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.92 $5.12 $5.03 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $95 $111 $126 $159 $177 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.09% 1.17% 1.19% 1.10% 1.05% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .89% .89% .89% .95% .98% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.56% 4.45% 4.08% 3.67% 3.11% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return(g) 4.31% 6.30% .12% 5.78% 1.27% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS 15P CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $5.00 $4.93 $5.12 $5.04 $5.20 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .19 .17 .15 .12 Net gains (losses) (both realized and unrealized) (.01) .07 (.19) .09 (.09) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .18 .26 (.02) .24 .03 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.19) (.16) (.16) (.12) Tax return of capital -- -- -- -- (.01) Distributions from realized gains -- -- (.01) -- (.06) - ----------------------------------------------------------------------------------------------------------- Total distributions (.19) (.19) (.17) (.16) (.19) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.93 $5.12 $5.04 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $34 $44 $64 $98 $129 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.86% 1.94% 1.95% 1.86% 1.80% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.69% 1.74% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.79% 3.70% 3.31% 2.90% 2.35% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return(g) 3.53% 5.30% (.42%) 4.78% .52% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 16P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $5.00 $4.93 $5.12 $5.04 $5.20 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .19 .17 .15 .12 Net gains (losses) (both realized and unrealized) (.01) .07 (.19) .09 (.09) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .18 .26 (.02) .24 .03 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.19) (.16) (.16) (.12) Tax return of capital -- -- -- -- (.01) Distributions from realized gains -- -- (.01) -- (.06) - ----------------------------------------------------------------------------------------------------------- Total distributions (.19) (.19) (.17) (.16) (.19) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.93 $5.12 $5.04 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $5 $7 $11 $15 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.85% 1.94% 1.95% 1.85% 1.80% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.70% 1.74% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.80% 3.70% 3.31% 2.90% 2.36% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return(g) 3.53% 5.30% (.43%) 4.79% .52% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS 17P CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004(B) Net asset value, beginning of period $5.00 $4.92 $5.11 $5.03 $5.15 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .25(c) .24 .22 .20 .05 Net gains (losses) (both realized and unrealized) (.02) .08 (.19) .09 (.11) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .23 .32 .03 .29 (.06) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.24) (.24) (.21) (.21) (.06) Distributions from realized gains -- -- (.01) -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.24) (.24) (.22) (.21) (.06) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.92 $5.11 $5.03 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $222 $207 $6 $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .63% .63% .73% .66% .64%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .48% .54% .54% .62% .64%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.97% 4.90% 4.99% 3.99% 3.39%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return 4.74% 6.68% .59% 5.92% (1.38%)(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to May 31, 2004. (c) Per share amount has 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 for the year ended May 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- 18P RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $5.00 $4.92 $5.11 $5.03 $5.19 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(b) .23 .21 .20 .17 Net gains (losses) (both realized and unrealized) (.01) .08 (.19) .08 (.09) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .22 .31 .02 .28 .08 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.23) (.23) (.20) (.20) (.17) Tax return of capital -- -- -- -- (.01) Distributions from realized gains -- -- (.01) -- (.06) - ----------------------------------------------------------------------------------------------------------- Total distributions (.23) (.23) (.21) (.20) (.24) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.92 $5.11 $5.03 - ----------------------------------------------------------------------------------------------------------- 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) .93% .99% 1.04% .94% .87% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .75% .71% .71% .77% .81% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.69% 4.63% 4.40% 3.99% 3.29% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return 4.46% 6.51% .49% 5.75% 1.45% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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 certain/reimburse 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, 2008 were less than 0.01% of average net assets. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 PROSPECTUS 19P RIVERSOURCE COMPLEX OF FUNDS THE RIVERSOURCE COMPLEX OF FUNDS INCLUDES FUNDS BRANDED "RIVERSOURCE," "RIVERSOURCE PARTNERS," AND "THREADNEEDLE" (EACH INDIVIDUALLY, A "FUND" OR A "RIVERSOURCE FUND" AND COLLECTIVELY, THE "FUNDS" OR THE "RIVERSOURCE FUNDS"). THESE FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD"), AND THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THIS SERVICE SECTION. 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 RIVERSOURCE FUNDS (INCLUDING "THREADNEEDLE" OR "RIVERSOURCE PARTNERS" BRANDED FUNDS), OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." BUYING AND SELLING SHARES The RiverSource funds are generally available directly and through broker-dealers, banks and other financial intermediaries or institutions (financial institutions), including certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial institutions. THESE FINANCIAL INSTITUTIONS 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 institutions through which your shares of the fund(s) are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial institution 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 institutions to carry out its obligations to its customers. - -------------------------------------------------------------------------------- S.1 S-6400-6 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The RiverSource 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 institution can help you with this decision. The following table shows the key features of each share class. (THE COVER OF THIS PROSPECTUS INDICATES WHICH SHARE CLASSES ARE CURRENTLY OFFERED FOR THIS FUND.) INVESTMENT OPTIONS SUMMARY
CONTINGENT PLAN INITIAL DEFERRED SALES DISTRIBUTION AND ADMINISTRATION AVAILABILITY(A) SALES CHARGE CHARGE (CDSC) SERVICE FEE(B) FEE - ------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No. Yes. No. all investors. time of purchase. 0.25% Lower or no sales charge for larger investments. - ------------------------------------------------------------------------------------------------------------- Class Available to No. Entire Maximum 5% CDSC during Yes. No. B(c)(d) all investors. purchase price is the first year decreasing 1.00% invested in to 0% after six years. shares of the fund. - ------------------------------------------------------------------------------------------------------------- Class C Available to No. Entire 1% CDSC may apply if you Yes. No. all investors. purchase price is sell shares within one 1.00% invested in year after purchase. shares of the fund. - ------------------------------------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- S.2
INVESTMENT OPTIONS SUMMARY (CONTINUED) CONTINGENT PLAN INITIAL DEFERRED SALES DISTRIBUTION AND ADMINISTRATION AVAILABILITY(A) SALES CHARGE CHARGE (CDSC) SERVICE FEE(B) FEE - ------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25% discretionary managed accounts. - -------------------------------------------------------------------------------------------------------------
(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) See "Buying and Selling Shares, Sales Charges, Class B and Class C -- contingent deferred sales charge 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. (d) 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.) 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 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 a fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and shareholder servicing fees to financial institutions 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 institutions also receive distribution 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 institutions that sell Class B shares, and to pay for other distribution related expenses. Financial institutions may compensate their financial advisors - -------------------------------------------------------------------------------- S.3 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 INSTITUTION OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES WILL BE RETAINED BY THE DISTRIBUTOR. PLAN ADMINISTRATION FEE Class R2, Class R3 and Class R4 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. DETERMINING WHICH CLASS OF SHARES TO PURCHASE CLASS A, CLASS B AND CLASS C SHARES. 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 (ROA)" 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 in the ninth year of ownership. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. Class C shares also have a higher annual distribution fee than Class A shares. 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 deferred sales charge option (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 institution. CLASS I SHARES. The following eligible investors may purchase Class I shares: - - Any fund distributed by RiverSource Distributors, Inc., if the fund seeks to achieve its investment objective by investing primarily in shares of the fund and other RiverSource funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS R SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4 and Class R5 shares: - -------------------------------------------------------------------------------- S.4 - - 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 (HSAs) 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 RiverSource funds). - - Bank Trust departments. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR- SEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. 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 institution. 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 AND CLASS W SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INSTITUTIONS TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. For more information, see the SAI. - -------------------------------------------------------------------------------- S.5 SALES CHARGES 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 institution 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 (not through a separately authorized financial institution). Sales charges vary depending on the amount of your purchase. SALES CHARGE* FOR CLASS A SHARES FOR FIXED INCOME FUNDS EXCEPT THOSE LISTED BELOW
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** 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***
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
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** 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***
* 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. ** Purchase price includes the sales charge. ***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 institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. - -------------------------------------------------------------------------------- S.6 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, as described below. The current market values of the following investments are eligible to be added together for purposes of determining the sales charge on your purchase: - - Your current investment in a fund; and - - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other RiverSource 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 sharing a mailing address. The following accounts are eligible to be included in determining 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 determining 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 D, Class E, 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. - -------------------------------------------------------------------------------- S.7 If you purchase RiverSource fund shares through different financial institutions, and you want to include those assets toward a reduced sales charge, you must inform your financial institution in writing about the other accounts when placing your purchase order. Contact your financial institution to determine what information is required. Unless you provide your financial institution 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 institution provide this information to the fund when placing your purchase order. For more information on rights of accumulation, please see the SAI. INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including 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 institution. 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 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 RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares 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 institution provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial institution 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 RiverSource funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - -------------------------------------------------------------------------------- S.8 - - current or retired Ameriprise Financial Services, Inc. (Ameriprise Financial Services) financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - registered representatives and other employees of financial institutions 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 RiverSource funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - retirement plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code, if those purchases are made through a broker, agent, or other financial institution. - - 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 RiverSource fund; - through or under a wrap fee product or other investment product sponsored by a financial institution having a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; - through bank trust departments. - - shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional purchases or categories of purchases. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. Unless you provide your financial institution 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 institution provide this information to the fund when placing your purchase order. Because the current prospectus is available on riversource.com free of charge, RiverSource Investments does not separately disclose information regarding breakpoint discounts on the website. - -------------------------------------------------------------------------------- S.9 CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE 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:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 4% 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. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial institutions 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. You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Purchases made prior to May 21, 2005 age on a calendar year basis. Purchases made 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 purchased prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased beginning May 21, 2005 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 institutions 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. - -------------------------------------------------------------------------------- S.10 For both Class B and Class C, if the amount you sell causes the value of your investment to fall below the cost of the shares you have purchased, the CDSC will be based on the lower of the cost of those shares purchased or market 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. 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; - - held in trust for an employee benefit plan; or - - held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, 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. 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. CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 AND CLASS W -- 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.11 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 financial institution through which you are investing in the fund may not be able to open an account for you. If the financial institution 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 institution. You may establish and maintain your account with an authorized financial institution 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 maintained by 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 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 INSTITUTION ALL REQUESTS The financial institution 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 institution through which you buy shares may establish an account directly with the fund. To establish an account in this fashion, complete a RiverSource funds account application with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained at - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.12 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) riversource.com or may be requested by calling (888) 791- 3380. 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 FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 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 (888) 791-3380 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 institution may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- BY EXCHANGE Call (888) 791-3380 or send signed written instructions to the address above. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.13 MINIMUM INVESTMENT AND ACCOUNT BALANCE
FOR ALL FUNDS, RIVERSOURCE FLOATING CLASSES AND RATE FUND ACCOUNTS EXCEPT RIVERSOURCE INFLATION THOSE LISTED TO THE TAX QUALIFIED PROTECTED SECURITIES RIGHT (NONQUALIFIED) ACCOUNTS FUND CLASS W - ---------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $5,000 $500 - ---------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 None - ---------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $300 None $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
FOR ALL FUNDS, RIVERSOURCE FLOATING CLASSES AND RATE FUND ACCOUNTS EXCEPT RIVERSOURCE INFLATION THOSE LISTED TO THE TAX QUALIFIED PROTECTED SECURITIES RIGHT (NONQUALIFIED) ACCOUNTS FUND CLASS W - ---------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100 $100 $5,000 $500 - ---------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 None - ---------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None None $2,500 $500
** If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. - -------------------------------------------------------------------------------- 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 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 institution 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 10 days to clear. If you request a sale within 10 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. - -------------------------------------------------------------------------------- S.14 EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial institution process your transaction. If your account is maintained directly with your financial institution, you must contact that financial institution 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 INSTITUTION ALL REQUESTS You can exchange or sell shares by having your financial institution process your transaction. The financial institution 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 FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.15 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) 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 yourself. - Your address 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 institution 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 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 (888) 791-3380. 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 or qualified retirement accounts. 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 $100,000 per day. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S.16 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) 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 (888) 791-3380 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: $100 Your bank or financial institution may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- BY SCHEDULED PAYOUT PLAN You may elect to receive regular periodic payments through an automatic sale of shares. See the SAI for more information. - -------------------------------------------------------------------------------- EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered RiverSource fund 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. 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.17 FUNDS THAT INVEST IN SECURITIES THAT TRADE INFREQUENTLY MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF INEFFICIENCIES IN THE SECURITIES MARKETS. 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 HAS SIGNIFICANT HOLDINGS OF 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 "VALUING FUND SHARES" FOR A DISCUSSION OF THE RIVERSOURCE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE RIVERSOURCE 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 institution 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 institutions 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 institution, for example, a retirement plan administrator or similar financial institution authorized to distribute the funds, if it determines the policy and procedures of such financial institutions are sufficient to protect the fund and its shareholders. - -------------------------------------------------------------------------------- S.18 - - 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 institution. 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 institutions 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 new fund. - - 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. - - Shares of the new fund may not be used on the same day for another exchange or sale. - - Shares of the 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. 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. - -------------------------------------------------------------------------------- S.19 REPURCHASES. You can change your mind after requesting a sale and use all or part of the sale proceeds to purchase new shares in the same account, fund and class from which you sold. If you reinvest in Class A, you will purchase the new shares at NAV, up to the amount of the sale proceeds, instead of paying a sales charge on the date of a new purchase. If you reinvest in Class B or Class C, any CDSC you paid on the amount you are reinvesting also will be reinvested. In order for you to take advantage of this repurchase waiver, you must notify your financial institution within 90 days of the date your sale request was processed. Contact your financial institution 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. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. VALUING 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. For more information, contact your financial institution. 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. Securities are valued primarily on the basis of market quotations and floating rate loans are valued primarily on the basis of indicative bids. Both 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. - -------------------------------------------------------------------------------- S.20 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 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 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 has significant holdings of 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 RiverSource 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 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 shares may change on days when shareholders will not be able to purchase or sell the fund's shares. 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. 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. - -------------------------------------------------------------------------------- S.21 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 institution 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. 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 91(st) day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91(st) 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. 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. - -------------------------------------------------------------------------------- S.22 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 RIVERSOURCE INFLATION PROTECTED SECURITIES FUND. Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by Internal Revenue Service regulations to be taxable income in the year it occurs. The fund will distribute both interest income and the income attributable to principal adjustments, both of which are taxable to shareholders. 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. 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. 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. - -------------------------------------------------------------------------------- S.23 GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial institution to determine the availability of the RiverSource funds. RiverSource funds may only be purchased or sold directly or through financial institutions authorized by the distributor to offer the RiverSource funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE FUNDS. If you set up an account at a financial institution that does not have, and is unable to obtain, a selling agreement with the distributor of the RiverSource funds, you will not be able to transfer RiverSource fund holdings to that account. In that event, you must either maintain your RiverSource fund holdings with your current financial institution, find another financial institution 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. Administration Services. Ameriprise Financial, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides or compensates others to provide administrative services to the RiverSource 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." Custody Services. Ameriprise Trust Company, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides custody services to all but a limited number of the RiverSource funds, for which U.S. Bank National Association, The Bank of New York or JP Morgan Chase Bank, N.A. provide custody services. In addition to paying the custodian for these services, the RiverSource funds pay for certain transaction fees and out-of-pocket expenses incurred while providing custody 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." Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the distributor or RiverSource Distributors), provides underwriting and distribution services to the RiverSource 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 re-allows the remainder of these fees (or the full fee) to the financial institutions that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution (12b-1) fees" in the expense table under "Fees - -------------------------------------------------------------------------------- S.24 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 RiverSource 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 RiverSource funds. The RiverSource 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 institutions 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. 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 (HSAs). Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INSTITUTIONS 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 institutions, including inter-company allocation of resources or payments to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions 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 institution may elevate the prominence or profile of the fund within the financial institution's organization, and may - -------------------------------------------------------------------------------- S.25 provide the distributor and its affiliates with preferred access to the financial institution's registered representatives or preferred access to the financial institution'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 institution's pecuniary interest and its duties to its customers, for example, if the financial institution receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial institution 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. 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 institution, 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 institution, and the access the distributor or other representatives of the fund may have within the financial institution for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial institution and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions 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 institution charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial institution (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 - -------------------------------------------------------------------------------- S.26 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 institutions 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 RiverSource fund assets (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. 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 institutions 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 institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. The financial institution 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 institution may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial institution. The SAI contains additional detail regarding payments made by the distributor to financial institutions. - -------------------------------------------------------------------------------- S.27 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 institutions 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 institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution 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." ADDITIONAL MANAGEMENT INFORMATION MANAGER OF MANAGERS EXEMPTION. 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. - -------------------------------------------------------------------------------- S.28 AFFILIATED PRODUCTS. RiverSource Investments also serves as investment manager to RiverSource funds which are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other RiverSource funds (Funds of Funds) and to discretionary managed accounts that invest exclusively in RiverSource funds (collectively referred to as "affiliated products"). These affiliated products, individually or collectively, may own a significant percentage of the fund's outstanding shares. The fund may experience relatively large purchases or redemptions from the affiliated products. 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, the fund may experience increased expenses as it buys and sells securities to manage transactions for the affiliated products. In addition, because the affiliated products may own a substantial portion of the fund, a redemption by one or more affiliated products could cause the fund's expense ratio to increase as the fund's fixed costs would be spread over a smaller asset base. RiverSource Investments monitors expense levels 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. CASH RESERVES. A fund may invest its daily cash balance in RiverSource Short- Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of the RiverSource 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 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 - -------------------------------------------------------------------------------- S.29 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.30 RiverSource Funds can be purchased from authorized financial institutions. The fund can be found under the "RiverSource" banner in most mutual fund quotations. 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 Funds or your financial institution. To make a shareholder inquiry, contact the financial institution through whom you purchased the fund. RiverSource Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (888) 791-3380 RiverSource Funds information available at RiverSource Investments website address: riversource.com/funds 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. 20549-0102. Investment Company Act File #811-4260 TICKER SYMBOL Class A: AUGAX Class B: AUGBX Class C: AUGCX Class I: RVGIX Class R4: RSGYX
(RIVERSOURCE INVESTMENTS LOGO) S-6245 99 K (7/08) STATEMENT OF ADDITIONAL INFORMATION JULY 30, 2008 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 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 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 130/30 U.S. Equity 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 institution or write to RiverSource Funds, 734 Ameriprise Financial Center, Minneapolis, MN 55474, call (888) 791-3380 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. 52 Valuing Fund Shares............................................................. p. 56 Portfolio Holdings Disclosure................................................... p. 66 Proxy Voting.................................................................... p. 67 Investing in a Fund............................................................. p. 70 Selling Shares.................................................................. p. 74 Pay-out Plans................................................................... p. 74 Capital Loss Carryover.......................................................... p. 75 Taxes........................................................................... p. 78 Service Providers............................................................... p. 82 Investment Management Services................................................ p. 82 Administrative Services....................................................... p. 127 Transfer Agency Services...................................................... p. 131 Plan Administration Services.................................................. p. 132 Distribution Services......................................................... p. 132 Plan and Agreement of Distribution............................................ p. 134 Payments to Financial Institutions............................................ p. 138 Custodian Services............................................................ p. 139 Board Services Corporation.................................................... p. 140 Organizational Information...................................................... p. 140 Board Members and Officers...................................................... p. 146 Control Persons and Principal Holders of Securities............................. p. 160 Information Regarding Pending and Settled Legal Proceedings..................... p. 176 Independent Registered Public Accounting Firm................................... p. 176 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
Statement of Additional Information - July 30, 2008 Page 2 LIST OF TABLES 1. Fund Fiscal Year Ends, Prospectus Date and Investment Categories........... p. 4 2. Fundamental Policies....................................................... p. 6 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. 52 8. Valuing Fund Shares........................................................ p. 56 9. Class A Sales Charge....................................................... p. 70 10. Public Offering Price...................................................... p. 71 11. Capital Loss Carryover..................................................... p. 75 12. Corporate Deduction and Qualified Dividend Income.......................... p. 80 13. Investment Management Services Agreement Fee Schedule...................... p. 83 14. PIA Indexes................................................................ p. 91 15A. Performance Incentive Adjustment Calculation............................... p. 92 15B. Performance Incentive Adjustment Calculation............................... p. 93 16. Management Fees and Nonadvisory Expenses................................... p. 94 17. Subadvisers and Subadvisory Agreement Fee Schedules........................ p. 97 18. Subadvisory Fees........................................................... p. 99 19. Portfolio Managers......................................................... p. 101 20. Administrative Services Agreement Fee Schedule............................. p. 127 21. Administrative Fees........................................................ p. 129 22. Sales Charges Paid to Distributor.......................................... p. 132 23. 12b-1 Fees................................................................. p. 136 24. Fund History Table for RiverSource Funds................................... p. 141 25. Board Members.............................................................. p. 146 26. Fund Officers.............................................................. p. 147 27. Committee Meetings......................................................... p. 149 28A. Board Member Holdings...................................................... p. 150 28B. Board Member Holdings -- as of Quarter End................................. p. 153 29. Board Member Compensation -- All Funds..................................... p. 156 30. Board Member Compensation -- Individual Funds.............................. p. 157 31. Control Persons and Principal Holders of Securities........................ p. 160
Statement of Additional Information - July 30, 2008 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 27, 2008 Equity - --------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity April 30 June 27, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income October 31 Dec. 28, 2007 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Balanced September 30 Nov. 29, 2007 Balanced - --------------------------------------------------------------------------------------------------------------- California Tax-Exempt August 31** Oct. 30, 2007 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Cash Management July 31 Sept. 28, 2007 Taxable money market - --------------------------------------------------------------------------------------------------------------- Disciplined Equity July 31 Sept. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined International Equity October 31 Dec. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth September 30 Nov. 29, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity July 31 Sept. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value July 31 Sept. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Diversified Bond August 31 Oct. 30, 2007 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Diversified Equity Income September 30 Nov. 29, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Dividend Opportunity June 30 Aug. 29, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Emerging Markets Bond October 31 Dec. 28, 2007 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Equity Value March 31 May 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Floating Rate July 31 Sept. 28, 2007 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Global Bond October 31 Dec. 28, 2007 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Global Technology October 31 Dec. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Growth July 31 Sept. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- High Yield Bond May 31 July 30, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Basic Income January 31*** March 31, 2008 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income January 31*** March 31, 2008 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income January 31*** March 31, 2008 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Opportunities July 31 Sept. 28, 2007 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Inflation Protected Securities July 31 Sept. 28, 2007 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt November 30 Jan. 29, 2008 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Large Cap Equity July 31 Sept. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Large Cap Value July 31 Sept. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Limited Duration Bond July 31 Sept. 28, 2007 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Mid Cap Growth November 30 Jan. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Mid Cap Value September 30 Nov. 29, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt August 31** Oct. 30, 2007 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- New York Tax-Exempt August 31** Oct. 30, 2007 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth May 31 July 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners Fundamental Value May 31 July 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners International Select Growth October 31 Dec. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Partners International Select Value October 31 Dec. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Partners International Small Cap October 31 Dec. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Partners Select Value May 31 July 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity May 31 July 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth March 31 May 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners Small Cap Value May 31 July 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive January 31 March 31, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative January 31 March 31, 2008 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate January 31 March 31, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive January 31 March 31, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative January 31 March 31, 2008 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity January 31 March 31, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Precious Metals and Mining March 31 May 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Real Estate June 30 Aug. 29, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 April 30 June 29, 2007 Fund-of-funds - equity - ---------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 4
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY* - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 April 30 June 29, 2007 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 April 30 June 29, 2007 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 April 30 June 29, 2007 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 April 30 June 29, 2007 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 April 30 June 29, 2007 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 April 30 June 29, 2007 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 April 30 June 29, 2007 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- S&P 500 Index January 31 March 31, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government May 31 July 30, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Small Cap Advantage March 31 May 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Small Company Index January 31 March 31, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Strategic Allocation September 30 Nov. 29, 2007 Balanced - --------------------------------------------------------------------------------------------------------------- Strategic Income Allocation September 30 Nov. 29, 2007 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond November 30 Jan. 29, 2008 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income November 30 Jan. 29, 2008 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market December 31 Feb. 29, 2008 Tax-exempt money market - --------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets October 31 Dec. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle European Equity October 31 Dec. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity October 31 Aug. 1, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity October 31 Dec. 28, 2007 Equity - --------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage May 31 July 30, 2008 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, 2008 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. 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 -- - -------------------------------------------------------------------------------------------------------------- 130/30 U.S. 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 - --------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 6
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% - -------------------------------------------------------------------------------------------------------------- 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 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 -- - -------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners Small Cap Value A1 B3 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive* A1 B1 C1 D1 E2 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative* A1 B1 C1 D1 E2 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate* A1 B1 C1 D1 E2 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate A1 B1 C1 D1 E2 -- Aggressive* - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate A1 B1 C1 D1 E2 -- Conservative* - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity* A1 B1 C1 D1 E2 -- - -------------------------------------------------------------------------------------------------------------- Precious Metals and Mining A1 B1(ii) -- -- E3 -- - -------------------------------------------------------------------------------------------------------------- Real Estate A1 B1 -- -- -- -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2010* A1 B4 -- -- E2 -- - --------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 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% - -------------------------------------------------------------------------------------------------------------- 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 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. 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 Statement of Additional Information - July 30, 2008 Page 8 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. 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. Statement of Additional Information - July 30, 2008 Page 9 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, 130/30 U.S. EQUITY, BALANCED, DISCIPLINED EQUITY, DISCIPLINED LARGE CAP GROWTH, 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, 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, 2008 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 - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Borrowing - - - - - -- - - - --------------------------------------------------------------------------------------------------------------------------------- Cash/money market instruments - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Collateralized bond obligations - - A - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Commercial paper - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Common stock - - - - B -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Convertible securities - - - - C -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Corporate bonds - - - - - -- - - - --------------------------------------------------------------------------------------------------------------------------------- Debt obligations - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Depositary receipts - - - - -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Derivative instruments (including options and futures) - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Exchange-traded funds - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Floating rate loans - -- - - -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Foreign currency transactions - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Foreign securities - - - - - -- - - - --------------------------------------------------------------------------------------------------------------------------------- Funding agreements - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- High yield debt securities (junk bonds) - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Illiquid and restricted securities - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Indexed securities - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Inflation protected securities - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Inverse floaters - D - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Investment companies - - - - - -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Lending of portfolio securities - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Loan participations - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Mortgage- and asset-backed securities - - E - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Mortgage dollar rolls - F - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Municipal obligations - - - - -- - - - - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 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 - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Preferred stock - - - - G -- -- - G - - --------------------------------------------------------------------------------------------------------------------------------- Real estate investment trusts - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Repurchase agreements - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Reverse repurchase agreements - - - - - -- - - - --------------------------------------------------------------------------------------------------------------------------------- Short sales H H - H -- -- H H - --------------------------------------------------------------------------------------------------------------------------------- Sovereign debt - - - - - -- - - - --------------------------------------------------------------------------------------------------------------------------------- Structured investments - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Swap agreements - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Variable- or floating-rate securities - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Warrants - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- When-issued securities and forward commitments - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Zero-coupon and step-coupon securities - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
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. The following funds are authorized to invest in inverse floaters: Real Estate. E. 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. F. The following funds are authorized to invest in mortgage dollar rolls: Real Estate. G. 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. H. 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, 2008 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, 2008 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. 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 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. 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. 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. The price movement of an ETF may not track the underlying index and may result in a loss. 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. The following are all components of foreign/emerging markets risk: 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 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. Statement of Additional Information - July 30, 2008 Page 14 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. 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 Statement of Additional Information - July 30, 2008 Page 15 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. 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 Statement of Additional Information - July 30, 2008 Page 16 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. 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. Statement of Additional Information - July 30, 2008 Page 17 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 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. 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 Statement of Additional Information - July 30, 2008 Page 18 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. 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 Statement of Additional Information - July 30, 2008 Page 19 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 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. Statement of Additional Information - July 30, 2008 Page 20 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 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 Statement of Additional Information - July 30, 2008 Page 21 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. 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. Statement of Additional Information - July 30, 2008 Page 22 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. 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. 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. 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. Statement of Additional Information - July 30, 2008 Page 23 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 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 Statement of Additional Information - July 30, 2008 Page 24 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 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. Statement of Additional Information - July 30, 2008 Page 25 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) 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 Statement of Additional Information - July 30, 2008 Page 26 (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. 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. Statement of Additional Information - July 30, 2008 Page 27 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 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.) Statement of Additional Information - July 30, 2008 Page 28 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. 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). Statement of Additional Information - July 30, 2008 Page 29 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 A fund may lend certain of its portfolio securities. The current policy of the Board is to make these loans, either long- or short-term, to broker-dealers. Loans will be structured in a manner that will enable a fund to call the 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. In making loans, the lender receives the market price in cash, U.S. government securities, letters of credit, or such other collateral as may be permitted by regulatory agencies and approved by the Board. If the market price of the loaned securities goes up, the lender will get additional collateral on a daily basis. If the market price of the loaned securities goes down, the borrower may request that some collateral be returned. The risks are that the borrower may not provide additional collateral when required or return the securities when due. During the existence of the loan, the lender receives cash payments equivalent to all interest or other distributions paid on the loaned securities. The lender may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or money market instruments held as collateral to the borrower or placing broker. The lender will receive reasonable interest on the loan or a flat fee from the borrower and amounts equivalent to any dividends, interest, or other distributions on the securities loaned. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the lending of portfolio securities include: Credit Risk. 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: Statement of Additional Information - July 30, 2008 Page 30 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. 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 Statement of Additional Information - July 30, 2008 Page 31 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. 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. Statement of Additional Information - July 30, 2008 Page 32 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 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. Statement of Additional Information - July 30, 2008 Page 33 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 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 Statement of Additional Information - July 30, 2008 Page 34 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 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 Statement of Additional Information - July 30, 2008 Page 35 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. 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. Statement of Additional Information - July 30, 2008 Page 36 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 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. 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. Statement of Additional Information - July 30, 2008 Page 37 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. 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 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 Statement of Additional Information - July 30, 2008 Page 38 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 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 2008 2007 2006 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------ Income Builder Basic Income $ 0(a)$ 0 $ 0(b) - ------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 0(a) 0 0(b) - ------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 0(a) 0 0(b) - ------------------------------------------------------------------------------------------------------ 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 40,706 21,050 22,575 - ------------------------------------------------------------------------------------------------------ Small Company Index 108,360 56,843 78,951 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------ Equity Value 591,525 773,828 721,284 - ------------------------------------------------------------------------------------------------------ Partners Small Cap Growth 581,945 850,077 1,410,791 - ------------------------------------------------------------------------------------------------------ Precious Metals and Mining 960,159 494,184 801,550 - ------------------------------------------------------------------------------------------------------ Small Cap Advantage 2,546,419 3,585,711 3,379,812 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity 38,557(c) N/A N/A - ------------------------------------------------------------------------------------------------------ 130/30 U.S. Equity 60,648(c) N/A N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2010 0 0(d) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2015 0 0(d) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2020 0 0(d) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2025 0 0(d) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2030 0 0(d) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2035 0 0(d) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2040 0 0(d) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2045 0 0(d) N/A - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------ High Yield Bond 0 0 0 - ------------------------------------------------------------------------------------------------------ Partners Aggressive Growth 859,002 1,160,632 556,410 - ------------------------------------------------------------------------------------------------------ Partners Fundamental Value 292,900 217,139 346,840 - ------------------------------------------------------------------------------------------------------ Partners Select Value 838,472 1,757,678 445,429 - ------------------------------------------------------------------------------------------------------ Partners Small Cap Equity 519,535 455,170 459,451 - ------------------------------------------------------------------------------------------------------ Partners Small Cap Value 1,179,158 1,422,160 2,624,255 - ------------------------------------------------------------------------------------------------------ Short Duration U.S. Government 43,210 42,504 24,483 - ------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 17,640 10,386 6,379 - ------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 39
TOTAL BROKERAGE COMMISSIONS - ------------------------------------------------------------------------------------------------------ FUND 2007 2006 2005 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------ Dividend Opportunity $ 576,524 $ 456,446 $ 621,168 - ------------------------------------------------------------------------------------------------------ Real Estate 187,309 152,782 185,877 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------ Cash Management 0 0 0 - ------------------------------------------------------------------------------------------------------ Disciplined Equity 1,577,337 987,624 35,948 - ------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 156,759 8,916(e) N/A - ------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 64,928 33,110(f) N/A - ------------------------------------------------------------------------------------------------------ Floating Rate 0 0(f) N/A - ------------------------------------------------------------------------------------------------------ Growth 12,096,184 10,375,981 15,623,111 - ------------------------------------------------------------------------------------------------------ Income Opportunities 0 0 0 - ------------------------------------------------------------------------------------------------------ Inflation Protected Securities 0 0 0 - ------------------------------------------------------------------------------------------------------ Large Cap Equity 15,040,354 9,944,390 6,832,334 - ------------------------------------------------------------------------------------------------------ Large Cap Value 88,935 138,363 189,029 - ------------------------------------------------------------------------------------------------------ Limited Duration Bond 5,172 4,006 3,268 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------ California Tax-Exempt 4,143 666(g) 0 - ------------------------------------------------------------------------------------------------------ Diversified Bond 91,815 108,055 161,336 - ------------------------------------------------------------------------------------------------------ Minnesota Tax-Exempt 7,293 1,254(g) 0 - ------------------------------------------------------------------------------------------------------ New York Tax-Exempt 1,524 255(g) 0 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------ Balanced 567,773 420,523 1,135,795 - ------------------------------------------------------------------------------------------------------ Disciplined Large Cap Growth 45,978(h) N/A N/A - ------------------------------------------------------------------------------------------------------ Diversified Equity Income 3,790,954 2,923,490 3,191,513 - ------------------------------------------------------------------------------------------------------ Mid Cap Value 1,219,474 1,354,225 919,813 - ------------------------------------------------------------------------------------------------------ Strategic Allocation 1,425,483 638,067 502,448 - ------------------------------------------------------------------------------------------------------ Strategic Income Allocation 6,639(h) N/A N/A - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income 0 0(i) N/A - ------------------------------------------------------------------------------------------------------ Disciplined International Equity 547,910 60,738(j) N/A - ------------------------------------------------------------------------------------------------------ Emerging Markets Bond 0 0(k) N/A - ------------------------------------------------------------------------------------------------------ Global Bond 17,268 9,664 8,856 - ------------------------------------------------------------------------------------------------------ Global Technology 1,027,281 1,237,181 1,170,244 - ------------------------------------------------------------------------------------------------------ Partners International Select Growth 1,932,330 1,265,256 673,010 - ------------------------------------------------------------------------------------------------------ Partners International Select Value 1,426,926 1,533,794 1,027,065 - ------------------------------------------------------------------------------------------------------ Partners International Small Cap 353,096 366,091 241,558 - ------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets 3,361,865 3,017,380 2,388,169 - ------------------------------------------------------------------------------------------------------ Threadneedle European Equity 282,104 160,239 211,729 - ------------------------------------------------------------------------------------------------------ Threadneedle Global Equity 1,474,583 1,249,847 1,393,982 - ------------------------------------------------------------------------------------------------------ Threadneedle International Opportunity 1,150,182 989,118 1,320,088 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 2,175 438 0 - ------------------------------------------------------------------------------------------------------ Mid Cap Growth 2,813,784 1,867,241 1,764,250 - ------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 19,450 4,257 0 - ------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 74,062 17,679 0 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 0 0 0 - ------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 40 (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 Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (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 June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (j) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (k) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. Statement of Additional Information - July 30, 2008 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 2008 2007 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ---------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income(a) $ 0(b) $ 0(b) 19% 27% - ---------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income(a) 0(b) 0(b) 24 27 - ---------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income(a) 0(b) 0(b) 19 29 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 0(b) 0(b) 40 40 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 0(b) 0(b) 29 54 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 0(b) 0(b) 27 24 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 0(b) 0(b) 33 29 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 0(b) 0(b) 31 24 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 0(b) 0(b) 31 27 - ---------------------------------------------------------------------------------------------------------------------- S&P 500 Index 0 0 4 20 - ---------------------------------------------------------------------------------------------------------------------- Small Company Index 0 0 14 11 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ---------------------------------------------------------------------------------------------------------------------- Equity Value 62,307,537 72,239 25 37 - ---------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 84,593,491 36,661 122 119 - ---------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 50,317,759 38,416 241(c) 114 - ---------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 113,545,867 207,170 179 158 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 86,825(d) 53 23(d) N/A - ---------------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity 285,424(d) 242 118(d) N/A - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 0 0 92 80(b),(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 0 0 47 48(b),(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 0 0 50 40(b),(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 0 0 41 37(b),(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 0 0 50 32(b),(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 0 0 44 38(b),(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 0 0 52 33(b),(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 0 0 50 57(b),(e) - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------------------------------- High Yield Bond 0 0 64 95 - ---------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 74,286,129 54,797 141 163 - ---------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 0 0 14 12 - ---------------------------------------------------------------------------------------------------------------------- Partners Select Value 111,988,669 113,732 88 159(f) - ---------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 5,029,719 7,350 106 70 - ---------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 474,998,456 70,029 45 58 - ---------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 0 0 209 168 - ---------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 0 0 354(g) 306(g) - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 42
- ---------------------------------------------------------------------------------------------------------------------- Brokerage directed for research* ------------------------------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2007 2006 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------------------------------- Dividend Opportunity $ 58,801,149 $ 66,674 17% 19 % - ---------------------------------------------------------------------------------------------------------------------- Real Estate 3,614,424 3,275 38 47 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------------------------------- Cash Management 0 0 N/A N/A - ---------------------------------------------------------------------------------------------------------------------- Disciplined Equity 0 0 62 137 - ---------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 0 0 84 14(h) - ---------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 0 0 127 40(i) - ---------------------------------------------------------------------------------------------------------------------- Floating Rate 0 0 91 49(i) - ---------------------------------------------------------------------------------------------------------------------- Growth 762,587,614 1,162,241 98 134 - ---------------------------------------------------------------------------------------------------------------------- Income Opportunities 0 0 122 130 - ---------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 0 76 58 - ---------------------------------------------------------------------------------------------------------------------- Large Cap Equity 1,230,239,400 1,509,554 66 116 - ---------------------------------------------------------------------------------------------------------------------- Large Cap Value 11,935,452 14,090 35 46 - ---------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 0 0 263 328(g) - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------------------------------- California Tax-Exempt(j) 0 0 62 7 - ---------------------------------------------------------------------------------------------------------------------- Diversified Bond 0 0 295 281 - ---------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt(j) 0 0 26 3 - ---------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt(j) 0 0 28 7 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------------------------------- Balanced 15,439,643 25,217 124 126 - ---------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 0(k) 0(k) 21 N/A - ---------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 51,961,586 37,213 31 28 - ---------------------------------------------------------------------------------------------------------------------- Mid Cap Value 46,244,554 41,155 24 44 - ---------------------------------------------------------------------------------------------------------------------- Strategic Allocation 0 0 123 122 - ---------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 0(k) 0(k) 70 N/A - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0 0 36 12(l) - ---------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 0 0 47 10(m) - ---------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 41 32(n) - ---------------------------------------------------------------------------------------------------------------------- Global Bond 0 0 77 68 - ---------------------------------------------------------------------------------------------------------------------- Global Technology 38,452,553 71,776 167 196 - ---------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 90,768,595 168,960 104 124 - ---------------------------------------------------------------------------------------------------------------------- Partners International Select Value 9,101,418 13,795 28 31 - ---------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 0 0 96 157 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 0 125 145 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 0 114 64 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 0 0 100 112 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 0 84 79 - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 43
- ---------------------------------------------------------------------------------------------------------------------- Brokerage directed for research* ------------------------------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2007 2006 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 0 $ 0 53% 35% - ---------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 402,881,968 577,670 87 45 - ---------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 0 0 51 32 - ---------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 0 0 47 30 - ---------------------------------------------------------------------------------------------------------------------- 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 May 18, 2006 (when shares became publicly available) to April 30, 2007. (f) The turnover rate increase from 2006 was the result of a change in subadvisers during the fiscal period. (g) 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. (h) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (i) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (j) 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. (k) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (l) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (m) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (n) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. Statement of Additional Information - July 30, 2008 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 - -------------------------------------------------------------------------------------------------------------------- S&P 500 Index Ameriprise Financial $ 220,963 -------------------------------------------------------------------- Bear Stearns Companies 179,336 -------------------------------------------------------------------- Charles Schwab 359,298 -------------------------------------------------------------------- Citigroup 2,422,094 -------------------------------------------------------------------- E*Trade Financial 39,064 -------------------------------------------------------------------- Franklin Resources 289,238 -------------------------------------------------------------------- Goldman Sachs Group 1,373,469 -------------------------------------------------------------------- JPMorgan Chase & Co. 2,748,913 -------------------------------------------------------------------- Legg Mason 167,760 -------------------------------------------------------------------- Lehman Brothers Holdings 585,487 -------------------------------------------------------------------- Merrill Lynch & Co. 832,746 -------------------------------------------------------------------- Morgan Stanley 903,630 -------------------------------------------------------------------- PNC Financial Services Group 395,885 - -------------------------------------------------------------------------------------------------------------------- Small Company Index Investment Technology Group 2,941,732 -------------------------------------------------------------------- LaBranche & Co. 441,297 -------------------------------------------------------------------- optionsXpress 1,707,068 -------------------------------------------------------------------- Piper Jaffray Companies 1,184,263 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------------------------- Equity Value Citigroup $ 7,790,004 -------------------------------------------------------------------- JPMorgan Chase & Co. 7,116,343 - -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Investment Technology Group 1,107,259 -------------------------------------------------------------------- optionsXpress Holdings 531,170 - -------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining None N/A - -------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Investment Technology Group 507,980 -------------------------------------------------------------------- optionsXpress Holdings 890,530 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 45
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Citigroup $ 757,493 - -------------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity Eaton Vance (short position) (232,777) -------------------------------------------------------------------- Franklin Resources 18,649 -------------------------------------------------------------------- Lehman Brothers Holdings 58,131 -------------------------------------------------------------------- Merrill Lynch & Co. 209,884 -------------------------------------------------------------------- Morgan Stanley 141,426 -------------------------------------------------------------------- PNC Financial Services Group 32,248 - -------------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------------------------- High Yield Bond None N/A - -------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth None N/A - -------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Citigroup 4,183,179 -------------------------------------------------------------------- E*TRADE Financial 234,643 -------------------------------------------------------------------- JPMorgan Chase & Co. 33,857,771 -------------------------------------------------------------------- Merrill Lynch & Co. 4,984,920 -------------------------------------------------------------------- Morgan Stanley 3,640,571 - -------------------------------------------------------------------------------------------------------------------- Partners Select Value None N/A - -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity Eaton Vance 1,570,095 -------------------------------------------------------------------- Knight Capital Group Cl A 65,220 -------------------------------------------------------------------- optionsXpress Holdings 1,281,324 - -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Knight Capital Group Cl A 1,312,597 - -------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government Morgan Stanley Mortgage Loan Trust 3,369,665 - -------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage ChaseFlex Trust 505,036 -------------------------------------------------------------------- Cititgroup/Deutsche Bank Commercial Mtge Trust 2,982,060 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 2,944,373 -------------------------------------------------------------------- GS Mortgage Securities II 883,204 -------------------------------------------------------------------- JPMorgan Mortgage Trust 820,077 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 883,637 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Citigroup 70,149,025 -------------------------------------------------------------------- Goldman Sachs Group 40,014,728 -------------------------------------------------------------------- JPMorgan Chase & Co. 30,705,333 -------------------------------------------------------------------- PNC Financial Services Group 4,844,463 - -------------------------------------------------------------------------------------------------------------------- Real Estate None N/A - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------- Cash Management Bear Stearns Companies $100,000,000 -------------------------------------------------------------------- Citigroup Funding 201,473,973 -------------------------------------------------------------------- Credit Suisse NY 149,000,000 -------------------------------------------------------------------- Goldman Sachs Group 25,000,000 -------------------------------------------------------------------- Lehman Brothers 40,000,000 -------------------------------------------------------------------- Merrill Lynch & Co. 118,000,000 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 46
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- Disciplined Equity Bear Stearns Companies $ 3,879,525 -------------------------------------------------------------------- Citigroup 45,535,774 -------------------------------------------------------------------- Franklin Resources 19,854,945 -------------------------------------------------------------------- Legg Mason 2,387,070 -------------------------------------------------------------------- Lehman Brothers Holdings 20,371,030 -------------------------------------------------------------------- Merrill Lynch & Co. 31,642,070 -------------------------------------------------------------------- Morgan Stanley 18,527,729 - -------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Knight Capital Group Cl A 89,817 - -------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Eaton Vance 456,022 -------------------------------------------------------------------- Knight Capital Group Cl A 328,402 -------------------------------------------------------------------- Raymond James Financial 233,061 - -------------------------------------------------------------------------------------------------------------------- Floating Rate Ameritrade Holding Corp. 738,427 -------------------------------------------------------------------- Lehman Brothers Holdings 998,702 - -------------------------------------------------------------------------------------------------------------------- Growth Goldman Sachs Group 12,504,458 - -------------------------------------------------------------------------------------------------------------------- Income Opportunities None N/A - -------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities None N/A - -------------------------------------------------------------------------------------------------------------------- Large Cap Equity Bear Stearns Companies 2,330,697 -------------------------------------------------------------------- Charles Schwab 2,492,859 -------------------------------------------------------------------- Citigroup 106,570,927 -------------------------------------------------------------------- Franklin Resources 8,476,601 -------------------------------------------------------------------- Goldman Sachs Group 26,394,909 -------------------------------------------------------------------- JPMorgan Chase & Co. 63,976,941 -------------------------------------------------------------------- Lehman Brothers Holdings 25,839,616 -------------------------------------------------------------------- Merrill Lynch & Co. 29,621,901 -------------------------------------------------------------------- Morgan Stanley 30,252,473 -------------------------------------------------------------------- PNC Financial Services Group 10,560,693 - -------------------------------------------------------------------------------------------------------------------- Large Cap Value Citigroup 3,230,654 -------------------------------------------------------------------- Franklin Resources 97,948 -------------------------------------------------------------------- Goldman Sachs Group 277,425 -------------------------------------------------------------------- JPMorgan Chase & Co. 1,855,242 -------------------------------------------------------------------- Lehman Brothers Holdings 969,617 -------------------------------------------------------------------- Merrill Lynch & Co. 896,559 -------------------------------------------------------------------- Morgan Stanley 910,020 -------------------------------------------------------------------- PNC Financial Services Group 323,119 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 47
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- Limited Duration Bond Bear Stearns Adjustable Rate Mortgage Trust $ 336,086 -------------------------------------------------------------------- Bear Stearns Commercial Mortgage Securities 657,725 -------------------------------------------------------------------- ChaseFlex Trust 298,088 -------------------------------------------------------------------- Citigroup 954,800 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 243,047 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 171,454 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 345,484 -------------------------------------------------------------------- CS First Boston Mortgage Securities 599,807 -------------------------------------------------------------------- Goldman Sachs Group 487,995 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 2,601,062 -------------------------------------------------------------------- JPMorgan Chase & Co. 878,139 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 1,509,848 -------------------------------------------------------------------- Lehman Brothers Holdings 1,376,086 -------------------------------------------------------------------- Merrill Lynch & Co. 796,261 -------------------------------------------------------------------- Morgan Stanley 1,480,778 -------------------------------------------------------------------- Morgan Stanley Capital 1 560,613 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- Diversified Bond Bear Stearns Adjustable Rate Mortgage Trust 19,075,663 -------------------------------------------------------------------- Bear Stearns Commercial Mortgage Securities 7,716,075 -------------------------------------------------------------------- Citigroup 13,476,047 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 17,776,577 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 3,011,088 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 10,812,580 -------------------------------------------------------------------- CS First Boston Mortgage Securities 12,942,077 -------------------------------------------------------------------- GS Mortgage Securities II 30,427,394 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 57,292,644 -------------------------------------------------------------------- JPMorgan Chase & Co. 10,280,773 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 44,205,393 -------------------------------------------------------------------- Lehman Brothers Holdings 22,673,032 -------------------------------------------------------------------- Morgan Stanley 10,666,759 -------------------------------------------------------------------- Morgan Stanley Capital 1 18,466,575 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 16,611,510 - -------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt None N/A - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 48
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------- Balanced Bear Stearns Adjustable Rate Mortgage Trust $ 2,496,100 -------------------------------------------------------------------- Bear Stearns Commercial Mortgage Securities 1,691,784 -------------------------------------------------------------------- Bear Stearns Companies 1,085,518 -------------------------------------------------------------------- ChaseFlex Trust 1,218,953 -------------------------------------------------------------------- Citigroup 22,798,902 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 2,222,407 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 373,105 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 2,277,560 -------------------------------------------------------------------- CS First Boston Mortgage Securities 1,532,621 -------------------------------------------------------------------- Franklin Resources 690,285 -------------------------------------------------------------------- Goldman Sachs Group 3,073,590 -------------------------------------------------------------------- GS Mortgage Securities II 3,840,950 -------------------------------------------------------------------- JPMorgan Chase & Co. 13,601,575 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 8,999,129 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 4,585,816 -------------------------------------------------------------------- Lehman Brothers Holdings 10,279,588 -------------------------------------------------------------------- Merrill Lynch & Co. 6,435,372 -------------------------------------------------------------------- Morgan Stanley 5,171,103 -------------------------------------------------------------------- Morgan Stanley Capital 1 2,460,214 -------------------------------------------------------------------- PNC Financial Services Group 2,325,002 - -------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Eaton Vance 188,771 -------------------------------------------------------------------- Franklin Resources 182,070 -------------------------------------------------------------------- Goldman Sachs Group 749,704 -------------------------------------------------------------------- Lehman Brothers Holdings 82,286 -------------------------------------------------------------------- Merrill Lynch & Co. 599,892 -------------------------------------------------------------------- Morgan Stanley 817,425 - -------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Citigroup 217,740,612 -------------------------------------------------------------------- JPMorgan Chase & Co. 55,352,255 - -------------------------------------------------------------------------------------------------------------------- Mid Cap Value None N/A - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 49
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- Strategic Allocation Bear Stearns Commercial Mortgage Securities $ 1,397,521 -------------------------------------------------------------------- Bear Stearns Companies 904,987 -------------------------------------------------------------------- Citigroup 28,526,072 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 2,200,339 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 174,116 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 1,214,049 -------------------------------------------------------------------- CS First Boston Mortgage Securities 1,832,214 -------------------------------------------------------------------- Eaton Vance 820,099 -------------------------------------------------------------------- Franklin Resources 5,384,835 -------------------------------------------------------------------- Goldman Sachs Group 1,481,635 -------------------------------------------------------------------- GS Mortgage Securities II 3,878,742 -------------------------------------------------------------------- JPMorgan Chase & Co. 9,615,770 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 7,866,478 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 4,808,011 -------------------------------------------------------------------- Lehman Brothers Holdings 6,303,744 -------------------------------------------------------------------- Merrill Lynch & Co. 10,556,567 -------------------------------------------------------------------- Morgan Stanley 9,273,978 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,643,239 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 1,963,655 -------------------------------------------------------------------- Raymond James Financial - subsidiary 773,618 - -------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Bear Stearns Adjustable Rate Mortgage Trust 268,001 -------------------------------------------------------------------- Bear Stearns Companies 15,965 -------------------------------------------------------------------- Citigroup 391,364 -------------------------------------------------------------------- Franklin Resources 43,478 -------------------------------------------------------------------- JPMorgan Chase & Co. 62,178 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 1,498,628 -------------------------------------------------------------------- Lehman Brothers Holdings 736,283 -------------------------------------------------------------------- Merrill Lynch & Co. 381,792 -------------------------------------------------------------------- Merrill Lynch Mortgage Trust 487,267 -------------------------------------------------------------------- Morgan Stanley 706,627 -------------------------------------------------------------------- Morgan Stanley Capital 1 350,598 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 981,827 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income Bear Stearns Companies 743,516 -------------------------------------------------------------------- Citigroup 640,449 -------------------------------------------------------------------- Credit Suisse First Boston USA 639,723 -------------------------------------------------------------------- JPMorgan Chase & Co. 649,309 -------------------------------------------------------------------- Lehman Brothers Holdings 636,749 -------------------------------------------------------------------- Merrill Lynch & Co. 638,188 -------------------------------------------------------------------- Morgan Stanley 637,987 -------------------------------------------------------------------- Morgan Stanley Capital 1 479,557 - -------------------------------------------------------------------------------------------------------------------- Disciplined International Equity None N/A - -------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond None N/A - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 50
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- Global Bond Bear Stearns Commercial Mortgage Securities $ 1,429,999 -------------------------------------------------------------------- Citigroup 2,355,362 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 2,844,020 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 1,862,832 -------------------------------------------------------------------- CS First Boston Mortgage Securities 578,806 -------------------------------------------------------------------- GS Mortgage Securities II 4,853,319 -------------------------------------------------------------------- JPMorgan Chase & Co. 1,801,279 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 6,149,812 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 3,104,717 -------------------------------------------------------------------- Lehman Brothers Holdings 1,021,586 -------------------------------------------------------------------- Morgan Stanley Capital 1 2,089,775 - -------------------------------------------------------------------------------------------------------------------- Global Technology None N/A - -------------------------------------------------------------------------------------------------------------------- Partners International Select Growth None N/A - -------------------------------------------------------------------------------------------------------------------- Partners International Select Value Credit Suisse Group 23,856,752 - -------------------------------------------------------------------------------------------------------------------- Partners International Small Cap None N/A - -------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets None N/A - -------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity Credit Suisse Group 2,314,916 - -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Goldman Sachs Group 7,437,600 - -------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity Credit Suisse Group 7,393,430 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- Mid Cap Growth TD AmeriTrade Holding 19,426,498 -------------------------------------------------------------------- Legg Mason 5,533,620 - -------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 51 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 ---------------------------------------------------------------------------------------------- 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- $ 0 $ 0(b) Basic Income(a) - -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- 0 0(b) Enhanced Income(a) - -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- 0 0(b) Moderate Income(a) - -------------------------------------------------------------------------------------------------------------------------- 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 $3,919 0.67% 1.57% 0 0 Securities - -------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage None -- -- -- -- 0 0 - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 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 APRIL 30 - -------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity None(c) -- -- -- -- N/A N/A - -------------------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity None(c) -- -- -- -- N/A N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 None -- -- -- -- 0(d) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 None -- -- -- -- 0(d) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 None -- -- -- -- 0(d) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 None -- -- -- -- 0(d) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 None -- -- -- -- 0(d) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 None -- -- -- -- 0(d) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 None -- -- -- -- 0(d) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 None -- -- -- -- 0(d) N/A - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------------------------------- High Yield Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth JPMorgan 2 $3,532 0.41% 0.26% $ 23 $ 57* Securities, Inc. - -------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners Select Value Gabelli & 3 0 -- -- 7,352 14,216 Co. - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity JPMorgan 2 0 -- -- 568 0 Securities, Inc. - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Goldman 4 0 -- -- 0 1,821 Sachs & Co. - -------------------------------------------------------------------------------------------------------------------------- Short Duration None -- -- -- -- 0 0 U.S. Government - -------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- 2007 2006 2005 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 5 0 -- -- 0 20,898* AEIS - -------------------------------------------------------------------------------------------------------------------------- Real Estate None -- -- -- -- 0 0 - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 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 ---------------------------------------------------------------------------------------------- 2007 2006 2005 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------- Cash Management None -- -- -- -- $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Equity None 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small and None -- -- -- -- 0(e) N/A Mid Cap Equity - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small None -- -- -- -- 0(f) N/A Cap Value - -------------------------------------------------------------------------------------------------------------------------- Floating Rate None -- -- -- -- 0(f) N/A - -------------------------------------------------------------------------------------------------------------------------- Growth AEIS 5 $ 0 -- -- 0 13,720* - -------------------------------------------------------------------------------------------------------------------------- Income Opportunities None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Inflation Protected None -- -- -- -- 0 0 Securities - -------------------------------------------------------------------------------------------------------------------------- Large Cap Equity AEIS 5 0 -- -- 0 10,214* - -------------------------------------------------------------------------------------------------------------------------- Large Cap Value AEIS 5 0 -- -- 0 276* - -------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None -- -- -- -- 0(g) 0 - -------------------------------------------------------------------------------------------------------------------------- Diversified Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None -- -- -- -- 0(g) 0 - -------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt None -- -- -- -- 0(g) 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Balanced None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap None(h) -- -- -- -- N/A N/A Growth - -------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income AEIS 5 0 -- -- 0 1,716* - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Value None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Strategic Allocation None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Strategic Income None(h) -- -- -- -- N/A N/A Allocation - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency None -- -- -- -- 0(i) N/A and Income - -------------------------------------------------------------------------------------------------------------------------- Disciplined International None -- -- -- -- 0(j) N/A Equity - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond None -- -- -- -- 0(k) N/A - -------------------------------------------------------------------------------------------------------------------------- Global Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Global Technology None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners International JPMorgan 2 N/A -- -- 8,149 9,426 Select Growth Securities, Inc. - -------------------------------------------------------------------------------------------------------------------------- Partners International Sanford C. 6 N/A -- -- N/A 8,829 Select Value Bernstein & Co. LLC - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 54
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 ---------------------------------------------------------------------------------------------- 2007 2006 2005 - -------------------------------------------------------------------------------------------------------------------------- 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 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 - --------------------------------------------------------------------------------------------------------------------------
* Represents brokerage clearing fees. (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 Goldman Sachs Asset Management, L.P., a subadviser. (5) American Enterprise Investment Services, Inc., a wholly-owned subsidiary of Ameriprise Financial. (6) 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 Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (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 June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (j) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (k) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. Statement of Additional Information - July 30, 2008 Page 55 VALUING FUND SHARES As of the end of the most recent fiscal period, the computation of net asset value was based on net assets divided by 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. 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 $ 260,429,297 25,367,943 $10.27 Class B 42,117,652 4,110,203 10.25 Class C 11,684,994 1,139,130 10.26 Class R4 33,711 3,280 10.28 - ----------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Class A 289,093,384 28,752,778 10.05 Class B 36,666,708 3,651,072 10.04 Class C 13,056,618 1,299,870 10.04 Class R4 55,237 5,493 10.06 - ----------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Class A 545,269,841 53,399,353 10.21 Class B 73,301,557 7,195,090 10.19 Class C 21,218,944 2,080,819 10.20 Class R4 21,460 2,099 10.22 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Class A 428,863,881 40,981,066 10.46 Class B 94,959,883 9,151,829 10.38 Class C 15,158,381 1,467,345 10.33 Class R4 109,641 10,459 10.48 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative Class A 111,050,506 10,944,200 10.15 Class B 40,525,206 4,007,079 10.11 Class C 7,615,936 752,365 10.12 Class R4 24,165 2,404 10.05 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Class A 746,273,942 71,375,697 10.46 Class B 198,087,358 19,035,309 10.41 Class C 35,786,145 3,436,396 10.41 Class R4 105,073 10,056 10.45 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive Class A 880,751,474 84,013,338 10.48 Class B 199,150,000 19,086,670 10.43 Class C 33,117,113 3,176,161 10.43 Class R4 805,861 76,784 10.50 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative Class A 259,699,591 25,258,910 10.28 Class B 76,117,681 7,428,267 10.25 Class C 16,243,377 1,584,479 10.25 Class R4 43,228 4,223 10.24 - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity Class A 384,378,038 36,516,756 10.53 Class B 84,629,230 8,106,594 10.44 Class C 13,707,051 1,319,026 10.39 Class R4 163,576 15,480 10.57 - ----------------------------------------------------------------------------------------------------------------- S&P 500 Index Class D 48,008,764 9,795,616 4.90 Class E 165,140,821 33,546,373 4.92 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 56
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Small Company Index Class A $ 586,659,489 94,820,115 $ 6.19 Class B 127,171,036 24,046,223 5.29 Class R4 7,807,582 1,227,239 6.36 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ----------------------------------------------------------------------------------------------------------------- Equity Value Class A 862,727,060 72,058,965 11.97 Class B 120,949,564 10,071,167 12.01 Class C 5,338,784 448,976 11.89 Class I 12,824 1,070 11.99 Class R2 4,482 374 11.98 Class R3 138,368 11,549 11.98 Class R4 12,091,559 1,009,050 11.98 Class R5 4,482 374 11.98 Class W 4,551 380 11.98 - ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Class A 85,394,093 21,986,547 3.88 Class B 29,411,794 8,128,195 3.62 Class C 3,421,880 945,054 3.62 Class I 51,476,161 12,858,908 4.00 Class R2 3,727 951 3.92 Class R3 3,743 951 3.94 Class R4 99,565 25,269 3.94 Class R5 3,757 951 3.95 - ----------------------------------------------------------------------------------------------------------------- Precious Metals and Mining Class A 114,874,726 9,640,748 11.92 Class B 18,946,175 1,733,817 10.93 Class C 2,372,836 220,757 10.75 Class I 11,952 989 12.08 Class R4 126,163 10,436 12.09 - ----------------------------------------------------------------------------------------------------------------- Small Cap Advantage Class A 230,690,809 57,253,295 4.03 Class B 56,041,681 15,694,536 3.57 Class C 4,766,747 1,332,984 3.58 Class I 6,231 1,484 4.20 Class R2 2,791 679 4.11 Class R3 2,800 679 4.12 Class R4 78,656 18,896 4.16 Class R5 2,814 679 4.14 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ----------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Class A 36,243,211 2,101,033 17.25 Class B 2,370,747 137,839 17.20 Class C 735,615 42,785 17.19 Class I 8,604,172 498,000 17.28 Class R5 8,637 500 17.27 - ----------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity Class A 9,789,375 573,839 17.06 Class B 763,466 44,922 17.00 Class C 313,988 18,463 17.01 Class I 8,504,909 498,000 17.08 Class R5 8,538 500 17.08 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 57
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 Class A $ 3,817,259 401,351 $ 9.51 Class R2 4,456 468 9.52 Class R3 4,457 468 9.52 Class R4 4,457 468 9.52 Class R5 4,456 468 9.52 Class Y 12,474,568 1,310,311 9.52 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 Class A 6,249,844 643,613 9.71 Class R2 4,522 465 9.72 Class R3 4,526 465 9.73 Class R4 4,531 465 9.74 Class R5 4,528 465 9.74 Class Y 23,422,088 2,406,288 9.73 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 Class A 3,300,828 343,364 9.61 Class R2 4,475 464 9.64 Class R3 4,479 464 9.65 Class R4 4,484 464 9.66 Class R5 4,483 464 9.66 Class Y 28,545,670 2,958,924 9.65 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 Class A 2,654,172 275,106 9.65 Class R2 4,509 466 9.68 Class R3 4,509 466 9.68 Class R4 4,508 465 9.69 Class R5 4,508 465 9.69 Class Y 32,457,897 3,352,142 9.68 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 Class A 3,045,696 313,665 9.71 Class R2 4,515 464 9.73 Class R3 4,525 464 9.75 Class R4 4,523 464 9.75 Class R5 4,522 464 9.75 Class Y 29,048,235 2,981,594 9.74 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 Class A 1,525,615 158,788 9.61 Class R2 4,496 467 9.63 Class R3 4,500 467 9.64 Class R4 4,505 467 9.65 Class R5 4,501 467 9.64 Class Y 19,849,186 2,059,793 9.64 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 Class A 1,439,574 151,317 9.51 Class R2 4,428 464 9.54 Class R3 4,433 464 9.55 Class R4 4,438 464 9.56 Class R5 4,433 464 9.55 Class Y 11,851,951 1,241,451 9.55 - ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 Class A 1,255,728 130,258 9.64 Class R2 4,500 466 9.66 Class R3 4,503 466 9.66 Class R4 4,507 466 9.67 Class R5 4,505 466 9.67 Class Y 9,024,069 933,476 9.67 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 58
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ----------------------------------------------------------------------------------------------------------------- High Yield Bond Class A $1,133,624,554 414,428,945 $ 2.74 Class B 173,554,717 63,456,498 2.74 Class C 18,643,745 6,860,137 2.72 Class I 72,462,449 26,516,567 2.73 Class R2 8,713 3,175 2.74 Class R3 4,652 1,695 2.74 Class R4 919,275 336,077 2.74 Class R5 4,640 1,695 2.74 Class W 22,509,875 8,291,217 2.71 - ----------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth Class A 397,989,258 37,586,201 10.59 Class B 80,526,824 7,903,728 10.19 Class C 3,063,824 300,672 10.19 Class I 142,475,018 13,230,406 10.77 Class R2 98,864 9,311 10.62 Class R3 6,106 572 10.67 Class R4 194,176 18,142 10.70 Class R5 6,131 572 10.72 - ----------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Class A 648,273,411 107,013,817 6.06 Class B 161,959,464 27,725,640 5.84 Class C 15,456,453 2,634,236 5.87 Class I 158,842,048 25,935,802 6.12 Class R4 756,584 123,925 6.11 - ----------------------------------------------------------------------------------------------------------------- Partners Select Value Class A 322,819,045 66,170,721 4.88 Class B 76,607,986 16,502,135 4.64 Class C 6,664,913 1,436,484 4.64 Class I 20,062,162 4,037,490 4.97 Class R4 79,781 16,172 4.93 - ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity Class A 196,047,618 36,467,629 5.38 Class B 25,634,234 5,074,867 5.05 Class C 2,237,185 443,555 5.04 Class I 9,369 1,724 5.43 Class R4 3,201,957 586,546 5.46 - ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Class A 365,495,630 77,217,068 4.73 Class B 128,472,761 28,915,951 4.44 Class C 10,463,204 2,349,002 4.45 Class I 15,384,753 3,159,844 4.87 Class R2 234,161 49,214 4.76 Class R3 5,675 1,183 4.80 Class R4 248,829 51,701 4.81 Class R5 9,191,753 1,907,742 4.82 - ----------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government Class A 539,251,179 113,827,935 4.74 Class B 158,544,398 33,462,620 4.74 Class C 9,625,747 2,031,863 4.74 Class I 92,658,581 19,540,682 4.74 Class R4 4,755,371 1,003,265 4.74 Class W 4,986 1,053 4.74 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 59
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Class A $ 95,365,293 19,102,220 $ 4.99 Class B 33,665,806 6,741,320 4.99 Class C 4,185,697 838,003 4.99 Class I 221,547,618 44,419,486 4.99 Class R4 42,429,496 8,505,084 4.99 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ----------------------------------------------------------------------------------------------------------------- Dividend Opportunity Class A 1,452,870,794 150,496,501 9.65 Class B 303,235,001 31,632,609 9.59 Class C 25,821,807 2,697,582 9.57 Class I 241,944,888 25,013,097 9.67 Class R4 1,327,869 137,249 9.67 Class W 5,493 568 9.67 - ----------------------------------------------------------------------------------------------------------------- Real Estate Class A 146,543,348 9,256,921 15.83 Class B 29,348,848 1,867,016 15.72 Class C 2,336,410 148,656 15.72 Class I 94,663,945 5,966,761 15.87 Class R4 189,682 12,014 15.79 Class W 4,340 275 15.78 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------------------- Cash Management Class A 4,662,135,661 4,661,926,326 1.00 Class B 75,691,552 75,887,752 1.00 Class C 3,601,400 3,602,252 1.00 Class I 49,244,173 49,241,684 1.00 Class R5 4,999 5,000 1.00 Class W 120,154,895 120,156,352 1.00 Class Y 43,544,377 43,630,241 1.00 - ----------------------------------------------------------------------------------------------------------------- Disciplined Equity Class A 1,410,073,147 195,317,511 7.22 Class B 62,090,519 8,724,783 7.12 Class C 3,322,979 467,585 7.11 Class I 441,406,784 60,689,061 7.27 Class R2 4,763 661 7.21 Class R3 4,770 661 7.22 Class R4 157,584,051 21,739,173 7.25 Class R5 4,783 661 7.24 Class W 744,887,615 103,164,030 7.22 - ----------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Class A 18,372,667 1,924,399 9.55 Class B 1,365,013 144,191 9.47 Class C 183,734 19,407 9.47 Class I 38,785,276 4,051,418 9.57 Class R4 15,157 1,586 9.56 Class W 57,063,032 5,979,419 9.54 - ----------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Class A 13,618,506 1,361,629 10.00 Class B 551,233 55,679 9.90 Class C 46,126 4,657 9.90 Class I 25,166,988 2,509,791 10.03 Class R2 4,536 455 9.97 Class R3 4,544 455 9.99 Class R4 10,004 1,000 10.00 Class R5 4,557 455 10.02 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 60
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Floating Rate Class A $ 426,098,639 43,927,296 $ 9.70 Class B 48,127,927 4,961,642 9.70 Class C 23,742,707 2,447,587 9.70 Class I 186,030,163 19,185,525 9.70 Class R4 294,089 30,330 9.70 Class W 4,822 497 9.70 - ----------------------------------------------------------------------------------------------------------------- Growth Class A 2,392,774,288 73,100,079 32.73 Class B 369,487,313 12,401,019 29.79 Class C 20,332,352 682,923 29.77 Class I 298,304,650 8,893,003 33.54 Class R2 5,135 155 33.13 Class R3 5,143 155 33.18 Class R4 145,831,935 4,373,779 33.34 Class R5 5,159 155 33.28 Class W 5,214 157 33.21 - ----------------------------------------------------------------------------------------------------------------- Income Opportunities Class A 177,438,822 17,763,829 9.99 Class B 43,356,468 4,342,532 9.98 Class C 4,788,510 479,660 9.98 Class I 85,512,402 8,550,686 10.00 Class R4 152,957 15,307 9.99 - ----------------------------------------------------------------------------------------------------------------- Inflation Protected Securities Class A 65,959,818 6,807,001 9.69 Class B 16,143,740 1,666,752 9.69 Class C 1,784,275 184,194 9.69 Class I 310,160,205 32,014,702 9.69 Class R4 9,661 1,000 9.66 Class W 4,932 509 9.69 - ----------------------------------------------------------------------------------------------------------------- Large Cap Equity Class A 5,038,950,020 833,522,641 6.05 Class B 833,234,754 140,889,101 5.91 Class C 31,622,901 5,341,167 5.92 Class I 67,937,053 11,159,673 6.09 Class R2 5,001 822 6.08 Class R3 5,009 822 6.09 Class R4 330,120,266 53,887,010 6.13 Class R5 25,375,778 4,153,053 6.11 - ----------------------------------------------------------------------------------------------------------------- Large Cap Value Class A 62,421,177 10,928,420 5.71 Class B 15,116,287 2,672,256 5.66 Class C 1,041,705 184,547 5.64 Class I 16,865,439 2,934,662 5.75 Class R2 4,345 763 5.69 Class R3 4,352 763 5.70 Class R4 37,830 6,589 5.74 Class R5 4,364 763 5.72 - ----------------------------------------------------------------------------------------------------------------- Limited Duration Bond Class A 61,546,982 6,425,229 9.58 Class B 9,671,171 1,009,974 9.58 Class C 1,598,714 167,013 9.57 Class I 78,906,235 8,234,187 9.58 Class R4 9,580 1,000 9.58 Class W 4,907 512 9.58
Statement of Additional Information - July 30, 2008 Page 61
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------------------- California Tax-Exempt Class A $ 164,203,362 32,628,583 $ 5.03 Class B 6,098,994 1,212,728 5.03 Class C 1,892,236 375,541 5.04 - ----------------------------------------------------------------------------------------------------------------- Diversified Bond Class A 1,936,988,090 402,638,195 4.81 Class B 303,507,236 63,093,643 4.81 Class C 16,840,412 3,499,861 4.81 Class I 386,010,354 80,134,097 4.82 Class R2 4,993 1,040 4.80 Class R3 4,993 1,040 4.80 Class R4 77,835,688 16,200,659 4.80 Class R5 4,993 1,040 4.80 Class W 223,104,264 46,359,028 4.81 - ----------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt Class A 287,817,910 55,944,378 5.14 Class B 19,653,652 3,819,066 5.15 Class C 7,032,169 1,366,714 5.15 - ----------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Class A 58,346,141 11,846,759 4.93 Class B 4,552,447 924,299 4.93 Class C 792,261 160,882 4.92 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------- Balanced Class A 928,530,399 80,993,116 11.46 Class B 51,600,913 4,530,330 11.39 Class C 5,095,786 447,856 11.38 Class R4 66,243,594 5,777,310 11.47 - ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Class A 4,279,021 413,231 10.36 Class B 326,632 31,617 10.33 Class C 31,221 3,023 10.33 Class I 76,002,552 7,326,008 10.37 Class R2 10,341 1,000 10.34 Class R3 10,351 1,000 10.35 Class R4 10,361 1,000 10.36 Class R5 10,371 1,000 10.37 - ----------------------------------------------------------------------------------------------------------------- Diversified Equity Income Class A 6,501,873,578 453,432,458 14.34 Class B 1,113,206,377 77,559,340 14.35 Class C 113,516,275 7,925,624 14.32 Class I 131,741,947 9,192,333 14.33 Class R2 30,353 2,118 14.33 Class R3 118,360,158 8,262,415 14.33 Class R4 209,638,131 14,606,415 14.35 Class R5 9,908,675 690,653 14.35 Class W 5,179 361 14.35 - ----------------------------------------------------------------------------------------------------------------- Mid Cap Value Class A 2,025,925,988 199,669,660 10.15 Class B 306,040,101 31,110,273 9.84 Class C 41,928,292 4,260,232 9.84 Class I 29,272,035 2,842,058 10.30 Class R2 286,713 28,176 10.18 Class R3 1,378,297 135,282 10.19 Class R4 157,136,066 15,373,885 10.22 Class R5 11,647 1,138 10.23 Class W 5,162 506 10.20 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 62
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Strategic Allocation Class A $1,871,507,235 150,019,394 $12.48 Class B 243,036,227 19,659,018 12.36 Class C 66,994,896 5,441,062 12.31 Class I 5,413 434 12.47 Class R2 5,412 434 12.47 Class R3 5,412 434 12.47 Class R4 16,864,439 1,351,237 12.48 Class R5 5,413 434 12.47 - ----------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Class A 111,724,275 11,351,342 9.84 Class B 7,178,608 729,232 9.84 Class C 2,293,610 233,160 9.84 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income Class A 8,851,115 836,275 10.58 Class B 10,579 1,000 10.58 Class C 220,172 20,826 10.57 Class I 121,969,554 11,515,491 10.59 Class R4 39,493 3,733 10.58 Class R5 9,975 942 10.59 Class W 5,225 494 10.58 - ----------------------------------------------------------------------------------------------------------------- Disciplined International Equity Class A 24,837,580 1,902,011 13.06 Class B 3,157,442 244,323 12.92 Class C 429,891 33,261 12.92 Class I 194,854,106 14,868,382 13.11 Class R4 67,798 5,187 13.07 Class W 425,588,491 32,615,585 13.05 - ----------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Class A 4,674,402 442,408 10.57 Class B 1,147,001 108,670 10.55 Class C 169,420 16,069 10.54 Class I 147,109,195 13,923,740 10.57 Class R4 16,211 1,535 10.56 Class W 37,920,838 3,593,104 10.55 - ----------------------------------------------------------------------------------------------------------------- Global Bond Class A 258,702,627 37,571,540 6.89 Class B 46,947,863 6,745,575 6.96 Class C 2,541,238 367,669 6.91 Class I 157,401,057 22,911,568 6.87 Class R4 112,309 16,311 6.89 Class W 54,191,186 7,877,974 6.88 - ----------------------------------------------------------------------------------------------------------------- Global Technology Class A 138,622,786 45,570,117 3.04 Class B 42,629,517 16,336,743 2.61 Class C 4,011,851 1,532,650 2.62 Class I 18,312 5,882 3.11 Class R4 170,593 55,549 3.07 - ----------------------------------------------------------------------------------------------------------------- Partners International Select Growth Class A 417,563,101 39,611,599 10.54 Class B 75,005,561 7,389,114 10.15 Class C 6,676,027 658,369 10.14 Class I 267,435,627 25,036,721 10.68 Class R4 1,477,368 139,275 10.61 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 63
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Partners International Select Value Class A $2,032,189,431 167,447,483 $12.14 Class B 394,630,501 33,755,932 11.69 Class C 37,691,348 3,232,845 11.66 Class I 196,111,461 15,945,372 12.30 Class R4 2,167,486 177,221 12.23 - ----------------------------------------------------------------------------------------------------------------- Partners International Small Cap Class A 91,276,459 8,872,852 10.29 Class B 19,354,835 1,942,949 9.96 Class C 1,416,525 142,107 9.97 Class I 26,099,152 2,507,090 10.41 Class R4 167,116 16,136 10.36 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Class A 661,299,345 44,103,831 14.99 Class B 93,786,732 6,829,153 13.73 Class C 7,684,286 557,662 13.78 Class I 55,502,715 3,609,584 15.38 Class R4 2,303,639 150,378 15.32 - ----------------------------------------------------------------------------------------------------------------- Threadneedle European Equity Class A 114,599,774 16,783,815 6.83 Class B 30,143,346 4,481,982 6.73 Class C 2,137,525 318,334 6.71 Class I 19,591 2,865 6.84 Class R4 45,251 6,611 6.84 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Class A 736,862,352 76,651,956 9.61 Class B 103,845,698 11,509,285 9.02 Class C 8,245,080 922,827 8.93 Class R2 6,099 634 9.62 Class R3 6,115 634 9.65 Class R4 9,828,003 1,013,137 9.70 Class R5 6,141 634 9.69 Class W 6,170 639 9.66 - ----------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity Class A 519,709,972 43,914,825 11.83 Class B 72,155,141 6,271,965 11.50 Class C 3,848,136 337,985 11.39 Class I 130,555,776 10,908,936 11.97 Class R2 5,943 496 11.98 Class R3 5,956 496 12.01 Class R4 476,566 39,523 12.06 Class R5 5,982 496 12.06 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ----------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Class A 64,505,264 12,354,119 5.22 Class B 6,781,519 1,299,956 5.22 Class C 2,813,599 539,303 5.22 - ----------------------------------------------------------------------------------------------------------------- Mid Cap Growth Class A 851,757,317 69,144,794 12.32 Class B 136,717,100 12,727,934 10.74 Class C 6,698,934 623,776 10.74 Class I 53,521,078 4,198,962 12.75 Class R4 7,258,132 577,163 12.58 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond Class A 682,528,518 180,120,461 3.79 Class B 26,464,663 6,984,267 3.79 Class C 4,745,241 1,251,775 3.79
Statement of Additional Information - July 30, 2008 Page 64
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income Class A $2,581,740,475 599,871,661 $ 4.30 Class B 79,940,264 18,578,815 4.30 Class C 13,358,573 3,102,677 4.31 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 142,410,486 142,465,323 1.00 - -----------------------------------------------------------------------------------------------------------------
FOR FUNDS OTHER THAN MONEY MARKET FUNDS. In determining net assets before shareholder transactions, 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 NYSE. - 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 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 Statement of Additional Information - July 30, 2008 Page 65 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. 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 holdings information on a selective basis, and the investment manager does not intend to selectively disclose holdings information 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 generally made available through the website, marketing communications (including printed advertisements and sales literature), and/or telephone customer service centers that support the fund. This holdings information is generally as of a month-end and is not released until it is at least fifteen (15) days old. 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., 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 (Institutional Shareholder Services), 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 Statement of Additional Information - July 30, 2008 Page 66 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, Lehman Brothers Holdings, 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, 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 Statement of Additional Information - July 30, 2008 Page 67 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. - 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. Statement of Additional Information - July 30, 2008 Page 68 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 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 RiverSource funds may invest in shares of other RiverSource 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 RiverSource 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, 2008 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 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* AS A PERCENTAGE OF: - --------------------------------------------------------------------------------- PUBLIC PUBLIC OFFERING NET AMOUNT OFFERING NET AMOUNT TOTAL MARKET VALUE PRICE** INVESTED PRICE** 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*** 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* AS A PERCENTAGE OF SALES CHARGE* AS A PUBLIC OFFERING PERCENTAGE OF TOTAL MARKET VALUE PRICE** 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*** 0.00% 0.00% - -----------------------------------------------------------------------------------------
* 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. ** Purchase price includes the sales charge. *** 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 institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. 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. Statement of Additional Information - July 30, 2008 Page 70 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 $10.27 0.9525 $10.78 - ---------------------------------------------------------------------------------------------- Income Builder Enhanced Income 10.05 0.9525 10.55 - ---------------------------------------------------------------------------------------------- Income Builder Moderate Income 10.21 0.9525 10.72 - ---------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 10.46 0.9425 11.10 - ---------------------------------------------------------------------------------------------- Portfolio Builder Conservative 10.15 0.9525 10.66 - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate 10.46 0.9425 11.10 - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 10.48 0.9425 11.12 - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 10.28 0.9525 10.79 - ---------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 10.53 0.9425 11.17 - ---------------------------------------------------------------------------------------------- S&P 500 Index (for Class D) 4.90 No sales charge 4.90 - ---------------------------------------------------------------------------------------------- Small Company Index 6.19 0.9425 6.57 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ---------------------------------------------------------------------------------------------- Equity Value 11.97 0.9425 12.70 - ---------------------------------------------------------------------------------------------- Partners Small Cap Growth 3.88 0.9425 4.12 - ---------------------------------------------------------------------------------------------- Precious Metals and Mining 11.92 0.9425 12.65 - ---------------------------------------------------------------------------------------------- Small Cap Advantage 4.03 0.9425 4.28 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 17.25 0.9425 18.30 - ---------------------------------------------------------------------------------------------- 130/30 U.S. Equity 17.06 0.9425 18.10 - ---------------------------------------------------------------------------------------------- Retirement Plus 2010 9.51 0.9425 10.09 - ---------------------------------------------------------------------------------------------- Retirement Plus 2015 9.71 0.9425 10.30 - ---------------------------------------------------------------------------------------------- Retirement Plus 2020 9.61 0.9425 10.20 - ---------------------------------------------------------------------------------------------- Retirement Plus 2025 9.65 0.9425 10.24 - ---------------------------------------------------------------------------------------------- Retirement Plus 2030 9.71 0.9425 10.30 - ---------------------------------------------------------------------------------------------- Retirement Plus 2035 9.61 0.9425 10.20 - ---------------------------------------------------------------------------------------------- Retirement Plus 2040 9.51 0.9425 10.09 - ---------------------------------------------------------------------------------------------- Retirement Plus 2045 9.64 0.9425 10.23 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------- High Yield Bond 2.74 0.9525 2.88 - ---------------------------------------------------------------------------------------------- Partners Aggressive Growth 10.59 0.9425 11.24 - ---------------------------------------------------------------------------------------------- Partners Fundamental Value 6.06 0.9425 6.43 - ---------------------------------------------------------------------------------------------- Partners Select Value 4.88 0.9425 5.18 - ---------------------------------------------------------------------------------------------- Partners Small Cap Equity 5.38 0.9425 5.71 - ---------------------------------------------------------------------------------------------- Partners Small Cap Value 4.73 0.9425 5.02 - ---------------------------------------------------------------------------------------------- Short Duration U.S. Government 4.74 0.9700 4.89 - ---------------------------------------------------------------------------------------------- U.S. Government Mortgage 4.99 0.9525 5.24 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------- Dividend Opportunity 9.65 0.9425 10.24 - ---------------------------------------------------------------------------------------------- Real Estate 15.83 0.9425 16.80 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------- Cash Management 1.00 No sales charge 1.00 - ---------------------------------------------------------------------------------------------- Disciplined Equity 7.22 0.9425 7.66 - ---------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 9.55 0.9425 10.13 - ----------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 71
PUBLIC NET ASSET 1.0 MINUS MAXIMUM OFFERING FUND VALUE SALES CHARGE PRICE - ---------------------------------------------------------------------------------------------- Disciplined Small Cap Value $10.00 0.9425 $10.61 - ---------------------------------------------------------------------------------------------- Floating Rate 9.70 0.9525 10.18 - ---------------------------------------------------------------------------------------------- Growth 32.73 0.9425 34.73 - ---------------------------------------------------------------------------------------------- Income Opportunities 9.99 0.9525 10.49 - ---------------------------------------------------------------------------------------------- Inflation Protected Securities 9.69 0.9525 10.17 - ---------------------------------------------------------------------------------------------- Large Cap Equity 6.05 0.9425 6.42 - ---------------------------------------------------------------------------------------------- Large Cap Value 5.71 0.9425 6.06 - ---------------------------------------------------------------------------------------------- Limited Duration Bond 9.58 0.9525 10.06 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------- California Tax-Exempt 5.03 0.9525 5.28 - ---------------------------------------------------------------------------------------------- Diversified Bond 4.81 0.9525 5.05 - ---------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 5.14 0.9525 5.40 - ---------------------------------------------------------------------------------------------- New York Tax-Exempt 4.93 0.9525 5.18 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------- Balanced 11.46 0.9425 12.16 - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 10.36 0.9425 10.99 - ---------------------------------------------------------------------------------------------- Diversified Equity Income 14.34 0.9425 15.21 - ---------------------------------------------------------------------------------------------- Mid Cap Value 10.15 0.9425 10.77 - ---------------------------------------------------------------------------------------------- Strategic Allocation 12.48 0.9425 13.24 - ---------------------------------------------------------------------------------------------- Strategic Income Allocation 9.84 0.9525 10.33 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------- Absolute Return Currency and Income 10.58 0.9700 10.91 - ---------------------------------------------------------------------------------------------- Disciplined International Equity 13.06 0.9425 13.86 - ---------------------------------------------------------------------------------------------- Emerging Markets Bond 10.57 0.9525 11.10 - ---------------------------------------------------------------------------------------------- Global Bond 6.89 0.9525 7.23 - ---------------------------------------------------------------------------------------------- Global Technology 3.04 0.9425 3.23 - ---------------------------------------------------------------------------------------------- Partners International Select Growth 10.54 0.9425 11.18 - ---------------------------------------------------------------------------------------------- Partners International Select Value 12.14 0.9425 12.88 - ---------------------------------------------------------------------------------------------- Partners International Small Cap 10.29 0.9425 10.92 - ---------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 14.99 0.9425 15.90 - ---------------------------------------------------------------------------------------------- Threadneedle European Equity 6.83 0.9425 7.25 - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity 9.61 0.9425 10.20 - ---------------------------------------------------------------------------------------------- Threadneedle International Opportunity 11.83 0.9425 12.55 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 5.22 0.9525 5.48 - ---------------------------------------------------------------------------------------------- Mid Cap Growth 12.32 0.9425 13.07 - ---------------------------------------------------------------------------------------------- Tax-Exempt Bond 3.79 0.9525 3.98 - ---------------------------------------------------------------------------------------------- Tax-Exempt High Income 4.30 0.9525 4.51 - ---------------------------------------------------------------------------------------------- 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 for 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 in your LOI. For example, a shareholder currently has $60,000 ROA in RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares in order to fulfill Statement of Additional Information - July 30, 2008 Page 72 the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Your investments will be charged the sales charge that applies to the amount you have committed to invest under the LOI. Five percent of the commitment amount will be placed in escrow. The LOI will remain in effect for the entire 13 months, even if you reach your commitment amount. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. Once the LOI has ended, future sales charges will be determined by ROA or the total value of the new investment combined with the market value of the existing RiverSource fund investments as described in the prospectus. If you do not invest the commitment amount by the end of the 13 months, 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 RiverSource funds other than Class A; does not include any new reinvested dividends and directed dividends earned in any RiverSource funds during the 13-month period; purchases in RiverSource funds held within a wrap product; and purchases of RiverSource Cash Management Fund and RiverSource Tax- Exempt Money Market Fund unless they are subsequently exchanged to Class A shares of a RiverSource 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 B SHARES Class B shares have a CDSC for six years. For Class B shares purchased prior to May 21, 2005, those shares will convert to Class A shares in the ninth calendar year of ownership. For Class B shares purchased beginning May 21, 2005, those shares will convert to Class A shares one month after the eighth year of ownership. 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. 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 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. Statement of Additional Information - July 30, 2008 Page 73 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. REJECTION OF BUSINESS Each fund and RiverSource Distributors, Inc. 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. Each fund has elected to be governed by Rule 18f-1 under the 1940 Act, which obligates the 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 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 fund as determined by the Board. In these circumstances, the securities distributed would be valued as set forth in this SAI. Should a 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. Statement of Additional Information - July 30, 2008 Page 74 To start any of these plans, please consult your financial institution. 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. 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 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 JANUARY 31 - -------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 870,491 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- S&P 500 Index(a) 1,885,594 -- -- 1,885,594 -- -- - -------------------------------------------------------------------------------------------------------------------------- Small Company Index 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------------------------------- Equity Value 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 6,394,289 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 4,849,573 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 37,352,005 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- 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 JANUARY 31 - --------------------------------------------------------------------------------------------------------- Income Builder Basic Income -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income -- -- -- -- 870,491 - --------------------------------------------------------------------------------------------------------- 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(a) -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Small Company Index -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - --------------------------------------------------------------------------------------------------------- Equity Value -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Partners Small Cap Growth -- -- -- -- 6,394,289 - --------------------------------------------------------------------------------------------------------- Precious Metals and Mining -- -- -- -- 4,849,573 - --------------------------------------------------------------------------------------------------------- Small Cap Advantage -- -- -- -- 37,352,005 - ---------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 75
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 APRIL 30 - -------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity $ 1,239,657 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity 349,118 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 103,637 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------------------------------- High Yield Bond 1,376,549,063 0 226,001,198 517,121,802 552,664,309 0 - -------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 1,129,815,010 0 763,613,904 315,348,051 23,741,111 27,111,944 - -------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Partners Select Value 15,718,808 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 20,350,484 0 0 14,147,440 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 5,425,972 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 183,673,285 0 117,356,906 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 210,465 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 398,074,003 0 0 0 398,074,003 0 - -------------------------------------------------------------------------------------------------------------------------- Real Estate 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------- Cash Management 6,554 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 121,627 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Floating Rate 1,918,822 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Growth 284,278,656 0 0 0 284,278,656 0 - -------------------------------------------------------------------------------------------------------------------------- Income Opportunities 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 3,973,349 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 158,388,854 51,243,861 70,190,395 24,231,893 12,722,705 0 - -------------------------------------------------------------------------------------------------------------------------- Large Cap Value 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 3,394,837 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 APRIL 30 - --------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 0 0 0 0 1,239,657 - --------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity 0 0 0 0 349,118 - --------------------------------------------------------------------------------------------------------- Retirement Plus 2010 -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Retirement Plus 2015 -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Retirement Plus 2020 -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Retirement Plus 2025 -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Retirement Plus 2030 -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Retirement Plus 2035 -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Retirement Plus 2040 0 0 0 0 103,637 - --------------------------------------------------------------------------------------------------------- Retirement Plus 2045 -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - --------------------------------------------------------------------------------------------------------- High Yield Bond 0 19,078,058 0 6,050,907 55,632,789 - --------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 0 0 0 0 0 - --------------------------------------------------------------------------------------------------------- Partners Fundamental Value -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Partners Select Value 0 0 0 0 15,718,808 - --------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 0 0 0 0 6,203,044 - --------------------------------------------------------------------------------------------------------- Partners Small Cap Value 0 0 0 0 5,425,972 - --------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 36,267,962 20,469,230 9,579,187 0 0 - --------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 0 0 0 0 210,465 - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - --------------------------------------------------------------------------------------------------------- Dividend Opportunity 0 0 0 0 - --------------------------------------------------------------------------------------------------------- Real Estate -- -- -- -- - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - --------------------------------------------------------------------------------------------------------- Cash Management 0 0 0 6,554 - --------------------------------------------------------------------------------------------------------- Disciplined Equity -- -- -- -- - --------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 0 93,125 21,904 6,598 - --------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value -- -- -- -- - --------------------------------------------------------------------------------------------------------- Floating Rate 0 0 33,562 1,885,260 - --------------------------------------------------------------------------------------------------------- Growth 0 0 0 0 - --------------------------------------------------------------------------------------------------------- Income Opportunities -- -- -- -- - --------------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 0 2,136,395 1,836,954 - --------------------------------------------------------------------------------------------------------- Large Cap Equity 0 0 0 0 - --------------------------------------------------------------------------------------------------------- Large Cap Value -- -- -- -- - --------------------------------------------------------------------------------------------------------- Limited Duration Bond 0 388,116 2,946,394 60,327 - ---------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 76
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 AUGUST 31 - -------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt $ 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Diversified Bond 154,484,363 0 75,831,798 49,658,521 0 5,227,159 - -------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 2,437,360 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Balanced 695,010,276 0 757,502 300,688,916 368,676,980 24,886,878 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 245,720 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 27,193 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Global Bond 4,163,824 0 0 3,665,053 0 0 - -------------------------------------------------------------------------------------------------------------------------- Global Technology 331,644,553 0 250,345,326 81,299,227 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Partners International Select Value 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 41,025,111 0 19,489,378 16,514,518 5,021,215 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 344,634,903 0 170,490,067 143,634,885 30,509,951 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 234,796,830 0 137,301,860 59,231,998 38,262,972 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 177,579 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 729,269 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 22,784 166 0 18,332 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 AUGUST 31 - --------------------------------------------------------------------------------------------------------- California Tax-Exempt -- -- -- -- - --------------------------------------------------------------------------------------------------------- Diversified Bond 0 12,836,807 0 10,930,078 - --------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 993,611 913,006 -- 530,743 - --------------------------------------------------------------------------------------------------------- New York Tax-Exempt -- -- -- -- - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - --------------------------------------------------------------------------------------------------------- Balanced 0 0 0 0 - --------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 0 0 245,720 0 - --------------------------------------------------------------------------------------------------------- Diversified Equity Income -- -- -- -- - --------------------------------------------------------------------------------------------------------- Mid Cap Value -- -- -- -- - --------------------------------------------------------------------------------------------------------- Strategic Allocation -- -- -- -- - --------------------------------------------------------------------------------------------------------- Strategic Income Allocation 0 0 27,193 0 - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income -- -- -- -- - --------------------------------------------------------------------------------------------------------- Disciplined International Equity -- -- -- -- - --------------------------------------------------------------------------------------------------------- Emerging Markets Bond -- -- -- -- - --------------------------------------------------------------------------------------------------------- Global Bond 0 498,771 0 0 - --------------------------------------------------------------------------------------------------------- Global Technology 0 0 0 0 - --------------------------------------------------------------------------------------------------------- Partners International Select Growth -- -- -- -- - --------------------------------------------------------------------------------------------------------- Partners International Select Value -- -- -- -- - --------------------------------------------------------------------------------------------------------- Partners International Small Cap -- -- -- -- - --------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets -- -- -- -- - --------------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 0 0 0 - --------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 0 0 0 0 - --------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 0 0 0 - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - --------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 0 177,579 0 0 - --------------------------------------------------------------------------------------------------------- Mid Cap Growth -- -- -- -- - --------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 0 729,269 0 0 - --------------------------------------------------------------------------------------------------------- Tax-Exempt High Income -- -- -- -- - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - --------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 4,286 0 0 0 - ---------------------------------------------------------------------------------------------------------
(a) The fund also had recognized built-in losses of $3,602,230 at Jan. 31, 2008, that if not offset by capital gains, will expire as follows: $41,050 in 2012, $3,259,225 in 2013, $235,890 in 2014 and $66,065 in 2015. Statement of Additional Information - July 30, 2008 Page 77 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 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 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 without a dividends paid deduction. Also, "all of" a shareholder's distributions would become ordinary dividends (or could be treated as a return of capital, if there weren't sufficient earnings and profits). 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. Statement of Additional Information - July 30, 2008 Page 78 EXCHANGES 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). 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 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 received should be treated as dividend 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 as shown in the following table. Only certain qualified dividend income (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). Statement of Additional Information - July 30, 2008 Page 79 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(a) 13.76% 16.17% - -------------------------------------------------------------------------------------------------- Income Builder Enhanced Income(a) 12.60 16.13 - -------------------------------------------------------------------------------------------------- Income Builder Moderate Income(a) 16.31 19.46 - -------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 26.29 37.78 - -------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 6.13 8.87 - -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 13.84 20.15 - -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 20.05 29.14 - -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 10.92 15.29 - -------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 36.08 52.38 - -------------------------------------------------------------------------------------------------- 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 7.42 7.52 - -------------------------------------------------------------------------------------------------- Precious Metals and Mining 1.58 7.77 - -------------------------------------------------------------------------------------------------- Small Cap Advantage 21.98 23.84 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 0 0 - -------------------------------------------------------------------------------------------------- 130/30 U.S. Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Retirement Plus 2010 23.79 26.60 - -------------------------------------------------------------------------------------------------- Retirement Plus 2015 29.19 33.29 - -------------------------------------------------------------------------------------------------- Retirement Plus 2020 31.05 36.77 - -------------------------------------------------------------------------------------------------- Retirement Plus 2025 35.39 42.66 - -------------------------------------------------------------------------------------------------- Retirement Plus 2030 38.20 46.35 - -------------------------------------------------------------------------------------------------- Retirement Plus 2035 37.21 44.99 - -------------------------------------------------------------------------------------------------- Retirement Plus 2040 36.10 43.63 - -------------------------------------------------------------------------------------------------- Retirement Plus 2045 33.06 39.67 - -------------------------------------------------------------------------------------------------- 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 28.75 30.44 - -------------------------------------------------------------------------------------------------- Partners Small Cap Equity 0 0 - -------------------------------------------------------------------------------------------------- Partners Small Cap Value 53.50 83.57 - -------------------------------------------------------------------------------------------------- Short Duration U.S. Government 0 0 - -------------------------------------------------------------------------------------------------- U.S. Government Mortgage 0 0 - --------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 80
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------- Dividend Opportunity 99.84 100.00 - -------------------------------------------------------------------------------------------------- Real Estate 1.61 3.93 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------- Cash Management 0 0 - -------------------------------------------------------------------------------------------------- Disciplined Equity 25.90 26.15 - -------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 18.44 18.71 - -------------------------------------------------------------------------------------------------- Floating Rate 0 0 - -------------------------------------------------------------------------------------------------- Growth 100.00 100.00 - -------------------------------------------------------------------------------------------------- Income Opportunities 0 0 - -------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 0 - -------------------------------------------------------------------------------------------------- Large Cap Equity 48.37% 51.53% - -------------------------------------------------------------------------------------------------- Large Cap Value 79.11 85.37 - -------------------------------------------------------------------------------------------------- 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 58.30 62.48 - -------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 0 0 - -------------------------------------------------------------------------------------------------- Diversified Equity Income 100.00 100.00 - -------------------------------------------------------------------------------------------------- Mid Cap Value 65.46 80.61 - -------------------------------------------------------------------------------------------------- Strategic Allocation 53.06 87.46 - -------------------------------------------------------------------------------------------------- Strategic Income Allocation 4.92 4.92 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0 0 - -------------------------------------------------------------------------------------------------- Disciplined International Equity 0.26 78.89 - -------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 - -------------------------------------------------------------------------------------------------- Global Bond 0 0 - -------------------------------------------------------------------------------------------------- Global Technology 0 0 - -------------------------------------------------------------------------------------------------- Partners International Select Growth 0 23.04 - -------------------------------------------------------------------------------------------------- Partners International Select Value 0 100.00 - -------------------------------------------------------------------------------------------------- Partners International Small Cap 0 50.58 - -------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 12.81 - -------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 100.00 - -------------------------------------------------------------------------------------------------- Threadneedle Global Equity 59.61 100.00 - -------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 100.00 - --------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 81
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 0 0 - -------------------------------------------------------------------------------------------------- Mid Cap Growth 0 0 - -------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. The information shown is for the period from June 1, 2007 through Jan. 31, 2008. CAPITAL GAINS DISTRIBUTIONS Capital gain distributions, if any, received by shareholders 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. 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 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 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. 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. Statement of Additional Information - July 30, 2008 Page 82 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% 130/30 U.S. Equity Next 0.25 0.930 Next 0.50 0.910 Over 1.0 0.890 - ------------------------------------------------------------------------------------------------------------------------------ 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 0.529 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, 2008 Page 83
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 - 0.577% Disciplined Large Cap Growth Next 1.0 0.575 Disciplined Large Cap Growth - 0.600 Diversified Equity Income Next 1.0 0.550 Diversified Equity Income - 0.535 Growth Next 3.0 0.525 Growth - 0.571 Large Cap Equity Next 1.5 0.500 Large Cap Equity - 0.547 Large Cap Value Next 2.5 0.485 Large Cap Value - 0.600 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 - ------------------------------------------------------------------------------------------------------------------------------ Disciplined International Equity First 0.25 0.800 Disciplined International Equity - 0.779 Threadneedle European Equity Next 0.25 0.775 Threadneedle European Equity - 0.800 Threadneedle Global Equity Next 0.25 0.750 Threadneedle Global Equity - 0.769 Threadneedle International Opportunity Next 0.25 0.725 Threadneedle International Opportunity - 0.748 Next 1.0 0.700 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 - 0.699 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 - 0.455 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, 2008 Page 84
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% 0.578% 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 - 0.706 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 0.517 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, 2008 Page 85
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% 0.583% 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(a) N/A N/A N/A Income Builder Enhanced Income(a) Income Builder Moderate Income(a) 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, 2008 Page 86
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% 0.679% 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 0.885 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 0.718 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 0.974 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 0.817 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, 2008 Page 87
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 0.955 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 - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage First 0.25 0.790 0.786 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 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 88
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------ Small Company Index First $0.25 0.360% 0.350% 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 0.554 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 0.448 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, 2008 Page 89
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 1.077 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 - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. The information shown is as of Jan. 31, 2008. 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 (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. Statement of Additional Information - July 30, 2008 Page 90 TABLE 14. PIA INDEXES
FEE INCREASE OR FUND PIA INDEX (DECREASE) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING MARCH 31 - ---------------------------------------------------------------------------------------------- Equity Value Lipper Large-Cap Value Funds $ 615,240 - ---------------------------------------------------------------------------------------------- Partners Small Cap Growth Lipper Small-Cap Growth Funds 58,432 - ---------------------------------------------------------------------------------------------- Precious Metals and Mining Lipper Gold Funds (79,535) - ---------------------------------------------------------------------------------------------- Small Cap Advantage Lipper Small-Cap Core Funds (641,110) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING APRIL 30 - ---------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Russell 3000 Index N/A* - ---------------------------------------------------------------------------------------------- 130/30 U.S. Equity Russell 1000 Index N/A* - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING MAY 31 - ---------------------------------------------------------------------------------------------- Partners Aggressive Growth Lipper Mid-Cap Growth Funds 491,209 - ---------------------------------------------------------------------------------------------- Partners Fundamental Value Lipper Large-Cap Core Funds(a) 219,383 - ---------------------------------------------------------------------------------------------- Partners Select Value Lipper Mid-Cap Value Funds(b) 465,782 - ---------------------------------------------------------------------------------------------- Partners Small Cap Equity Lipper Small-Cap Core Funds (75,993) - ---------------------------------------------------------------------------------------------- Partners Small Cap Value Lipper Small-Cap Value Funds (289,756) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING JUNE 30 - ---------------------------------------------------------------------------------------------- Dividend Opportunity Lipper Equity Income Funds 1,238,194 - ---------------------------------------------------------------------------------------------- Real Estate Lipper Real Estate Funds 155,486 - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING JULY 31 - ---------------------------------------------------------------------------------------------- Disciplined Equity Lipper Large-Cap Core Funds 716,428 - ---------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Lipper Mid-Cap Core Funds (17,062) - ---------------------------------------------------------------------------------------------- Disciplined Small Cap Value Lipper Small-Cap Value Funds (13,668) - ---------------------------------------------------------------------------------------------- Growth Lipper Large-Cap Growth Funds 2,987,141 - ---------------------------------------------------------------------------------------------- Large Cap Equity Lipper Large-Cap Core Funds 788,515 - ---------------------------------------------------------------------------------------------- Large Cap Value Lipper Large-Cap Value Funds (3,332) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------- Balanced Lipper Balanced Funds 520,967 - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Lipper Large-Cap Growth Funds 0(c) - ---------------------------------------------------------------------------------------------- Diversified Equity Income Lipper Equity Income Funds 1,134,237 - ---------------------------------------------------------------------------------------------- Mid Cap Value Lipper Mid-Cap Value Funds 578,014 - ---------------------------------------------------------------------------------------------- Strategic Allocation Lipper Flexible Portfolio Funds 929,457 - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------- Lipper International Large-Cap Core Disciplined International Equity Funds 86,560 - ---------------------------------------------------------------------------------------------- Global Technology Lipper Science and Technology Funds 172,062 - ---------------------------------------------------------------------------------------------- Lipper International Multi-Cap Partners International Select Growth Growth Funds (30,833) - ---------------------------------------------------------------------------------------------- Lipper International Multi-Cap Value Partners International Select Value Funds 296,140 - ---------------------------------------------------------------------------------------------- Partners International Small Cap Lipper International Small-Cap Funds 18,317 - ---------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Lipper Emerging Markets Funds 197,327 - ---------------------------------------------------------------------------------------------- Threadneedle European Equity Lipper European Funds (106,381) - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Lipper Global Funds 29,844 - ---------------------------------------------------------------------------------------------- Lipper International Large-Cap Core Threadneedle International Opportunity Funds 421,640 - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------- Mid Cap Growth Lipper Mid-Cap Growth Funds (1,678,023) - ----------------------------------------------------------------------------------------------
* See section titled "Transition Period" below. (a) The index against which the fund's performance was measured prior to Jan. 1, 2008 was the Lipper Large-Cap Value Funds Index. See "Change in Index" below. Statement of Additional Information - July 30, 2008 Page 91 (b) The index against which the fund's performance was measured prior to Jan. 1, 2008 was the Lipper Multi-Cap Value Funds Index. See "Change in Index" below. (c) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. FOR ALL FUNDS NOTED IN TABLE 14 EXCEPT 120/20 CONTRARIAN EQUITY AND 130/30 U.S. EQUITY: 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 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 - --------------------------------------------------------------------------------------------------------
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 Index, the fee paid to the investment manager will increase. Where the performance of the 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 an 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 Statement of Additional Information - July 30, 2008 Page 92 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 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. FOR 120/20 CONTRARIAN EQUITY AND 130/30 U.S. EQUITY: 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 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
- ----------------------------------------------------------------------------------------- PERFORMANCE DIFFERENCE ADJUSTMENT RATE - ----------------------------------------------------------------------------------------- 0.00% - 1.00% 0 - ----------------------------------------------------------------------------------------- 1.00% - 6.00% 10 basis points times the performance difference over 1.00%, times 100 (maximum 50 basis points if a 6% performance difference) - ----------------------------------------------------------------------------------------- 6.00% or more 50 basis points - -----------------------------------------------------------------------------------------
For example, if the Performance Difference 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 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 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 an 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: (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 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. Statement of Additional Information - July 30, 2008 Page 93 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 2008 2007 2006 2008 2007 2006 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income(a) N/A N/A N/A $ 103,636 $ 145,971 $ 3,184(b) - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income(a) N/A N/A N/A 134,546 153,282 6,657(b) - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income(a) N/A N/A N/A 129,062 202,410 7,419(b) - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive N/A N/A* $ 204,941 168,942 209,004 154,484 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative N/A N/A* 71,579 96,147 134,788 117,318 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A* 342,180 247,980 246,216 251,538 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive N/A N/A* 418,633 247,472 355,360 269,480 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative N/A N/A* 137,483 117,533 140,615 144,243 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A* 165,740 173,675 188,843 122,935 - ---------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index $ 579,548 $ 566,109 706,270 (254,777) (272,996) (357,906) - ---------------------------------------------------------------------------------------------------------------------------------- Small Company Index 3,292,392 3,889,499 4,419,815 (1,007,306) (662,392) 471,768 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ---------------------------------------------------------------------------------------------------------------------------------- Equity Value 6,797,853 6,969,436 7,043,854 413,170 361,720 400,520 - ---------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 1,887,518 2,066,992 1,878,991 99,186 111,014 343,335 - ---------------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 956,280 876,127 579,779 175,405 144,337 207,159 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 2,903,208 4,703,119 5,845,601 (383,991) (252,816) 510,707 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 159,311(c) N/A N/A 21,297(c) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity 81,732(c) N/A N/A 60,972(c) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A 41 4,075(d) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A N/A 310 3,927(d) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A 745 6,231(d) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A N/A 332 4,478(d) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A 431 2,766(d) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A N/A 487 878(d) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A (796) 2,640(d) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A N/A (2,131) (2,522)(d) N/A - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------------------------------------------- High Yield Bond 9,610,810 11,401,845 12,713,321 665,785 481,606 688,374 - ---------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 5,729,264 4,627,106 1,950,153 (786,490) (1,047,823) (167,264) - ---------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 7,668,633 7,530,722 7,971,622 (213,176) (215,041) 501,862 - ---------------------------------------------------------------------------------------------------------------------------------- Partners Select Value 4,388,735 4,807,861 5,211,061 (142,897) (162,440) 330,794 - ---------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 2,441,742 2,964,236 2,525,974 (539,268) (464,274) (134,739) - ---------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 6,511,571 9,159,989 9,285,758 (972,781) (878,605) 735,477 - ---------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 3,816,196 4,419,003 6,683,201 (771,512) (1,025,939) (1,688,300) - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 1,958,404 1,348,887 1,327,433 (389,262) (438,473) (549,885) - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 94
- ---------------------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES - ---------------------------------------------------------------------------------------------------------------------------------- FUND 2007 2006 2005 2007 2006 2005 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity $10,678,661 $ 7,688,134 $ 6,201,403 $ 540,349 $ 480,473 $ 453,329 - ---------------------------------------------------------------------------------------------------------------------------------- Real Estate 2,299,121 1,398,778 725,491 207,925 153,244 133,564 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Cash Management 12,713,351 10,801,723 12,052,160 859,062 (1,747,535) 1,220,672 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 14,110,274 5,175,451 408,720 (202,920) (83,131) 130,016 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 273,481 13,335(e) N/A 91,799 4,577(e) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 206,071 49,035(f) N/A 37,535 9,684(f) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Floating Rate 3,332,472 412,667(f) N/A 151,486 19,402(f) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Growth 22,705,786 19,922,079 18,968,320 954,358 1,214,759 1,217,404 - ---------------------------------------------------------------------------------------------------------------------------------- Income Opportunities 2,116,555 2,229,460 1,954,757 187,627 198,512 214,865 - ---------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 1,313,892 1,078,635 552,220 (126,032) (45,905) 28,432 - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 39,667,264 20,724,477 9,680,873 1,168,504 682,652 161,534 - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Value 602,406 715,200 803,736 184,710 186,504 293,194 - ---------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 726,809 990,881 960,788 (73,339) (96,959) 57,170 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 717,999 1,008,174(g) 1,010,591 20,854 (8,449)(g) 116,440 - ---------------------------------------------------------------------------------------------------------------------------------- Diversified Bond 12,770,016 12,388,294 13,003,467 (1,129,485) (1,870,049) (1,032,114) - ---------------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 1,351,439 1,898,065(g) 1,895,714 676,782 599,362(g),(h) 580,040(h) - ---------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 279,438 402,241(g) 434,449 134,099 133,306(g),(h) 146,336(h) - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------------- Balanced 6,315,077 5,690,832 7,169,932 368,447 563,493 651,610 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 114,048(i) N/A N/A 54,709(i) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 42,530,087 37,321,661 24,183,415 1,561,033 1,761,776 1,530,714 - ---------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 15,908,732 11,459,838 5,816,781 826,273 728,841 531,095 - ---------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 11,025,000 7,064,937 5,960,581 921,198 665,164 642,432 - ---------------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 168,875(i) N/A N/A 76,656(i) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 887,341 176,149(j) N/A 103,119 28,907(j) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 2,161,563 147,388(k) N/A 358,005 48,716(k) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 706,943 191,237(l) N/A 120,044 77,772(l) N/A - ---------------------------------------------------------------------------------------------------------------------------------- Global Bond 3,438,893 3,734,676 4,359,713 (17,529) (159,716) 408,133 - ---------------------------------------------------------------------------------------------------------------------------------- Global Technology 1,412,081 1,327,883 1,574,791 187,390 249,939 282,889 - ---------------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 6,048,963 4,039,162 3,119,859 672,542 530,707 384,996 - ---------------------------------------------------------------------------------------------------------------------------------- Partners International Select Value 20,067,871 15,936,398 10,340,380 1,286,758 990,734 812,998 - ---------------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 1,270,558 1,050,011 933,818 208,621 246,920 333,478 - ---------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 7,106,815 5,659,680 3,801,760 1,190,259 745,246 636,569 - ---------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 952,484 821,750 837,577 199,237 182,061 224,833 - ---------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 6,075,014 5,791,016 4,471,632 577,463 517,920 485,178 - ---------------------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 4,923,040 4,840,788 3,988,205 545,663 505,513 566,027 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 95
- ---------------------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES - ---------------------------------------------------------------------------------------------------------------------------------- FUND 2007 2006 2005 2007 2006 2005 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 321,011 $ 435,316 $ 644,499 $ (4,565) $ (25,206) $ 67,781 - ---------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 6,373,531 9,852,112 10,413,718 241,412 670,574 901,194 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 3,157,092 3,345,629 3,066,023 (8,650) 905,255 661,982(m) - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 13,006,578 15,027,647 17,998,361 (847,490) 8,025,340 7,139,120(m) - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 406,763 390,170 423,253 32,730 118,441 116,613 - ----------------------------------------------------------------------------------------------------------------------------------
* 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 Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (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. For years prior to 2006, the fiscal period ended June 30. (h) During 2006, the Fund changed the method of accounting for its participation in inverse floater structures. Previously, nonadvisory expenses for fiscal year end 2006 and 2005 were reported as $(68,320) and $161,536 for Minnesota Tax-Exempt Fund and $(21,864) and $54,945 for New York Tax-Exempt Fund, respectively. (i) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (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) During 2006, the Fund changed the method of accounting for its participation in inverse floater structures. Previously, nonadvisory expenses for fiscal year end 2005 were reported as $136,155 for Tax- Exempt Bond Fund and $308,271 for Tax- Exempt High Income Fund. MANAGER OF MANAGERS EXEMPTION The RiverSource 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, Massachusetts Tax-Exempt, Michigan Tax- Exempt, Minnesota Tax-Exempt, New York Tax-Exempt, Ohio 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. 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 Statement of Additional Information - July 30, 2008 Page 96 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 Growth Essex Investment Management Company, LLC B 0.70% on the first $20 million, reducing to (effective Sept. 23, 2005) 0.60% as assets increase ------------------------------------------------------------------------------------------------------ Federated MDTA, LLC (MDTA)(c) (effective C 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) - --------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Kenwood Capital Management LLC A 0.60% on the first $100 million, (Kenwood)(a), (c) reducing to 0.45% as assets increase, and (effective May 4, 1999) subject to a performance incentive adjustment(b) - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - --------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive American Century Investment D 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), (c) 0.25% as assets increase (effective June 18, 2001) - --------------------------------------------------------------------------------------------------------------------------------- Partners Select Value Systematic Financial Management, E 0.50% on the first $50 million, L.P. (Systematic)(c) 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)(c) reducing to 0.30% as assets (effective Sept. 29, 2006) increase - --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity American Century D 0.65% on the first $25 million, reducing to (effective Dec. 12, 2003) 0.55% as assets increase ------------------------------------------------------------------------------------------------------ Jennison Associates LLC (Jennison) F 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 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 97
PARENT FUND SUBADVISER COMPANY FEE SCHEDULE - --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Barrow, Hanley, Mewhinney & G 1.00% on the first $10 million, Strauss (BHMS)(c) 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)(c) reducing to 0.55% as assets (effective March 12, 2004) increase ------------------------------------------------------------------------------------------------------ MDTA(c) C 0.60% on the first $75 million, reducing to (effective June 6, 2008) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Metropolitan West Capital Management, LLC I 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. K 0.70% on the first $100 million, reducing to Select Growth (Columbia WAM) (effective Sept. 5, 2001) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Principal Global Investors, LLC N/A 0.55% on the first $100 million, reducing to (Principal) (effective April 24, 2006) 0.42% 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) - --------------------------------------------------------------------------------------------------------------------------------- Partners International AIG Global Investment Corp. (AIGGIC) L 0.75% on the first $100 million, reducing to Small Cap (effective April 24, 2006) 0.70% as assets increase ------------------------------------------------------------------------------------------------------ Batterymarch Financial Management, Inc. M 0.75% on the first $100 million, reducing to (Batterymarch) (effective April 24, 2006) 0.70% as assets increase - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Threadneedle International Limited(a) J 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(d) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Threadneedle(a) J 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(d) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(a) J 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(d) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Threadneedle(a) J 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(d) - ---------------------------------------------------------------------------------------------------------------------------------
(a) 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. Kenwood is an affiliate of the investment manager as an indirect partially- owned subsidiary of Ameriprise Financial. Threadneedle is an affiliate of the investment manager as an indirect wholly-owned subsidiary of Ameriprise Financial. (b) The adjustment will increase or decrease based on the performance of the subadviser's allocated portion of the fund compared to the performance of the Russell 2000 Index, up to a maximum adjustment of 12 basis points (0.12%). (c) The fee is calculated based on the combined net assets subject to the subadviser's investment management. (d) 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 one-half 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. The performance incentive adjustment was effective Dec. 1, 2004. Statement of Additional Information - July 30, 2008 Page 98 A - Kenwood is an indirect partially-owned subsidiary of Ameriprise Financial. B - Essex is majority owned by Affiliated Managers Group. C - Federated MDTA LLC is an indirect subsidiary of Federated Investors, Inc. D - American Century Investment Management, Inc. is a direct, wholly-owned subsidiary of American Century Companies, Inc. E - Systematic is an affiliate of Affiliated Managers Group. F - 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. G - BHMS is an independent-operating subsidiary of Old Mutual Asset Management. H - Franklin Portfolio Associates is an indirect wholly-owned subsidiary of The Bank of New York Mellon Corporation. I - MetWest Capital is a majority-owned subsidiary of Evergreen Investments and Wachovia Corporation. J - Threadneedle is an indirect wholly-owned subsidiary of Ameriprise Financial. K - 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. L - AIGGIC is an indirect wholly-owned subsidiary of American International Group, Inc. (AIG). M - Batterymarch is a wholly-owned, independent subsidiary of Legg Mason, Inc. 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 2008 2007 2006 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Essex $ 257,999 $ 281,295 $ 120,556(a) Growth -------------------------------------------------------------------------------------------- MDTA 397,581 411,034 165,110(a) -------------------------------------------------------------------------------------------- Turner 241,810 265,516 321,406 -------------------------------------------------------------------------------------------- UBS 293,079 342,871 371,341 -------------------------------------------------------------------------------------------- Former Subadviser: Bjurman, Barry & Associates N/A N/A 175,818(b) (from Aug. 18, 2003 to Sept. 23, 2005) -------------------------------------------------------------------------------------------- Former Subadviser: RS Investment Management, L.P. N/A N/A 257,675(b) (from Jan. 24, 2001 to Sept. 23, 2005) - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage Kenwood 2,318,621 3,180,483 2,856,138 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------ Partners Aggressive Growth American Century 1,438,912 1,321,245 512,880 -------------------------------------------------------------------------------------------- Turner 1,310,040 1,304,994 525,422 - ------------------------------------------------------------------------------------------------------------------------------ Partners Fundamental Value Davis 3,220,929 3,673,544 3,787,565 - ------------------------------------------------------------------------------------------------------------------------------ Partners Select Value Systematic 1,025,272 753,292(c) N/A -------------------------------------------------------------------------------------------- WEDGE 981,822 776,260(c) N/A -------------------------------------------------------------------------------------------- Former subadviser: GAMCO Asset Management Inc. N/A 786,466(d) 2,763,925 (from inception to September 28, 2006) - ------------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Equity American Century 506,417 662,396 457,181 -------------------------------------------------------------------------------------------- Jennison 107,599(e) N/A N/A -------------------------------------------------------------------------------------------- Lord Abbett 583,123 677,462 433,231 -------------------------------------------------------------------------------------------- Former Subadviser: Wellington Management Company, 362,413(f) 650,960 614,053* LLP (from Dec. 12, 2003 to Feb. 22, 2008) - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 99
SUBADVISORY FEES PAID --------------------------------------- FUND SUBADVISER 2008 2007 2006 - ------------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Value BHMS $ 865,372 $ 970,241 $1,008,072 -------------------------------------------------------------------------------------------- Donald Smith 984,692 1,180,183 1,242,221 -------------------------------------------------------------------------------------------- MDTA N/A(g) N/A N/A -------------------------------------------------------------------------------------------- MetWest Capital 955,503 1,769,553 225,545(h) -------------------------------------------------------------------------------------------- Former subadviser: Franklin Portfolio Associates 964,510 1,198,029 1,289,120 (from March 2004 to June 6, 2008) -------------------------------------------------------------------------------------------- Former subadviser: Royce & Associates, LLC N/A N/A 1,395,487(i) (from inception to April 24, 2006) -------------------------------------------------------------------------------------------- Former subadviser: Goldman Sachs Asset Management, N/A 38,601(j) 1,312,424(i) L.P. (from Aug. 2002 to April 24, 2006) - ------------------------------------------------------------------------------------------------------------------------------ 2007 2006 2005 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------ Partners International Columbia WAM 1,568,158 1,264,808 985,095 Select Growth -------------------------------------------------------------------------------------------- Principal 1,760,150 632,882(k) N/A -------------------------------------------------------------------------------------------- Former subadviser: American Century Global N/A 821,124(l) 959,879 Investment Management** (from Jan. 2005 to April 24, 2006) - ------------------------------------------------------------------------------------------------------------------------------ Partners International AllianceBernstein 7,962,307 6,022,579 4,126,134 Select Value - ------------------------------------------------------------------------------------------------------------------------------ Partners International Small Cap AIGGIC 425,696 201,650(k) N/A -------------------------------------------------------------------------------------------- Batterymarch 439,593 205,659(k) N/A -------------------------------------------------------------------------------------------- Former subadviser: Templeton Investment Counsel, N/A 226,154(l) 317,358 LLC (Franklin Templeton) (from Oct. 3, 2002 to April 24, 2006) -------------------------------------------------------------------------------------------- Former subadviser: Wellington Management Company, N/A 243,185(l) 331,593 LLP together with its affiliate Wellington Management International Ltd (from Oct. 3, 2002 to April 24, 2006) - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets Threadneedle 2,728,720 2,170,719 1,556,386 - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle European Equity Threadneedle 406,594 356,308 432,362 - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity Threadneedle 2,408,387 2,358,731 1,621,159 - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle International Threadneedle 1,895,712 1,948,352 1,720,351 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 Sept. 23, 2005 to March 31, 2006. (b) For the fiscal period from April 1, 2005 to Sept. 23, 2005. (c) For the fiscal period from Sept. 29, 2006 to May 31, 2007. (d) For the fiscal period from June 1, 2006 to Sept. 28, 2006. (e) For the fiscal period from Feb. 22, 2008 to May 31, 2008. (f) For the fiscal period from June 1, 2007 to Feb. 22, 2008. (g) The subadviser did not begin managing the fund until after the fund's fiscal year end. (h) For the fiscal period from April 24, 2006 to May 31, 2006. (i) For the fiscal period from June 1, 2005 to April 24, 2006. (j) Payments made to subadviser in accordance with termination agreement. (k) For the fiscal period from April 24, 2006 to Oct. 31, 2006. (l) For the fiscal period from Nov. 1, 2005 to April 24, 2006. Statement of Additional Information - July 30, 2008 Page 100 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 Basic Dimitris Bertsimas 18 RICs $7.44 billion 7 RICs ($6.2 B) None Income 3 PIVs $67.07 million 15 other accounts $3.03 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $1.85 billion None None (9) (28) - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Dimitris Bertsimas 18 RICs $7.42 billion 7 RICs ($6.2 B) None Enhanced Income 3 PIVs $67.07 million 15 other accounts $3.03 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $1.82 billion None None (9) (28) - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Dimitris Bertsimas 18 RICs $7.12 billion 7 RICs ($6.2 B) $100,001 - Moderate Income 3 PIVs $67.07 million $500,000 15 other accounts $3.03 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $1.52 billion None $100,001 - (9) (28) $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene(b) $50,001 - Aggressive $100,000 -------------------- ---------- David M. Joy 5 RICs $3.09 billion None None (1) (27) -------------------- ---------- Michelle M. None Keeley(c) -------------------- ---------- William F. None Truscott(c) - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $50,001 - Conservative $100,000 -------------------- ---------- David M. Joy 5 RICs $3.47 billion None None (1) (27) -------------------- ---------- Michelle M. Keeley None -------------------- ---------- William F. Truscott None - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $50,001 - Moderate $100,000 -------------------- ---------- David M. Joy 5 RICs $2.65 billion None None (1) (27) -------------------- ---------- Michelle M. Keeley $100,001 - $500,000 -------------------- ---------- William F. Truscott None - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $10,001 - Moderate Aggressive $50,000 -------------------- ---------- David M. Joy 5 RICs $2.51 billion None $100,001 - (1) (27) $500,000 -------------------- ---------- Michelle M. Keeley None -------------------- ---------- William F. Truscott $50,001 - $100,000 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $10,001 - Moderate $50,000 Conservative -------------------- ---------- David M. Joy 5 RICs $3.27 billion None None (1) (27) -------------------- ---------- Michelle M. Keeley None -------------------- ---------- William F. Truscott None - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $10,001 - Total Equity $50,000 -------------------- ---------- David M. Joy 5 RICs $3.14 billion None None (1) (27) -------------------- ---------- Michelle M. Keeley None -------------------- ---------- William F. Truscott None - ----------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index David Factor 2 RICs $1.07 billion None None (2) (28) 2 PIVs $1.42 billion - ----------------------------------------------------------------------------------------------------------------------------------- Small Company Index David Factor 2 RICs $563.27 million None None (2) (28) 2 PIVs $1.42 billion - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 101
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 $10,001 - $50,000 -------------------- ---------- Steve Schroll 11 RICs $15.57 billion $50,001 - (2) (28) 1 PIV $44.32 million 6 RICs ($15.06 B) $100,000 -------------------- ---------- Laton Spahr 7 other accounts $457.39 million $100,001 - $500,000 -------------------- ---------- Paul Stocking $100,001 - $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap UBS: Growth Paul A. Graham 5 RICs $657.0 million 1 PIV $159.0 million 17 other accounts $322.0 million 1 other account --------------------------------------------------------- David N. Wabnik 5 RICs $657.0 million ($52.5 M) None (4) (29) 1 PIV $159.0 million 26 other accounts $290.0 million -------------------------------------------------------------------------------------------------------------- TURNER: William C. McVail 7 RICs $1.1 billion 1 RIC ($37.0 M); 10 PIVs $140.0 million 4 other accounts 50 other accounts $3.6 billion ($346.0 M) ---------------------------------------------------------------------------- Jason D. 15 RICs $3.7 billion 1 RIC ($56.0 M); Schrotberger 27 PIVs $499.0 million 2 PIVs ($4.0 M); 55 other accounts $2.9 billion 5 other accounts None (5) (30) ($457.0 M) ---------------------------------------------------------------------------- Rick Wetmore 4 RICs $418.0 million 4 other accounts 6 PIVs $43.0 million ($346 M) 41 other accounts $2.1 billion -------------------------------------------------------------------------------------------------------------- ESSEX: Nancy B. Prial 3 RICs $108.8 million None None (6) (31) 1 PIV $144.6 million 52 other accounts $567.7 million -------------------------------------------------------------------------------------------------------------- MDTA: David Goldsmith -------------------- Frederick L. Konopka 10 RICs $1.1 billion 4 PIVs $225.1 million None None (7) (32) -------------------- 48 other accounts $6.85 billion Brian M. Greenberg -------------------- Douglas K. Thunen - ----------------------------------------------------------------------------------------------------------------------------------- Precious Metals and Clay Hoes 1 PIV $97.2 million None $10,001 - (2),(3) (28) Mining $50,000 - ----------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage KENWOOD: Jake Hurwitz 1 RIC $127.3 million 1 RIC ($127.3 M); $100,001 - (8) (33) 1 PIV $73.59 million 2 other accounts $500,000 -------------------- ---------- Kent Kelley 23 other accounts $597.94 million ($138.19 M) $100,001 - $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ----------------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Warren Spitz None Equity -------------------- ---------- Steve Schroll 11 RICs $17.52 billion $10,001 - 1 PIV $43.95 million 6 RICs ($17.0 B) $50,000 -------------------- ---------- Laton Spahr 7 other accounts $493.17 million $100,001 - (2) (28) $500,000 -------------------- ---------- Paul Stocking $100,001 - $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity Bob Ewing 8 RICs $9.60 billion 7 RICs ($9.28 B) $50,001 - (2) (28) 1 PIV $10.46 million $100,000 2 other accounts $61.99 million --------------------------------------------------------------------------------------- Nick Thakore 6 RICs $10.97 billion 5 RICs ($10.65 M) None 1 PIV $9.67 million 2 other accounts $61.99 million - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.05 billion None - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.04 billion None - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 102
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 2020 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.03 billion None - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) $10,001 - (9) (28) 3 PIVs $57.83 million $50,000 14 other accounts $3.53 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.03 billion None None - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.03 billion None $10,001- $50,000 - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 Dimitris Bertsimas 17 RICs $7.84 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.04 billion None - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.05 billion None - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.05 billion None - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ----------------------------------------------------------------------------------------------------------------------------------- High Yield Bond Scott Schroepfer 1 RIC $893.98 million None $100,001 - (2) (28) $500,000 --------------------------------------------------------------------------------------- Jennifer Ponce de 5 RICs $10.57 billion None None Leon 1 PIV $8.43 million 8 other accounts $2.13 billion - ----------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive AMERICAN CENTURY: None None (10) (34) Growth Glenn A. Fogle 6 RICs $3.98 billion -------------------- Brad Eixmann 2 other accounts $148.74 million -------------------------------------------------------------------------------------------------------------- TURNER: None (5) (30) Christopher K. 15 RICs $4.4 billion 3 RICs ($885 M); 3 McHugh 28 PIVs $586.0 million PIVs ($30 M); 24 other accounts $2.4 billion 2 other accounts ($155 M) ---------------------------------------------------------------------------- Tara Hedlund 10 RICs $3.5 billion 1 RIC ($54 M); 21 PIVs $457.0 million 2 PIVs ($5 M); 14 other accounts $898.0 million 1 other account ($123 M) ---------------------------------------------------------------------------- Jason Schrotberger 15 RICs $4.0 billion 1 RIC ($54 M); 27 PIVs $528.0 million 3 PIVs ($30 M); 55 other accounts $3.2 billion 5 other accounts ($514 M) - ----------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental DAVIS: None None(f) (13) (37) Value Christopher C. Davis 27 RICs $81.4 billion 12 PIVs $1.3 billion 128 other $13.9 billion accounts(e) --------------------------------------------------------- Kenneth C. Feinberg 27 RICs $81.3 billion 13 PIVs $1.3 billion 128 other $13.9 billion accounts(e) - ----------------------------------------------------------------------------------------------------------------------------------- Partners Select SYSTEMATIC: Value Ron Mushock 8 RIC $1.36 billion -------------------- 6 PIVs $519.0 million 1 other account None (25) (49) 1,979 other accounts $6.12 billion ($334 M) Kevin McCreesh --------------------------------------------------------------------------------------- WEDGE: R. Michael James 5 RICs $272.0 million -------------------- Peter R. Bridge 1 PIV $3.7 million None None (26) (50) -------------------- Paul M. VeZolles 201 other accounts $3.0 billion - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 103
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 Cap AMERICAN CENTURY: None None (10) (34) Equity Thomas P. Vaiana 9 RICs $5.35 billion 2 PIVs $129.29 million 4 other accounts $244.93 million --------------------------------------------------------- Wihelmine von Turk 5 RICs $1.34 billion 1 PIV $85.54 million 2 other accounts $229.6 million --------------------------------------------------------- Brian Ertley 7 RICs $1.55 billion 1 PIV $85.54 million 4 other accounts $232.61 million --------------------------------------------------------- Melissa Fong 5 RICs $1.34 billion 1 PIV $85.54 million 2 other accounts $229.6 million -------------------------------------------------------------------------------------------------------------- JENNISON: None (12) (36) John Mullman 3 RICs $3.06 billion 3 PIVs ($85.6 8 PIVs $775.81 million M)(h) 11 other accounts(g) $1.26 billion ---------------------------------------------------------------------------- Jason Swiatek 3 PIVs $639.57 million None 11 other accounts $1.28 billion -------------------------------------------------------------------------------------------------------------- LORD, ABBETT: Michael T. Smith 2 RICs $1.85 billion None None(i) (14) (38) 14 other accounts $991.3 million - ----------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap DONALD SMITH: Value Donald G. Smith 2 RICs $1.14 billion -------------------- 1 PIV $122.0 million None None (15) (39) 37 other accounts $2.23 billion Richard L. Greenberg -------------------------------------------------------------------------------------------------------------- MDTA: Daivd Goldsmith -------------------- 10 RICs $1.13 billion 4 PIVs $240.5 million None None (7) (32) Douglas Thunen 51 other accounts $7.61 billion -------------------- Frederick Konopka -------------------- Brian M. Greenberg -------------------------------------------------------------------------------------------------------------- BHMS: James S. McClure 4 RICs $666.0 million -------------------- 1 PIV $4.6 million None None (17) (41) 16 other accounts $716.2 million John P. Harloe -------------------------------------------------------------------------------------------------------------- METWEST: Gary W. Lisenbee 4 RICs $347.8 million -------------------- 3 PIVs $61.2 million None None (18) (42) 9 other accounts $54.4 million Samir Sikka - ----------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Scott Kirby 8 RICs $10.96 billion 3 RICs ($1.37 B); $10,001 - (2) (28) Government 6 PIVs $1.82 billion 1 other account $50,000 41 other accounts(d) $18.51 billion ($26.26 M) --------------------------------------------------------------------------------------- Jamie Jackson 12 RICs $22.96 billion 3 RICs ($1.37 B); $10,001 - 6 PIVs $2.98 billion 1 other account $50,000 27 other accounts(d) $11.83 billion ($49.78 M) - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government Scott Kirby 8 RICs $11.37 billion 3 RICs ($1.37 B); $10,001 - Mortgage 6 PIVs $1.82 billion 1 other account $50,000 (2) (28) 41 other accounts(d) $18.51 billion ($26.26 M) - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ----------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Warren Spitz $500,001 - $1,000,000 -------------------- ---------- Steve Schroll 8 RICs $17.07 billion $100,001 - 1 PIV $82.40 billion 5 RICs $500,000 -------------------- ---------- Laton Spahr 5 other accounts(d) $489.88 million ($16.61) $100,001 - (2) (28) $500,000 -------------------- ---------- Paul Stocking $50,001 - $100,000 - ----------------------------------------------------------------------------------------------------------------------------------- Real Estate Julene Melquist None N/A N/A $10,001 - (2),(3) (28) $50,000 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity Dimitris Bertsimas 17 RICs $4.11 billion 5 RICs $100,001 - 3 PIVs $207.45 million ($2.64 B) $500,000 21 other accounts(d) $1.71 billion (2) (28) --------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $2.27 billion 4 RICs $50,001 - 5 other accounts $158.02 million ($2.27 B) $100,000 - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 104
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 Small Dimitris Bertsimas 17 RICs $6.80 billion 5 RICs $100,001 - and Mid Cap Equity 3 PIVs $207.45 million ($2.64 B) $500,000 21 other accounts(d) $1.71 billion --------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $4.96 billion 4 RICs None (2) (28) 5 other accounts $158.02 million ($2.27 B) --------------------------------------------------------------------------------------- Steve Kokkotos 2 RICs $2.08 billion 2 RICs $10,001 - 1 other account $10.86 million ($2.08 B) $50,000 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Dimitris Bertsimas 17 RICs $6.88 billion 5 RICs $100,001 - Cap Value 3 PIVs $207.45 million ($2.64 B) $500,000 21 other accounts(d) $1.71 billion --------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $5.04 billion 4 RICs $10,001 - (2) (28) 5 other accounts $158.02 million ($2.27 B) $50,000 --------------------------------------------------------------------------------------- Steve Kokkotos 2 RICs $2.15 billion 2 RICs $10,001 - 1 other account $10.86 million ($2.08 B) $50,000 - ----------------------------------------------------------------------------------------------------------------------------------- Floating Rate Lynn Hopton 14 PIVs $6.21 billion None None -------------------- Yvonne Stevens 1 other account $66.22 million ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $1.47 billion None (2) (28) - ----------------------------------------------------------------------------------------------------------------------------------- Growth Nick Thakore 6 RICs $12.92 billion 5 RICs None (2) (28) 2 PIVs $1.22 million ($12.52 B) 2 other accounts(d) $90.78 million - ----------------------------------------------------------------------------------------------------------------------------------- Income Opportunity Brian Lavin 1 RIC $584.56 million $50,001 - 1 PIV $15.02 million $100,000 1 other account $510.78 million --------------------------------------------------------- ---------- Jennifer Ponce de 5 RICs $10.07 billion None $10,001 - (2) (28) Leon 1 PIV $15.02 million $50,000 8 other accounts $2.04 billion - ----------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Jamie Jackson 12 RICs $17.19 billion 3 RICs ($4.96 B); $10,001 - (2) (28) Securities 6 PIVs $2.49 billion 1 other account $50,000 29 other accounts(d) $8.82 billion ($27.78 M) - ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity Nick Thakore 5 RICs $6.59 billion 4 RICs 2 PIVs $1.22 million ($6.19 B) 2 other accounts(d) $90.78 million ---------------------------------------------------------------------------- Bob Ewing 7 RICs $6.93 billion 6 RICs None (2) (28) 2 PIVs $1.22 million ($6.54 B) 2 other accounts(d) $90.78 million - ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Value Bob Ewing 7 RICs $13.17 billion 6 RICs None (2) (28) 2 PIVs $1.22 million ($12.77 B) 2 other accounts(d) $90.78 million - ----------------------------------------------------------------------------------------------------------------------------------- Limited Duration Tom Murphy 7 RICs $11.92 billion 3 RICs ($4.96 B) $50,001 - Bond 3 PIVs $1.02 billion $100,000 13 other accounts $13.24 billion --------------------------------------------------------------------------------------- Jamie Jackson 12 RICs $17.43 billion 3 RICs ($4.96 B); $10,001 - 6 PIVs $2.49 billion 1 other account $50,000 (2) (28) 29 other accounts(d) $8.82 billion ($27.78 M) --------------------------------------------------------------------------------------- Scott Kirby 10 RICs $13.55 billion 3 RICs ($4.96 B); $10,001 - 6 PIVs $1.93 billion 1 other account $50,000 44 other accounts(d) $20.24 billion ($94.02 M) - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------------------------------------- California Tax- 8 RICs $4.07 billion Exempt 14 other accounts $8.07 billion - -------------------- ------------------------------------ Minnesota Tax- Catherine Stienstra 8 RICs $3.93 billion None None (2) (28) Exempt 14 other accounts $8.07 billion - -------------------- ------------------------------------ New York Tax-Exempt 8 RICs $4.18 billion 14 other accounts $8.07 billion - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 105
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 - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Bond Tom Murphy 7 RICs $9.41 billion 3 RICs ($4.99 B) $100,001 - 3 PIVs $1.02 billion $500,000 13 other accounts $13.18 billion --------------------------------------------------------------------------------------- Jamie Jackson 13 RICs $14.50 billion 3 RICs ($5.4 B); $50,001 - 6 PIVs $2.62 billion 1 other account $100,000 29 other accounts(d) $8.43 billion ($43.92 M) --------------------------------------------------------------------------------------- Scott Kirby 10 RICs $11.07 billion 3 RICs ($4.99 B); $50,001 - 6 PIVs $1.93 billion 1 other account $100,000 (2) (28) 44 other accounts(d) $20.03 billion ($78.43 M) --------------------------------------------------------------------------------------- Jennifer Ponce de 5 RICs $7.68 billion None $50,001 - Leon 1 PIV $14.63 million $100,000 8 other accounts $2.11 billion --------------------------------------------------------------------------------------- Nicolas Pifer 6 RICs $6.45 billion 1 other account $10,001 - 6 PIVs $728.27 million ($538.24 M) $50,000 11 other accounts $3.79 billion - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUND WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------------------------- Balanced Tom Murphy 7 RICs $8.55 billion 2 RICs ($1.0 B) $10,001 - 3 PIVs $1.01 billion $50,000 13 other accounts $12.78 billion --------------------------------------------------------------------------------------- Jamie Jackson 12 RICs $14.43 billion 2 RICs ($1.0 B); $10,001 - 6 PIVs $2.68 billion 1 other account $50,000 29 other accounts(d) $9.19 billion ($45.13 M) (2) (28) --------------------------------------------------------------------------------------- Scott Kirby 10 RICs $10.20 billion 2 RICs ($1.0 B); None 6 PIVs $1.92 billion 1 other account 44 other accounts(d) $19.12 billion ($71.78 M) --------------------------------------------------------------------------------------- Bob Ewing 7 RICs $11.72 billion 6 RICs ($11.32 B) $100,001 - 1 PIV $10.55 million $500,000(- j) 2 other accounts $89.12 million - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Dimitris Bertsimas 17 RICs $7.30 billion 5 RICs ($5.81 B) None Cap Growth 3 PIVs $242.83 million 16 other accounts $2.42 billion (2) (28) --------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $5.22 billion 4 RICs ($5.22 B) None 5 other accounts $188.6 million - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Warren Spitz $50,001 - Income $100,000 -------------------- ---------- Laton Spahr 8 RICs $10.85 billion $100,001 - 1 PIV $61.27 million 5 RICs ($10.36 B) $500,000 -------------------- ---------- Steve Schroll 5 other accounts(d) $490.56 million $50,001 - (2) (28) $100,000 -------------------- ---------- Paul Stocking $100,001 - $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Warren Spitz $50,001 - $100,000 -------------------- ---------- Laton Spahr 8 RICs $16.49 billion $100,001 - 1 PIV $61.27 million 5 RICs ($16.0 B) $500,000 -------------------- ---------- Steve Schroll 5 other accounts(d) $490.56 million $50,001 - (2) (28) $100,000 -------------------- ---------- Paul Stocking $100,001 - $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation Tom Murphy 7 RICs $8.56 billion 2 RICs ($1.01 B) $100,001 - 3 PIVs $1.01 billion $500,000 13 other accounts $12.78 billion --------------------------------------------------------------------------------------- Jamie Jackson 12 RICs $14.43 billion 2 RICs ($1.01 B); $10,001 - 6 PIVs $2.68 billion 1 other account $50,000 29 other accounts(d) $9.19 billion ($45.13 M) --------------------------------------------------------------------------------------- Scott Kirby 10 RICs $10.21 billion 2 RICs ($1.01 B); $10,001 - 6 PIVs $1.92 billion 1 other account $50,000 44 other accounts(d) $19.12 billion ($71.78 M) --------------------------------------------------------------------------------------- Dimitris Bertsimas 17 RICs $5.54 billion 5 RICs ($4.04 B) Over (2) (28) 3 PIVs $242.83 million $1,000,000 16 other accounts $2.42 billion --------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $3.46 billion 4 RICs ($3.46 B) $100,001 - 5 other accounts $188.6 million $500,000 --------------------------------------------------------------------------------------- Alex Sauer-Budge 1 RIC $586.36 million 1 RIC ($586.36 M) None --------------------------------------------------------------------------------------- Steve E. Kokkotos 2 RICs $138.37 million 2 RICs ($138.37 M) $100,001 - 1 other account $11.12 million $500,000 - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 106
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 - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Income Dimitris Bertsimas 17 RICs $7.37 billion 6 RICs ($5.89 B) None Allocation 3 PIVs $242.83 million 16 other accounts $2.42 billion (2) (28) ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.12 billion None - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- Absolute Return Nicholas Pifer 6 RICs $9.82 billion None $50,001 - Currency and Income 6 PIVs $768.06 million $100,000 (2) (28) 9 other accounts $3.12 billion - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Dimitris Bertsimas 17 RICs $7.70 billion 5 RICs ($6.02 B) $100,001 - International Equity 3 PIVs $218.44 million $500,000 16 other accounts(d) $2.50 billion (2) (28) --------------------------------------------------------------------------------------- Alex Sauer-Budge 1 RIC $2.28 billion 1 RIC ($2.28 B) $1 - $10,000 - ----------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Nicholas Pifer 6 RICs $9.76 billion None $10,001 - (2) (28) Bond 6 PIVs $768.06 million $50,000 9 other accounts $3.12 billion - ----------------------------------------------------------------------------------------------------------------------------------- Global Bond Nicholas Pifer 6 RICs $9.43 billion None $50,001 - (2) (28) 6 PIVs $768.06 million $100,000 9 other accounts $3.12 billion - ----------------------------------------------------------------------------------------------------------------------------------- Global Technology Bob Ewing 8 RICs $13.17 billion 7 RICs ($12.77 B) 1 PIV $10.65 million 2 other accounts(d) $89.12 million None (2) (28) ---------------------------------------------------------------------------- Nick Thakore 6 RICs $14.14 billion 5 RICs ($13.74 B) 1 PIV $9.84 million 2 other accounts(d) $89.12 million - ----------------------------------------------------------------------------------------------------------------------------------- Partners COLUMBIA WAM: International Select Growth P. Zachary Egan 1 RIC $5.90 billion None None (20) (43) --------------------------------------------------------- Louis J. Mendes 2 RICs $7.60 billion -------------------------------------------------------------------------------------------------------------- PRINCIPAL: John Pihlblad 3 RICs $3.60 billion None None (21) (45) --------------------------------------------------------- Steven Larson 7 PIVs $2.20 billion 4 other accounts $6.50 billion - ----------------------------------------------------------------------------------------------------------------------------------- Partners ALLIANCEBERNSTEIN: International Select Kevin F. Simms 166 RICs $89.22 billion 3 RICs ($13.16 B); Value 722 PIVs $59.61 billion 23 PIVs ($3.01 B); 43,955 other $235.74 billion 94 other accounts accounts ($32.75 B) ---------------------------------------------------------------------------- Henry S. D'Auria 124 RICs $54.44 billion 2 RICs ($5.98 B); 595 PIVs $42.65 billion 20 PIVs ($1.66 B); 662 other accounts $175.96 billion 82 other accounts ($29.40 B) ---------------------------------------------------------------------------- Sharon E. Fay 166 RICs $89.22 billion 3 RICs ($13.16 B); 645 PIVs $52.91 billion 21 PIVs ($1.66 B); 43,955 other $235.74 billion 94 other accounts accounts ($32.75 B) ---------------------------------------------------------------------------- Marilyn G. Fedak 153 RICs $85.47 billion 3 RICs ($13.16 B); None (22) (46) 461 PIVs $42.42 billion 1 PIV ($820.0 B); 43,881 other $197.37 billion 64 other accounts accounts ($20.08 B) ---------------------------------------------------------------------------- John P. Mahedy 151 RICs $84.33 billion 3 RICs ($13.16 B); 454 PIVs $42.21 billion 1 PIV ($820.0 B); 43,860 other $193.54 billion 60 other accounts accounts ($19.34 B) ---------------------------------------------------------------------------- Giulio Martini 111 RICs $49.88 billion 2 RICs ($5.98 B); 628 PIVs $48.40 billion 22 PIVs ($3.0 B); 532 other accounts $139.90 billion 53 other accounts ($19.53 B) - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 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 - ----------------------------------------------------------------------------------------------------------------------------------- Partners AIGGIC: International Small Chantal Brennan 3 RICs $922.40 million Cap 4 PIVs $1.07 billion 6 other accounts $601.40 million --------------------------------------------------------- Ming Hsu 3 RICs $166.40 billion 1 PIV $139.39 billion None None (23) (47) 4 other accounts $86.43 billion --------------------------------------------------------- Noriko Umino 3 RICs $264.40 million 1 PIV $95.0 million 5 other accounts $166.70 million -------------------------------------------------------------------------------------------------------------- BATTERYMARCH: Charles F. Lovejoy 6 RICs $4.34 billion 1 other account --------------------------------------------------------- Christopher W. 14 PIVs $1.81 billion ($48.04 M) None (24) (48) Floyd 29 other accounts $6.31 billion - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: Emerging Markets Julian A.S. 2 RICs $1.80 billion Thompson 2 PIVs $0.07 billion None None(k) (19) (45) 2 other accounts $0.05 billion --------------------------------------------------------- Jules Mort 1 other account $1.2 billion - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: European Equity Rob Jones 1 RIC $0.15 billion None None(k) (19) (43) 1 PIV $0.14 billion - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global THREADNEEDLE: None None(k) (19) (43) Equity Dominic Rossi 1 RIC $0.72 billion --------------------------------------------------------- Stephen Thornber 3 PIVs $0.20 billion 4 other accounts $1.4 billion - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: International Alex Lyle 2 RICs $2.03 billion Opportunity 46 PIVs $5.90 billion None None(k) (19) (43) 6 other accounts $0.71 billion --------------------------------------------------------- Dominic Rossi 1 RIC $0.72 billion - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ----------------------------------------------------------------------------------------------------------------------------------- Intermediate Catherine Stienstra 8 RICs $4.06 billion None None (2) (28) Tax-Exempt 12 other accounts $7.95 billion - ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap John K. Schonberg 1 RIC $607.47 million 1 RIC (2) Growth 2 PIVs $67.07 million 4 other accounts $10.0 million -------------------------------------------------------------------------------------------------------------- Sam Murphy 1 RIC $607.47 million ($607.47 M) None (2), (3) (28) -------------------- Mike Marzolf 1 RIC None (28) ($607.47 M) - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Catherine Stienstra 8 RICs $3.42 billion None None (2) (28) Bond 12 other accounts $7.95 billion - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Catherine Stienstra 8 RICs $1.46 billion None None (2) (28) High Income 12 other accounts $7.95 billion - -----------------------------------------------------------------------------------------------------------------------------------
* RIC refers to a Registered Investment Company; PIV refers to a Pooled Investment Vehicle. (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 RiverSource 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 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 Partners RiverSource Small Cap Equity Fund. However, he invests in the Lord Abbett Small Cap Blend Fund, which is managed in a similar style. (j) The portfolio manager participates in a mandatory deferred compensation plan where deferred compensation is treated as if it was invested in shares of one or more RiverSource funds and the amount paid to the portfolio manager will be determined based on the performance of such investments. (k) 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. Statement of Additional Information - July 30, 2008 Page 108 POTENTIAL CONFLICTS OF INTEREST (1) Management of Funds-of-Funds differs from that of the other RiverSource 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. (2) 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) 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) 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 Statement of Additional Information - July 30, 2008 Page 109 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) 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) 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) 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 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) Kenwood, an indirect partially-owned subsidiary of Ameriprise Financial, is an affiliate of RiverSource Investments. Kenwood portfolio managers may manage one or more mutual funds as well as other types of accounts, including 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 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. Kenwood has a fiduciary responsibility to all of the clients for which it manages accounts. Kenwood seeks to provide best execution of all securities transactions. Where possible, security transactions are aggregated and allocated to client accounts in a fair and timely manner. Kenwood 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 monitoring these policies and procedures, Kenwood monitors compliance with the firm's Code of Ethics and places additional investment restrictions on portfolio managers who manage certain other accounts. (9) Management of the Income Builder and Retirement Plus Funds-of-Funds differs from that of the other RiverSource 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 Statement of Additional Information - July 30, 2008 Page 110 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 RiverSource 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. (10) 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. 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 Statement of Additional Information - July 30, 2008 Page 111 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. (11) N/A (12) 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, 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. 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. 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. (13) 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 Statement of Additional Information - July 30, 2008 Page 112 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. (14) 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. (15) 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. (16) N/A (17) 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. (18) 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, 2008 Page 113 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. (19) 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. (20) Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts that Columbia WAM believes are faced by investment professionals at most major financial firms. Columbia WAM and the Trustees of the Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts. The management of accounts with different advisory fee rates and/or fee structures may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others: - The most attractive investments could be allocated to higher-fee accounts. - The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time. - The trading of other accounts could be used to benefit higher-fee accounts (front-running). - The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation. Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, Columbia WAM's investment professionals do not have the opportunity to invest in client accounts, other than the Funds. A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. 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, Columbia WAM's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to the Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account. "Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. Columbia WAM and the Funds' Trustees have adopted compliance Statement of Additional Information - July 30, 2008 Page 114 procedures that provide that any transactions between the Funds and another Columbia-advised account are to be made at an independent current market price, as required by law. Another potential conflict of interest may arise based on the different investment objectives and strategies of the Funds and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts. A Fund's 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. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies. The Funds' portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Funds. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to a Fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the Funds and/or accounts that he or she manages. Columbia WAM or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of a Fund and/or accounts that provide greater overall returns to the investment manager and its affiliates. The Funds' portfolio managers may also face other potential conflicts of interest in managing the Funds, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, the Funds' portfolio managers may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at Columbia WAM, including the Funds' portfolio managers, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by Columbia WAM and the Funds, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of the Funds. (21) 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. (22) 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 Statement of Additional Information - July 30, 2008 Page 115 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. 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 Statement of Additional Information - July 30, 2008 Page 116 justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. (23) 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. (24) 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. 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. Statement of Additional Information - July 30, 2008 Page 117 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 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. 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. (25) Systematic Financial Management, L.P. is an affiliated firm of Affiliated Managers Group, Inc. (AMG) a publicly traded asset management company, which invests in mid-sized asset management firms. Neither AMG nor any of their affiliates formulate advice for Systematic's clients and do not, in Systematic's view, present any potential conflict of interest with Systematic's clients. 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 are generally 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 basic fee schedule 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. However, Systematic has a variety of internal controls in place that are reasonably designed to detect such conflicts and protect the interests of its clients. Conflicts of interest, including employee personal securities trading, security selection, proxy voting and security allocation, may arise as a result of providing advisory services to a diverse group of clients invested in various strategies. To mitigate such potential conflicts and harm to Systematic's clients, Systematic has adopted policies and procedures, including but not limited to, its Code of Ethics, which addresses personal securities trading, Proxy Voting and Trade Error Policies. These policies and procedures are subject to periodic testing and reviews, which are reasonably designed to detect such conflicts and protect the interests of its clients. A portfolio manager may also face other potential conflicts of interest in managing the Partners Select Value Fund. The description above is not a complete description of every conflict of interest that could be deemed to exist in managing this Fund and other accounts listed above. (26) 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 clients. Those of a material nature that are encountered most frequently surround security selection, brokerage selection, Statement of Additional Information - July 30, 2008 Page 118 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 (27) 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 RiverSource 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. 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) 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 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. Unless otherwise noted, funding for the bonus pool for equity portfolio managers 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. Once performance fees become payable, funding for the bonus pool for RiverSource 120/20 Contrarian Equity Fund, RiverSource 130/30 U.S. Equity Fund and institutional accounts managed by the Contrarian Equity Team** will be determined by a percentage of the performance fees earned on these accounts. Funding for the bonus pool for fixed income portfolio managers 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. Bonus pool funding for Lynn Hopton and Yvonne Stevens, 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. 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, plus, where applicable, a percentage of performance fees earned on the hedge funds or accounts they support as research analysts*. 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 - ---------- * The portfolio managers that currently support funds as research analysts are: Clay Hoes, Julene Melquist, Sam Murphy and Mike Marzolf. ** The Contrarian Equity Team is comprised of Warren Spitz, Steve Schroll, Laton Spahr and Paul Stocking. Statement of Additional Information - July 30, 2008 Page 119 managed by the investment manager, they receive a cash reimbursement for the investment management fees charged on their hedge fund investments. Senior management of RiverSource Investments does not have discretion over the size of the bonus pool related to institutional portfolios managed by Lynn Hopton and Yvonne Stevens. 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) As an employer, UBS Global Asset Management operates within a highly competitive compensation environment. To review industry comparatives, we measure our compensation structures against benchmark data of competitors provided by McLagan Partners, the industry standard provider for compensation measurement and assessment, on an annual basis. We also perform compensation analysis on an as-needed basis, e.g., when bringing new employees into the organization, or when the market shifts and we need to consider adjustments for retention purposes. Our Global Head of Compensation works closely with our parent company and various data sources to validate our procedures and assumptions. Our compensation and benefits programs are designed to provide our investment professionals with incentives to excel, and to promote an entrepreneurial, performance-oriented culture. They also align the interests of our investment professionals with the interests of our clients. Overall compensation can be grouped into four categories: 1. Competitive salary, benchmarked annually to maintain very competitive compensation opportunities. 2. Annual bonus, tied to individual contributions and investment performance. 3. Analyst incentives, tied to performance of model portfolios. 4. UBS equity awards, promoting company-wide success and employee retention. Base salary is used to recognize the experience, skills and knowledge that our investment professionals bring to their roles. Salary levels are monitored and adjusted periodically in order to remain competitive within the investment management industry. Annual bonuses are strictly and rigorously correlated with performance. As such, annual incentives can be highly variable, and are based on three components: 1) the firm's overall business success; 2) the performance of the respective asset class and/or investment mandate; and 3) an individual's specific contribution to the firm's results. We strongly believe that tying bonuses to both long-term (3-year) and shorter-term (1-year) portfolio performance closely aligns our investment professionals' interests with those of our clients. Analyst Incentives. Because we value our proprietary research, we have designed a compensation system that has made investment analysis a highly regarded career within our firm. Grouped into 12 global sector teams, our analysts manage model portfolios in global and local sectors. Our portfolio managers use the model sector portfolios to build actual client portfolios. Analyst incentives are tied to the performance of the model portfolios, which we evaluate over rolling three-year periods. One-third of each analyst's rating is based upon the performance of the model global sector portfolio; one-third on the model local sector portfolio; and one-third is a qualitative assessment of their contribution. We believe that this system closely aligns our analysts' incentives with our clients. UBS AG equity. Many of our senior investment professionals are required to defer a portion of their annual performance-based incentive in the form of deferred or restricted UBS AG shares or employee stock options. Not only does this reinforce the critical importance of creating long- term business value, it also serves as an effective retention tool as the equity shares typically vest over a number of years. Broader equity share ownership is encouraged for all employees through "Equity Plus". This long-term incentive program gives employees the opportunity to purchase UBS stock with after-tax funds from their bonus or salary. Two UBS stock options are given for each share acquired and held for two years. We feel this engages our employees as partners in the firm's success, and helps to maximize our integrated business strategy. (30) 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 Statement of Additional Information - July 30, 2008 Page 120 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) 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) 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 Growth 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. (33) Messrs. Hurwitz and Kelley are both equity owners of Kenwood. Their compensation consists of a salary, plus a pro rata share of the annual net earnings of Kenwood, some of which derives from fees paid by the fund. Messrs. Hurwitz and Kelley 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 employees of Kenwood. Messrs. Hurwitz and Kelley are also eligible for certain benefits that are available to all equity owners of Kenwood. (34) 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, 2008, 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. Statement of Additional Information - July 30, 2008 Page 121 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. 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 or value. 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 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 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. (35) N/A (36) Jennison seeks to maintain a highly competitive compensation program designed to attract and retain outstanding investment professionals, which includes 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 discretionary 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 voluntary deferred compensation program where all or a portion of the discretionary cash bonus can be deferred. Participants in the deferred compensation plan are permitted to allocate the deferred amounts among various options that track the gross of fee pre-tax performance of various mutual funds, of which nearly all of the equity options are managed by Jennison, and composites of accounts managed by Jennison, which may include accounts managed for unregistered products. 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 or analysts may manage or contribute ideas to more than one product strategy and are evaluated accordingly. The factors considered for an investment professional whose primary role is portfolio management will differ from an investment professional who is a portfolio manager with research analyst responsibilities. The following factors, listed in order of importance, will be reviewed for each portfolio manager: - 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; Statement of Additional Information - July 30, 2008 Page 122 - Historical and long-term business potential of the product strategies; - Qualitative factors such as teamwork and responsiveness; and Other factors such as experience and other responsibilities such as being a team leader or supervisor may also affect an investment professional's total compensation. (37) 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. (38) 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. (39) 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. (40) N/A (41) 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. Statement of Additional Information - July 30, 2008 Page 123 (42) 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 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. (43) The portfolio manager's compensation as a Threadneedle Investments employee consists of (i) a base salary, (ii) an annual cash bonus, and (iii) an equity incentive award. The annual bonus is paid from a bonus pool that is based on both mutual fund and institutional portfolio performance. Funding for the bonus pool is determined by the aggregate market competitive bonus targets for the teams of which the portfolio manager is a member and generally by the short-term (typically one-year) performance of the accounts compared to applicable benchmarks. Senior management of Threadneedle Investments has the discretion to increase or decrease the size of the bonus pool and to determine the exact amount of each portfolio manager's bonus based on his/her performance as an employee subject to the total fund managers bonus pool being within the overall Corporate bonus pool which is based on the profitability of Threadneedle. Threadneedle Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company pension plan, comparable to that received by other Threadneedle employees. (44) As of October 31, 2006, the portfolio managers receive all of their compensation from Columbia WAM and its parent company. P. Zachary Egan, and Louis J. Mendes each received compensation in the form of salary and bonus. In addition, Mr. Egan received a distribution in connection with his association with Columbia WAM prior to its acquisition in September 2000 and Columbia WAM's recent performance. Mr. Mendes participated in a supplemental pool for Columbia WAM employees that was established in connection with the acquisition of Columbia WAM and was based on Columbia WAM's recent performance. All analysts and portfolio managers have performance benchmarks. Analyst performance is compared to assigned industry or region stock performance within benchmark indices while portfolio manager performance is compared to entire benchmark indices. Performance compared to benchmark indices is the dominant performance evaluation factor for all analysts and managers. Industry (or country) weighting recommendations are the second most important factor for analysts. Other factors are assets managed, new analyst mentoring, teamwork, and managerial, marketing, compliance and other qualitative contributions. Analysts and managers are positioned in a number of compensation tiers based on cumulative performance. Excellent performance results in advancement to a higher tier each two or three years, until the highest tier is reached. Higher tiers have higher base compensation levels and wider bonus ranges. While cumulative performance places analysts and managers in tiers, current year performance drives changes in cash bonus levels. Cash incentive bonuses vary 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 performers. Typically, a very high proportion of an analyst's or manager's bonus is paid in cash with a smaller proportion going into an investment program where the employee can select Columbia mutual funds as their investment vehicle. Bank of America restricted stock or options may also be part of an individual's compensation. These mutual fund investments and Bank of America restricted stock or options vest over three years. (45) 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 target incentive for equity portfolio managers ranges from 150% to 350% 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. Statement of Additional Information - July 30, 2008 Page 124 - 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 49th percentile and reaches 100% at the 25th percentile for the 1, 2, and 3-year periods. 15% of incentive payout is achieved at 49th percentile. No payout is realized if performance is below 50th 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. (46) 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 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. (47) 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 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. Statement of Additional Information - July 30, 2008 Page 125 (48) 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 - a non-qualified deferred compensation plan that has a cliff-vesting provision with annual contributions. In order for an employee to receive any contribution, they must remain employed for at least 31 months after the initial award. Portfolio manager compensation is not tied to, nor increased or decreased as the result of, any performance fees that may be earned by Batterymarch. Compensation is generally not impacted by the investment performance of any one client account; all performance analysis is reviewed on an aggregate product basis. Portfolio managers do not receive a percentage of the revenue earned on any of Batterymarch's client portfolios. While we are wholly-owned by Legg Mason, Batterymarch recognizes the importance of maintaining an ownership culture and has developed a compensation plan that allows our employees to share in the success of the firm. Importantly, Batterymarch's financial commitment to Legg Mason is in the form of a top-line revenue share. Once this share is paid, and the firm's expenses are covered, the remainder constitutes a bonus pool for all employees. (49) Ron Mushock and Kevin McCreesh are partners of the firm and co-Portfolio managers for the strategy. Employee-owners receive a fixed base salary and income distributions scaled to the company's profit margins and their respective individual ownership interests. Other investment professionals are compensated with both a competitive salary and an annual performance bonus determined by their contribution to our investment process and its results. 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 Partners Select Value Fund. Systematic's ability to offer equity ownership to senior professionals also provides a significant incentive for our investment team. Moreover, Messrs. Mushock and McCreesh 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 co-Portfolio managers are not compensated based solely on the performance of, or the value of assets held in the Partners Select Value Fund or any other individual fund managed by Systematic. (50) WEDGE's incentive compensation has been structured to reward all professionals for their contribution to the 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. Statement of Additional Information - July 30, 2008 Page 126 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% 130/30 U.S. Equity 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 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, 2008 Page 127
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 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 S&P 500 Index 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, 2008 Page 128 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 2008 2007 2006 FUND ASSETS - ------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------ Income Builder Basic Income(a) $ 38,041 $ 25,671 $ 581(b) 0.020% - ------------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income(a) 45,848 37,153 1,226(b) 0.020 - ------------------------------------------------------------------------------------------------------------ Income Builder Moderate Income(a) 82,229 58,560 1,394(b) 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive 110,897 86,301 51,235 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 26,665 24,051 17,895 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 183,783 138,034 85,545 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 223,400 172,602 104,658 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 62,617 50,763 34,371 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 101,924 76,312 41,435 0.020 - ------------------------------------------------------------------------------------------------------------ S&P 500 Index 158,059 153,231 222,321 0.060 - ------------------------------------------------------------------------------------------------------------ Small Company Index 738,676 867,030 861,455 0.078 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------ Equity Value 680,124 674,042 558,514 0.057 - ------------------------------------------------------------------------------------------------------------ Partners Small Cap Growth 159,051 173,239 180,537 0.080 - ------------------------------------------------------------------------------------------------------------ Precious Metals and Mining 77,686 67,215 50,123 0.060 - ------------------------------------------------------------------------------------------------------------ Small Cap Advantage 363,599 534,163 568,712 0.080 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity 13,416(c) N/A N/A 0.080 - ------------------------------------------------------------------------------------------------------------ 130/30 U.S. Equity 6,883(c) N/A N/A 0.080 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 3,623 1,779(d) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 5,483 1,861(d) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 7,572 2,961(d) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 7,280 2,293(d) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 7,160 2,579(d) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 4,249 1,548(d) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 4,915 2,928(d) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 1,670 586(d) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------ High Yield Bond 1,069,014 1,259,292 1,328,295 0.065 - ------------------------------------------------------------------------------------------------------------ Partners Aggressive Growth 350,088 334,364 130,418 0.059 - ------------------------------------------------------------------------------------------------------------ Partners Fundamental Value 594,407 645,012 658,982 0.057 - ------------------------------------------------------------------------------------------------------------ Partners Select Value 300,721 355,085 443,873 0.060 - ------------------------------------------------------------------------------------------------------------ Partners Small Cap Equity 208,114 267,622 205,335 0.080 - ------------------------------------------------------------------------------------------------------------ Partners Small Cap Value 565,329 754,675 858,118 0.080 - ------------------------------------------------------------------------------------------------------------ Short Duration U.S. Government 541,748 623,283 821,082 0.068 - ------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 285,601 196,713 172,175 0.070 - ------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 129
- ------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE - -------------------------------------------------------------------------------------------- APPLIED TO FUND 2007 2006 2005 FUND ASSETS - ------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------ Dividend Opportunity 884,333 658,242 406,110 0.054 - ------------------------------------------------------------------------------------------------------------ Real Estate 153,117 91,341 41,449 0.060 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------ Cash Management 2,141,669 1,741,492 1,016,703 0.048 - ------------------------------------------------------------------------------------------------------------ Disciplined Equity 1,224,572 496,810 29,441 0.053 - ------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 24,904 1,143(e) N/A 0.060 - ------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 20,681 4,615(f) N/A 0.080 - ------------------------------------------------------------------------------------------------------------ Floating Rate 378,190 46,916(f) N/A 0.069 - ------------------------------------------------------------------------------------------------------------ Growth 1,763,087 1,791,547 1,370,094 0.052 - ------------------------------------------------------------------------------------------------------------ Income Opportunities 242,883 253,936 164,038 0.070 - ------------------------------------------------------------------------------------------------------------ Inflation Protected Securities 209,028 169,778 61,197 0.070 - ------------------------------------------------------------------------------------------------------------ Large Cap Equity 3,245,953 2,119,930 860,387 0.046 - ------------------------------------------------------------------------------------------------------------ Large Cap Value 60,574 78,248 67,667 0.060 - ------------------------------------------------------------------------------------------------------------ Limited Duration Bond 105,993 133,102 88,881 0.070 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------ California Tax-Exempt(g) 122,586 149,235 87,771 0.070 - ------------------------------------------------------------------------------------------------------------ Diversified Bond 1,752,212 1,698,244 1,259,427 0.063 - ------------------------------------------------------------------------------------------------------------ Minnesota Tax-Exempt(g) 234,353 286,050 163,503 0.070 - ------------------------------------------------------------------------------------------------------------ New York Tax-Exempt(g) 47,710 57,973 36,031 0.070 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------ Balanced 623,784 697,753 524,986 0.057 - ------------------------------------------------------------------------------------------------------------ Disciplined Large Cap Growth 11,405(h) N/A N/A 0.060 - ------------------------------------------------------------------------------------------------------------ Diversified Equity Income 3,449,519 2,960,505 1,216,876 0.045 - ------------------------------------------------------------------------------------------------------------ Mid Cap Value 1,196,773 854,082 385,071 0.053 - ------------------------------------------------------------------------------------------------------------ Strategic Allocation 1,340,234 948,662 383,942 0.073 - ------------------------------------------------------------------------------------------------------------ Strategic Income Allocation 21,493(h) N/A N/A 0.070 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income 79,761 15,823(i) N/A 0.080 - ------------------------------------------------------------------------------------------------------------ Disciplined International Equity 209,295 14,739(j) N/A 0.079 - ------------------------------------------------------------------------------------------------------------ Emerging Markets Bond 78,549 21,248(k) N/A 0.080 - ------------------------------------------------------------------------------------------------------------ Global Bond 388,646 412,783 342,324 0.080 - ------------------------------------------------------------------------------------------------------------ Global Technology 103,335 101,197 112,326 0.060 - ------------------------------------------------------------------------------------------------------------ Partners International Select Growth 490,174 347,819 240,889 0.078 - ------------------------------------------------------------------------------------------------------------ Partners International Select Value 1,759,221 1,306,775 861,655 0.073 - ------------------------------------------------------------------------------------------------------------ Partners International Small Cap 92,062 83,383 74,264 0.080 - ------------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets 503,279 406,991 351,359 0.078 - ------------------------------------------------------------------------------------------------------------ Threadneedle European Equity 105,886 89,350 75,504 0.080 - ------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity 611,621 532,772 305,907 0.078 - ------------------------------------------------------------------------------------------------------------ Threadneedle International Opportunity 540,718 470,847 331,818 0.078 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 57,618 74,912 64,053 0.070 - ------------------------------------------------------------------------------------------------------------ Mid Cap Growth 652,889 946,943 1,023,124 0.057 - ------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 525,515 544,894 321,037 0.069 - ------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 1,823,812 2,064,819 1,505,060 0.063 - ------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 130
- ------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE - -------------------------------------------------------------------------------------------- APPLIED TO FUND 2007 2006 2005 FUND ASSETS - ------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 73,957 69,922 42,768 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 Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (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 June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (j) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (k) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. 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, 2008 Page 131 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 Distributors, Inc. (the "distributor"), 50611 Ameriprise Financial Center, Minneapolis, MN 55474, a wholly owned subsidiary of Ameriprise Financial, Inc., serves as the funds' principal underwriter. 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 2008 2007 2006 2008 2007 2006 - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ---------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income(a) $688,587 $1,155,448 $128,246(b) $(56,086) $6,089 $25,697(b) - ---------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced 831,981 1,678,918 326,707(b) 176,661 287,006 73,038(b) Income(a) - ---------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate 1,279,681 2,955,938 437,903(b) 34,001 435,561 109,389(b) Income(a) - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 2,848,037 3,260,693 3,095,956 799,417 1,029,231 1,116,369 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 384,348 455,765 577,821 4,989 94,296 105,590 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 3,944,827 4,127,743 4,118,788 702,939 1,084,978 1,075,302 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5,635,597 6,845,238 7,078,581 1,613,677 2,326,266 2,691,706 Aggressive - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 1,088,559 1,084,727 1,286,540 140,630 252,979 274,017 Conservative - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 2,257,735 2,414,356 1,845,156 471,536 594,766 518,093 - ---------------------------------------------------------------------------------------------------------------------------- S&P 500 Index N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Small Company Index 563,878 973,579 1,228,665 117,897 220,620 337,031 - ----------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 132
- ---------------------------------------------------------------------------------------------------------------------------- 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 MARCH 31 - ---------------------------------------------------------------------------------------------------------------------------- Equity Value $496,313 $928,630 $645,442 $16,594 $86,064 $116,536 - ---------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 174,193 265,315 401,382 25,734 52,127 127,479 - ---------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 192,503 178,460 104,779 50,572 33,944 21,277 - ---------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 285,044 569,430 986,996 30,185 100,405 276,857 - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 149,480(c) N/A N/A 46,196(c) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity 29,772(c) N/A N/A 5,878(c) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 32,694 2,283(d) N/A 11,266 (6,048)(d) N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 70,298 35,493(d) N/A 50,360 27,942(d) N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 41,850 35,121(d) N/A 21,519 23,828(d) N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 49,187 38,880(d) N/A 25,003 25,335(d) N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 51,530 29,205(d) N/A 28,063 15,221(d) N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 31,469 21,303(d) N/A 19,162 13,718(d) N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 39,332 14,822(d) N/A 21,208 7,670(d) N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 23,890 10,606(d) N/A 12,087 5,832(d) N/A - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------------------------------------- High Yield Bond 882,107 1,787,813 2,479,319 41,174 139,630 682,596 - ---------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 390,356 359,329 217,559 83,271 63,452 44,653 - ---------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 766,263 1,266,023 1,915,417 58,252 158,689 406,545 - ---------------------------------------------------------------------------------------------------------------------------- Partners Select Value 314,511 518,110 945,839 25,291 61,797 213,839 - ---------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 184,740 309,112 604,021 48,448 95,646 190,699 - ---------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 607,350 1,147,620 1,616,642 117,005 249,915 478,093 - ---------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 660,354 962,025 1,908,960 (152,827) (85,482) 482,228 - ---------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 136,891 252,402 442,638 (116,397) (67,241) 61,137 - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 2,653,148 1,665,096 1,604,180 266,495 207,486 523,080 - ---------------------------------------------------------------------------------------------------------------------------- Real Estate 813,437 598,431 556,465 218,298 180,632 223,572 - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------------------------------------- Cash Management 437,392 718,247 994,923 423,832 714,638 993,250 - ---------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 661,751 322,731 126,376 140,529 67,609 47,059 - ---------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap 55,865 1,760(e) N/A 9,445 852(e) N/A Equity - ---------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 15,644 6,304(f) N/A 1,960 1,708(f) N/A - ---------------------------------------------------------------------------------------------------------------------------- Floating Rate 1,282,342 364,914(f) N/A (554,729) (118,354)(f) N/A - ---------------------------------------------------------------------------------------------------------------------------- Growth 3,028,179 4,553,722 3,540,317 548,978 955,528 1,430,279 - ---------------------------------------------------------------------------------------------------------------------------- Income Opportunities 320,351 486,593 891,368 (6,952) 108,764 201,999 - ---------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 105,703 326,780 429,879 18,732 47,098 84,033 - ---------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 4,596,427 3,400,059 1,812,939 641,330 629,348 723,158 - ---------------------------------------------------------------------------------------------------------------------------- Large Cap Value 102,472 123,212 196,360 26,452 37,908 71,406 - ---------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 136,687 220,446 393,925 28,890 28,711 115,701 - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 150,760 212,157(g) 218,698 46,117 77,373(g) 111,053 - ---------------------------------------------------------------------------------------------------------------------------- Diversified Bond 2,340,251 2,757,988 3,072,387 419,415 788,192 1,203,503 - ---------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 338,160 480,402(g) 463,661 12,594 102,088(g) 141,616 - ---------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 43,518 89,560(g) 134,248 6,984 19,641(g) 63,799 - ----------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 133
- ---------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES - ---------------------------------------------------------------------------------------------------------------------------- FUND 2007 2006 2005 2007 2006 2005 - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------- Balanced $474,702 $400,884 $501,366 $32,524 $59,347 $168,698 - ---------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 20,834(h) N/A N/A 5,197(h) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 9,553,810 12,904,884 9,791,165 1,407,616 2,114,315 2,664,788 - ---------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 3,538,910 4,477,119 3,098,747 862,120 1,010,224 986,793 - ---------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 8,570,846 3,667,041 1,083,154 1,738,063 739,852 244,136 - ---------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 267,319(h) N/A N/A 26,129(h) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and 10,519 0(h) N/A 3,448 0(i) N/A Income - ---------------------------------------------------------------------------------------------------------------------------- Disciplined International 130,761 4,700(i) N/A 14,894 434(j) N/A Equity - ---------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 25,743 11,348(j) N/A 1,421 2,036(k) N/A - ---------------------------------------------------------------------------------------------------------------------------- Global Bond 314,002 447,007 765,438 215,442 320,724 390,806 - ---------------------------------------------------------------------------------------------------------------------------- Global Technology 212,774 242,177 328,770 16,670 29,861 67,485 - ---------------------------------------------------------------------------------------------------------------------------- Partners International Select 885,940 810,514 816,345 226,007 234,619 282,465 Growth - ---------------------------------------------------------------------------------------------------------------------------- Partners International Select 4,085,674 3,895,267 3,425,153 641,699 815,331 1,020,350 Value - ---------------------------------------------------------------------------------------------------------------------------- Partners International Small 164,026 173,659 203,543 19,649 37,954 60,817 Cap - ---------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 886,062 1,075,586 798,990 (7,004,024) (9,848,080) (6,658,875) - ---------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 226,464 107,816 N/A 90,745 29,463 N/A - ---------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 896,578 1,272,084 778,062 99,098 218,974 211,977 - ---------------------------------------------------------------------------------------------------------------------------- Threadneedle International 501,090 563,174 873,855 56,669 107,305 244,843 Opportunity - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 62,985 115,280 176,349 (10,183) 29,590 40,451 - ---------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 608,683 1,388,577 1,821,533 115,052 346,497 635,918 - ---------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 313,115 346,932 371,626 (19,725) 79,024 107,815 - ---------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 1,182,244 1,485,792 2,115,452 181,059 389,650 2,736,405 - ---------------------------------------------------------------------------------------------------------------------------- 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 Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (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 June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (j) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (k) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. 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 Statement of Additional Information - July 30, 2008 Page 134 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, up to 0.75% of the fee is reimbursed for distribution expenses. Up to an additional 0.25% is paid to the distributor to reimburse certain expenses incurred in connection with providing services to fund shareholders. For Class R2, up to 0.50% and for Class R3, up to 0.25% shall be reimbursed for distribution expenses. Of that amount, for Class R2, up to 0.25% 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, up to 0.75% of the fee is reimbursed for distribution expenses. Up to an additional 0.10% 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 stated amount 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 RiverSource 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 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 Statement of Additional Information - July 30, 2008 Page 135 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 $395,078 $253,523 $67,715 N/A N/A N/A N/A Income(a) - ------------------------------------------------------------------------------------------------------------ Income Builder Enhanced 489,209 252,693 82,441 N/A N/A N/A N/A Income(a) - ------------------------------------------------------------------------------------------------------------ Income Builder Moderate 875,976 478,229 129,187 N/A N/A N/A N/A Income(a) - ------------------------------------------------------------------------------------------------------------ Portfolio Builder 1,096,237 1,014,125 144,874 N/A N/A N/A N/A Aggressive - ------------------------------------------------------------------------------------------------------------ Portfolio Builder 228,152 361,758 58,657 N/A N/A N/A N/A Conservative - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 1,723,291 1,975,620 319,534 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 2,192,065 2,083,589 310,922 N/A N/A N/A N/A Aggressive - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 563,053 734,653 143,621 N/A N/A N/A N/A Conservative - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Total 1,006,389 932,272 136,484 N/A N/A N/A N/A Equity - ------------------------------------------------------------------------------------------------------------ S&P 500 Index N/A N/A N/A 139,253 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Small Company Index 1,897,269 1,844,630 N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------ Equity Value 2,578,435 1,585,388 63,308 N/A 26 13 13 - ------------------------------------------------------------------------------------------------------------ Partners Small Cap Growth 262,998 382,183 44,120 N/A 24 12 N/A - ------------------------------------------------------------------------------------------------------------ Precious Metals and Mining 273,178 179,634 21,128 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Small Cap Advantage 891,269 920,220 70,397 N/A 19 10 N/A - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity(b) 27,941 6,806 2,020 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ 130/30 U.S. Equity(b) 8,748 2,556 1,104 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 4,890 N/A N/A N/A 24 12 N/A - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 8,361 N/A N/A N/A 24 13 N/A - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 7,167 N/A N/A N/A 24 13 N/A - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 5,406 N/A N/A N/A 25 13 N/A - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 5,279 N/A N/A N/A 25 15 N/A - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 2,921 N/A N/A N/A 24 13 N/A - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 2,156 N/A N/A N/A 24 13 N/A - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 2,037 N/A N/A N/A 25 13 N/A - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------ High Yield Bond $3,139,852 $2,195,630 $211,821 N/A $27 $11 $140,313 - ------------------------------------------------------------------------------------------------------------ Partners Aggressive Growth 989,015 834,358 23,191 N/A 190 15 N/A - ------------------------------------------------------------------------------------------------------------ Partners Fundamental Value 1,820,164 1,938,445 170,196 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Partners Select Value 944,904 936,623 75,555 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Partners Small Cap Equity 557,309 310,825 26,458 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Partners Small Cap Value 1,256,997 1,776,490 136,505 N/A 802 10 N/A - ------------------------------------------------------------------------------------------------------------ Short Duration U.S. 1,342,344 1,762,259 97,004 N/A N/A N/A 12 Government - ------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 260,643 373,486 45,007 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 136
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 2,921,042 2,684,130 189,487 N/A N/A N/A 8 - ------------------------------------------------------------------------------------------------------------ Real Estate 362,012 303,076 22,109 N/A N/A N/A 7 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------ Cash Management 4,173,165 726,794 20,932 N/A N/A N/A 20,714 - ------------------------------------------------------------------------------------------------------------ Disciplined Equity 3,592,175 774,204 30,535 N/A 15 7 360,341 - ------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid 36,017 7,170 845 N/A N/A N/A 13,719 Cap Equity - ------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 34,465 4,763 349 N/A 16 7 N/A - ------------------------------------------------------------------------------------------------------------ Floating Rate 850,476 411,313 148,157 N/A N/A N/A 8 - ------------------------------------------------------------------------------------------------------------ Growth 6,060,271 4,642,489 201,604 N/A 16 8 9 - ------------------------------------------------------------------------------------------------------------ Income Opportunities 473,678 539,206 53,830 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Inflation Protected 197,429 254,136 22,157 N/A N/A N/A 8 Securities - ------------------------------------------------------------------------------------------------------------ Large Cap Equity 13,273,226 11,344,113 344,990 N/A 16 8 N/A - ------------------------------------------------------------------------------------------------------------ Large Cap Value 160,778 188,820 11,437 N/A 14 7 N/A - ------------------------------------------------------------------------------------------------------------ Limited Duration Bond 166,025 127,161 17,304 N/A N/A N/A 8 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------ California Tax-Exempt 412,060 82,230 20,739 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Diversified Bond 4,860,209 3,704,597 168,420 N/A 18 8 128,130 - ------------------------------------------------------------------------------------------------------------ Minnesota Tax-Exempt 751,419 265,289 76,915 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ New York Tax-Exempt 153,046 59,859 9,503 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------ Balanced 2,372,601 664,087 47,138 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Disciplined Large Cap 1,799 596 94 N/A 18 9 N/A Growth(c) - ------------------------------------------------------------------------------------------------------------ Diversified Equity Income 15,091,455 12,454,200 1,006,485 N/A 37 25,993 10 - ------------------------------------------------------------------------------------------------------------ Mid Cap Value 4,403,769 3,263,100 328,848 N/A 195 272 10 - ------------------------------------------------------------------------------------------------------------ Strategic Allocation 3,858,078 2,055,354 433,308 N/A 21 10 N/A - ------------------------------------------------------------------------------------------------------------ Strategic Income 72,743 12,441 3,633 N/A N/A N/A N/A Allocation(c) - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------ Absolute Return Currency 12,511 103 121 N/A N/A N/A 12 and Income - ------------------------------------------------------------------------------------------------------------ Disciplined International 35,989 12,465 1,873 N/A N/A N/A 302,194 Equity - ------------------------------------------------------------------------------------------------------------ Emerging Markets Bond 23,088 6,858 967 N/A N/A N/A 43,590 - ------------------------------------------------------------------------------------------------------------ Global Bond 653,140 555,147 27,011 N/A N/A N/A 27,525 - ------------------------------------------------------------------------------------------------------------ Global Technology 316,437 417,897 35,534 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Partners International 864,996 713,266 53,784 N/A N/A N/A N/A Select Growth - ------------------------------------------------------------------------------------------------------------ Partners International 4,540,785 4,105,615 323,352 N/A N/A N/A N/A Select Value - ------------------------------------------------------------------------------------------------------------ Partners International 187,148 182,855 11,413 N/A N/A N/A N/A Small Cap - ------------------------------------------------------------------------------------------------------------ Threadneedle Emerging 1,243,096 824,011 54,847 N/A N/A N/A N/A Markets - ------------------------------------------------------------------------------------------------------------ Threadneedle European 249,567 307,051 17,890 N/A N/A N/A N/A Equity - ------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity 1,638,700 1,107,840 68,437 N/A 24 12 12 - ------------------------------------------------------------------------------------------------------------ Threadneedle International 1,217,677 773,607 35,773 N/A 23 12 N/A Opportunity - ------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 137
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 176,543 83,974 32,953 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Mid Cap Growth 2,325,844 1,652,668 75,602 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 1,823,472 352,820 53,497 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 6,999,748 1,047,672 155,358 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 123,262 N/A N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year effective Jan. 31, 2008 from May 31 to Jan. 31. the information shown is for the period from June 1, 2007 through Jan. 31, 2008. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. PAYMENTS TO FINANCIAL INSTITUTIONS 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 institutions, including inter-company allocation of resources or payment to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions sell fund shares and provide services to their clients who are shareholders of the funds. These payments and intercompany allocations (collectively, "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 institutions 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 institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution 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 institution, 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 institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions 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 institution charges its representatives for effecting transactions in the funds. The amount of payment varies by financial institution, and often is 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 institution 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 institution'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 institution's organization, including placement of the fund on the financial institution's preferred or recommended list. The distributor may also obtain greater access to sales meetings, sales representatives, and management representatives of the financial institution, 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 institution. PROGRAM AND SHAREHOLDER SERVICING Payments may be made in support of recordkeeping, reporting, transaction processing, and other plan administration services provided by a financial institution 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. Statement of Additional Information - July 30, 2008 Page 138 A financial institution 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 institutions in order to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other financial institution employees, client and investor events and other financial institution-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 institutions 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 institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. FINANCIAL INSTITUTION ARRANGEMENTS The financial institution 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 institution may receive from the distributor or its affiliates related to your purchase or ownership of funds, please contact your financial institution. CUSTODIAN SERVICES Custody information varies depending on the fund's investment category. You can find your fund's investment category in Table 1. FOR BALANCED, EQUITY, FUNDS-OF-FUNDS, TAXABLE MONEY MARKET AND TAXABLE FIXED INCOME FUNDS OTHER THAN 120/20 CONTRARIAN EQUITY, 130/30 U.S. EQUITY, DIVERSIFIED BOND AND HIGH YIELD BOND: The fund's securities and cash are held by Ameriprise Trust Company, 200 Ameriprise Financial Center, Minneapolis, MN 55474, through a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. For its services, the fund pays the custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses. FOR 120/20 CONTRARIAN EQUITY AND 130/30 U.S. EQUITY: The fund's securities and cash are held by The Bank of New York, 90 Washington Street, New York, NY 10286, through a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. For its services, the fund pays the 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 The Bank of New York or in other financial institutions as permitted by law. FOR STATE TAX-EXEMPT FIXED INCOME, TAX-EXEMPT FIXED INCOME AND TAX-EXEMPT MONEY MARKET FUNDS, AS WELL AS DIVERSIFIED BOND AND HIGH YIELD BOND: The fund's securities and cash are held by U.S. Bank National Association, 180 E. Fifth St., St. Paul, MN 55101-1631, through a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. For its services, the fund pays the custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses. FOR ALL FUNDS: The custodian has entered into a subcustodian agreement with The Bank of New York, 90 Washington Street, New York, NY 10286. As part of this arrangement, securities purchased outside the United States are maintained in the custody of various foreign branches of The Bank of New York or in other financial institutions as permitted by law and by the fund's subcustodian agreement. Statement of Additional Information - July 30, 2008 Page 139 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, 2008 Page 140 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 24. FUND HISTORY TABLE FOR RIVERSOURCE FUNDS
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE BOND SERIES, 4/29/81, 6/13/86(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, 6/13/86(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, 6/31/86(1) Corporation NV/MN 8/31 SERIES, INC.(2) - ----------------------------------------------------------------------------------------------------------------------- RiverSource Diversified Bond 10/3/74 Yes Fund(3) - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE EQUITY SERIES, 3/18/57, 6/13/86(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 No 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; 6/13/86(1) Corporation NV/MN 1/31 INC.(7) - ----------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder 2/16/06 No Basic Income Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder 2/16/06 No Enhanced Income Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder 2/16/06 No 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) - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 141
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INTERNATIONAL 7/18/84 Corporation MN 10/31 SERIES, INC.(2) - ----------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined 5/18/06 Yes International Equity Fund - ----------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 6/26/00 Yes Fund(5),(11) - ----------------------------------------------------------------------------------------------------------------------- Threadneedle International 11/15/84 Yes Opportunity Fund(4),(5),(11) - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INVESTMENT SERIES, 1/18/40; 6/13/86(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, 6/13/86(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; 6/13/86(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 Yes - ----------------------------------------------------------------------------------------------------------------------- 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 130/30 U.S. 10/18/07 Yes Equity Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2010 Fund - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 142
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2015 Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2020 Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2025 Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2030 Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2035 Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2040 Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2045 Fund - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SHORT TERM 4/23/68, 6/13/86(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 - ----------------------------------------------------------------------------------------------------------------------- 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; 6/13/86(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, 6/13/86(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, 6/13/86(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 9/07 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 - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 143
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ----------------------------------------------------------------------------------------------------------------------- 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 9/15/99 Yes Portfolio - Growth Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/1/96 Yes Portfolio - High Yield Bond Fund(3) - ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 6/1/04 Yes Portfolio - Income Opportunities Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 10/13/81 Yes Portfolio - Large Cap Equity Fund(5) - ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 02/4/04 Yes Portfolio - Large Cap Value 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) - ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/15/99 Yes Portfolio - Small Cap Advantage Fund - ----------------------------------------------------------------------------------------------------------------------- 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) - -----------------------------------------------------------------------------------------------------------------------
* 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 7, 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 Statement of Additional Information - July 30, 2008 Page 144 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. Statement of Additional Information - July 30, 2008 Page 145 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. Each member oversees 101 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. TABLE 25. 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 53 Joint Audit - ---------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, RiverSource Funds, 1999- None Board Governance, 901 S. Marquette Ave. since 1999 2006; former Governor of Compliance, Minneapolis, MN 55402 Minnesota Contracts, Age 73 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 53 - ---------------------------------------------------------------------------------------------------------------------- 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 57 Graduate School of Business, Bentley College - ---------------------------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant None Board Governance, 901 S. Marquette Ave. since 1985 Compliance, Minneapolis, MN 55402 Executive, Age 73 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 Investment Review, Minneapolis, MN 55402 Joint Audit Age 72 - ---------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Valmont Industries, Board Governance, 901 S. Marquette Ave. since 2002 and Professor of Economics, Inc. (manufactures Compliance, Minneapolis, MN 55402 Chair of the Carleton College irrigation systems) Contracts, Age 69 Board since 2007 Executive, Investment Review - ---------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset None Compliance, 901 S. Marquette Ave. since 2004 Management, Inc. (private real Contracts, Minneapolis, MN 55402 estate and asset management Distribution, Age 55 company) Executive, Investment Review - ---------------------------------------------------------------------------------------------------------------------- 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 64 President, Forester Biotech (health management Investment Review programs) - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 146 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 Investment 53600 Ameriprise Financial since 2001, Vice Chief Investment Officer, Ameriprise Review Center President since Financial, Inc. and President, Chairman Minneapolis, MN 55474 2002 of the Board and Chief Investment Age 47 Officer, RiverSource Investments, LLC since 2005; Director, President and Chief Executive Officer, Ameriprise Certificate Company since 2006; Chairman of the Board, Chief Executive Officer and President, RiverSource Distributors, Inc. since 2006; Senior Vice President - Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 - --------------------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the fund's other officers are: TABLE 26. 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 since 2006; Age 42 Director and Vice President - Asset Management, Products and Marketing, RiverSource Distributors, Inc. since 2006; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004- 2006; President, Touchstone Investments, 2002- 2004 - -------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed 172 Ameriprise Financial Center since 2004 Income, Ameriprise Financial, Inc. and Minneapolis, MN 55474 RiverSource Investments, LLC since 2006; Vice Age 44 President - Investments, Ameriprise Certificate Company since 2003; Senior Vice President - Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 - -------------------------------------------------------------------------------------------------- Amy K. Johnson Vice President Vice President - Asset Management and Trust 5228 Ameriprise Financial Center since 2006 Company Services, RiverSource Investments, LLC Minneapolis, MN 55474 since 2006; Vice President - Operations and Age 42 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 52 Inc. since 2006 - --------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 147
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------- 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 48 since 2006 Inc. since 2006; Vice President, General Counsel and Secretary, Ameriprise Certificate Company since 2005; Vice President - Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002-2004 - -------------------------------------------------------------------------------------------------- Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance 172 Ameriprise Financial Center Officer since Officer, RiverSource Investments, LLC since Minneapolis, MN 55474 2006 2006; Director - Mutual Funds, Voyageur Asset Age 47 Management, 2003-2006; Director of Finance, Voyageur Asset Management, 2000-2003 - -------------------------------------------------------------------------------------------------- Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering 2934 Ameriprise Financial Center Prevention Officer, Ameriprise Financial, Inc. since Minneapolis, MN 55474 Officer since 2004; Manager Anti-Money Laundering, Age 44 2004 Ameriprise Financial, Inc., 2003-2004; Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 - --------------------------------------------------------------------------------------------------
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 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 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, Statement of Additional Information - July 30, 2008 Page 148 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 27. 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 6 5 6 N/A 0 5 7 January 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 1 6 N/A 2 5 6 March 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 N/A 1 5 6 April 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 0 1 5 5 May 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 2 6 N/A 1 5 8 June 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 3 6 N/A 1 5 8 July 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 3 6 N/A 1 5 8 August 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 N/A 1 5 8 September 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 N/A 1 5 7 October 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 N/A 1 5 7 November 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 N/A 1 5 7 December 31 - -----------------------------------------------------------------------------------------------------------------------
* Committee established April 2008. Statement of Additional Information - July 30, 2008 Page 149 BOARD MEMBER HOLDINGS The following table shows the Board members' dollar range of equity securities beneficially owned on Dec. 31, 2007 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 members. TABLE 28A. BOARD MEMBER HOLDINGS Based on net asset values as of Dec. 31, 2007:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Disciplined International Equity $1-$10,000 Over $100,000 ------------------------------------------------------------------------ Diversified Equity Income $1-$10,000 ------------------------------------------------------------------------ Equity Value Over $100,000 ------------------------------------------------------------------------ Global Equity Over $100,000 ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive $10,001-$50,000 ------------------------------------------------------------------------ Precious Metals & Mining $1-$10,000 ------------------------------------------------------------------------ Real Estate $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets Over $100,000 - --------------------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Cash Management $50,001-$100,000 Over $100,000 ------------------------------------------------------------------------ Disciplined Equity $10,001-$50,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Global Technology $10,001-$50,000 ------------------------------------------------------------------------ Partners International Select Value $10,001-$50,000 ------------------------------------------------------------------------ Portfolio Builder Moderate $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 - --------------------------------------------------------------------------------------------------------------------------------- Pamela G. Carlton None N/A None - --------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Growth* $50,001-$100,000 Over $100,000** ------------------------------------------------------------------------ Portfolio Builder Total Equity* $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation* Over $100,000 - --------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Disciplined Equity $50,001-$100,000 Over $100,000 ------------------------------------------------------------------------ Diversified Bond $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income $50,001-$100,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Growth $50,001-$100,000 ------------------------------------------------------------------------ High Yield Bond Over $100,000 ------------------------------------------------------------------------ Short Duration U.S. Government Over $100,000 ------------------------------------------------------------------------ Small Company Index Over $100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Global Equity $50,001-$100,000 - --------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind None N/A None - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 150
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Absolute Return Currency & Income* Over $100,000 Over $100,000** ------------------------------------------------------------------------ Cash Management* $10,001-$50,000 ------------------------------------------------------------------------ Disciplined International Equity* $50,001-$100,000 ------------------------------------------------------------------------ Diversified Equity Income* Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Growth* $1-$10,000 ------------------------------------------------------------------------ Mid Cap Growth $10,001-$50,000 ------------------------------------------------------------------------ Portfolio Builder Total Equity* $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets* $50,001-$100,000 - --------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Disciplined Equity* $50,001-$100,000 Over $100,000** ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Global Equity* Over $100,000 ------------------------------------------------------------------------ Growth $10,001-$50,000 ------------------------------------------------------------------------ Small Cap Advantage* $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 - --------------------------------------------------------------------------------------------------------------------------------- Alison Taunton Rigby 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Absolute Return Currency & Income $10,001-$50,000 ------------------------------------------------------------------------ Cash Management $1-$10,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Growth Over $100,000 ------------------------------------------------------------------------ Income Builder Enhanced Income Over $100,000 ------------------------------------------------------------------------ Mid Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Partners International Select Growth Over $100,000 ------------------------------------------------------------------------ Partners International Select Value Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets Over $100,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 151
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- William F. Truscott 120/20 Contrarian Equity $50,001-$100,000 Over $100,000 ------------------------------------------------------------------------ 130/30 U.S. Equity $50,001-$100,000 ------------------------------------------------------------------------ Cash Management Over $100,000 ------------------------------------------------------------------------ Disciplined Equity Over $100,000 ------------------------------------------------------------------------ Disciplined International Equity Over $100,000 ------------------------------------------------------------------------ Disciplined Small Cap Equity $10,001-$50,000 ------------------------------------------------------------------------ Diversified Bond Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity Over $100,000 ------------------------------------------------------------------------ Emerging Markets Bond $1-$10,000 ------------------------------------------------------------------------ Global Bond Fund Over $100,000 ------------------------------------------------------------------------ Global Technology $50,001-$100,000 ------------------------------------------------------------------------ Growth Over $100,000 ------------------------------------------------------------------------ High Yield Bond $10,001-$50,000 ------------------------------------------------------------------------ Income Builder Enhanced Income Over $100,000 ------------------------------------------------------------------------ Income Opportunities $10,001-$50,000 ------------------------------------------------------------------------ Mid Cap Value Over $100,000 ------------------------------------------------------------------------ Partners International Select Growth Over $100,000 ------------------------------------------------------------------------ Partners International Select Value $50,001-$100,000 ------------------------------------------------------------------------ Partners International Small Cap Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Equity Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Value Over $100,000 ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Over $100,000 ------------------------------------------------------------------------ Real Estate $50,001-$100,000 ------------------------------------------------------------------------ Retirement Plus 2035 $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Strategic Income Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Global Equity Over $100,000 - ---------------------------------------------------------------------------------------------------------------------------------
* Deferred compensation invested in share equivalents: A. Flynn Growth............................... $50,001-$100,000 Portfolio Builder Aggressive......... $10,001-$50,000 Strategic Allocation................. Over $100,000 B. Lewis Absolute Return Currency & Income.... Over $100,000 Cash Management...................... $1-$10,000 Disciplined International Equity..... $50,001-$100,000 Diversified Equity Income............ $50,001-$100,000 Growth Fund.......................... $1-$10,000 Portfolio Builder Total Equity....... $50,001-$100,000 Threadneedle Emerging Markets........ $50,001-$100,000 C. Paglia Disciplined Equity................... $50,001-$100,000 Small Cap Advantage.................. $50,001-$100,000 Threadneedle Global Equity........... Over $100,000
** Total includes deferred compensation invested in share equivalents. Statement of Additional Information - July 30, 2008 Page 152 This table shows the Board members' dollar range of equity securities beneficially owned on June 30, 2008 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 28B. BOARD MEMBER HOLDINGS -- AS OF QUARTER END Based on net asset values as of June 30, 2008:
AGGREGATE DOLLAR RANGE OF DOLLAR RANGE OF EQUITY EQUITY SECURITIES OF ALL SECURITIES IN THE FUND RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER FUND RANGE BY BOARD MEMBER RANGE - --------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Absolute Return Currency and Income $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity Over $100,000 ------------------------------------------------------------------------ International 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 $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $10,001-$50,000 - --------------------------------------------------------------------------------------------------------------------------------- Arne Carlson Cash Management $50,001-$100,000 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 $10,001-$50,000 ------------------------------------------------------------------------ Portfolio Builder Moderate $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 - --------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Growth* $50,000-$100,000 Over $100,000** ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive* $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation* Over $100,000 - --------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Disciplined Equity $50,001-$100,000 Over $100,000 ------------------------------------------------------------------------ Diversified Bond $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income $50,001-$100,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Growth $10,001-$50,000 ------------------------------------------------------------------------ High Yield Bond Over $100,000 ------------------------------------------------------------------------ Short Duration U.S. Government Over $100,000 ------------------------------------------------------------------------ Small Company Index Over $100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Global Equity $50,001-$100,000 - --------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind Cash Management Over $100,000 Over $100,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 153
AGGREGATE DOLLAR RANGE OF DOLLAR RANGE OF EQUITY EQUITY SECURITIES OF ALL SECURITIES IN THE FUND RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER FUND RANGE BY BOARD MEMBER RANGE - --------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 120/20 Contrarian Equity $1-$10,000 Over $100,000** ------------------------------------------------------------------------ Absolute Return Currency and Income* Over $100,000 ------------------------------------------------------------------------ Disciplined Growth* $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income* Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Mid Cap Growth $10,001-$50,000 ------------------------------------------------------------------------ Portfolio Builder Total Equity* $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets* $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle International Opportunity* $50,001-$100,000 - --------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Diversified Equity Income $10,001-$50,000 Over $100,000** ------------------------------------------------------------------------ Growth $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Global Equity* Over $100,000 - --------------------------------------------------------------------------------------------------------------------------------- Alison Taunton Rigby 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Absolute Return Currency and Income $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Emerging Markets Over $100,000 ------------------------------------------------------------------------ Growth $50,000- $100,000 ------------------------------------------------------------------------ Income Builder Enhanced Income Over $100,000 ------------------------------------------------------------------------ International Select Growth Over $100,000 ------------------------------------------------------------------------ International Select Value Over $100,000 ------------------------------------------------------------------------ Mid Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Small Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 154
AGGREGATE DOLLAR RANGE OF DOLLAR RANGE OF EQUITY EQUITY SECURITIES OF ALL SECURITIES IN THE FUND RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER FUND RANGE BY BOARD MEMBER RANGE - --------------------------------------------------------------------------------------------------------------------------------- Ted Truscott 120/20 Contrarian Equity $50,001-$100,000 Over $100,000 ------------------------------------------------------------------------ 130/30 U.S. Equity $50,001-$100,000 ------------------------------------------------------------------------ Absolute Return Currency and Income $50,001-$100,000 ------------------------------------------------------------------------ Cash Management Over $100,000 ------------------------------------------------------------------------ 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 $10,001-$50,000 ------------------------------------------------------------------------ Floating Rate $10,001-$50,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Global Equity Over $100,000 ------------------------------------------------------------------------ Global Technology $10,001-$50,000 ------------------------------------------------------------------------ Growth Over $100,000 ------------------------------------------------------------------------ High Yield Bond $10,001-$50,000 ------------------------------------------------------------------------ Income Builder Enhanced Income $50,000- $100,000 ------------------------------------------------------------------------ Income Opportunities $50,001-$100,000 ------------------------------------------------------------------------ Inflation Protected Securities $10,001-$50,000 ------------------------------------------------------------------------ International Select Growth Over $100,000 ------------------------------------------------------------------------ International Select Value $50,001-$100,000 ------------------------------------------------------------------------ International Small Cap Over $100,000 ------------------------------------------------------------------------ Mid Cap Value Over $100,000 ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive $50,000-$100,000 ------------------------------------------------------------------------ Retirement Plus 2035 $10,001-$50,000 ------------------------------------------------------------------------ Small Cap Equity Over $100,000 ------------------------------------------------------------------------ Small Cap Value Over $100,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Strategic Income Allocation Over $100,000 ------------------------------------------------------------------------
* Deferred compensation invested in share equivalents: A. Flynn Growth............................... $50,001-$100,000 Portfolio Builder Moderate $10,001-$50,000 Aggressive........................... Strategic Allocation................. Over $100,000 B. Lewis Absolute Return Currency and Income.. Over $100,000 Disciplined Growth................... $10,001-$50,000 Diversified Equity Income............ $50,001-$100,000 Portfolio Builder Total Equity....... $50,001-$100,000 Threadneedle Emerging Markets........ $50,001-$100,000 Threadneedle International $50,001-$100,000 Opportunity.......................... C. Paglia Threadneedle Global Equity........... 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 less than 1% of the outstanding shares of any class of any fund. Statement of Additional Information - July 30, 2008 Page 155 COMPENSATION OF BOARD MEMBERS TOTAL COMPENSATION. The following table shows the total compensation paid to independent Board members from all the RiverSource funds in the last fiscal period. TABLE 29. BOARD MEMBER COMPENSATION - ALL FUNDS
TOTAL CASH COMPENSATION FROM RIVERSOURCE BOARD MEMBER(a) FUNDS PAID TO BOARD MEMBER - ---------------------------------------------------------------------------------------------- Kathleen Blatz $158,750 - ---------------------------------------------------------------------------------------------- Arne H. Carlson 153,750 - ---------------------------------------------------------------------------------------------- Pamela G. Carlton 134,583 - ---------------------------------------------------------------------------------------------- Patricia M. Flynn 153,750(b) - ---------------------------------------------------------------------------------------------- Anne P. Jones 153,750 - ---------------------------------------------------------------------------------------------- Jeffrey Laikind 148,750 - ---------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 391,250(b) - ---------------------------------------------------------------------------------------------- Catherine James Paglia 158,750(b) - ---------------------------------------------------------------------------------------------- Alison Taunton-Rigby 148,750 - ----------------------------------------------------------------------------------------------
(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. Flynn, Mr. Lewis and Ms. Paglia elected to defer a portion of the total cash compensation payable during the period in the amount of $67,708, $92,375 and $158,750, respectively. Amount deferred by fund is set forth in Table 30. 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 RiverSource 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, 2008 Page 156 COMPENSATION FROM EACH FUND. The following table shows the compensation paid to independent Board members from each fund during its last fiscal period. TABLE 30. BOARD MEMBER COMPENSATION -- INDIVIDUAL FUNDS
AGGREGATE COMPENSATION FROM FUND ------------------------------------------------------------------------------------------------ TAUNTON- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA 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 468 437 262 454 445 439 1,178 460 431 Amount deferred 0 0 186 0 0 341 460 0 - ------------------------------------------------------------------------------------------------------------------------- Small Company Index -- total 1,675 1,565 925 1,625 1,592 1,571 4,235 1,647 1,543 Amount deferred 0 0 0 666 0 0 1,227 1,647 0 - ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------- Equity Value -- total 2,226 2,074 1,485 2,150 2,118 2,085 5,423 2,182 2,042 Amount deferred 0 0 0 906 0 0 1,436 2,182 0 - ------------------------------------------------------------------------------------------------------------------------- Partners Small Cap 365 340 244 352 347 341 891 358 335 Growth -- total Amount deferred 0 0 0 149 0 0 235 358 0 - ------------------------------------------------------------------------------------------------------------------------- Precious Metals and 238 225 167 231 228 223 590 235 221 Mining -- total Amount deferred 0 0 0 99 0 0 151 235 0 - ------------------------------------------------------------------------------------------------------------------------- Small Cap 826 760 515 793 783 773 1,992 802 750 Advantage -- total Amount deferred 0 0 0 331 0 0 541 802 0 - ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian 38 39 35 37 38 35 91 39 36 Equity -- total Amount deferred 0 0 0 17 0 0 17 39 0 - ------------------------------------------------------------------------------------------------------------------------- 130/30 U.S. 19 19 17 18 19 17 45 19 18 Equity -- total Amount deferred 0 0 0 9 0 0 9 19 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 3,058 2,945 2,563 2,957 2,957 2,867 7,494 3,047 2,856 Bond -- total Amount deferred 0 0 0 1,292 0 0 1,811 3,047 0 - -------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 157
AGGREGATE COMPENSATION FROM FUND ------------------------------------------------------------------------------------------------ TAUNTON- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY - ------------------------------------------------------------------------------------------------------------------------- Partners Aggressive $1,110 $1,075 $944 $1,075 $1,075 $1,040 $2,740 $1,110 $1,040 Growth -- total Amount deferred 0 0 0 474 0 0 645 1,110 0 - ------------------------------------------------------------------------------------------------------------------------- Partners Fundamental 1,939 1,870 1,629 1,875 1,876 1,817 4,759 1,933 1,811 Value -- total Amount deferred 0 0 0 822 0 0 1,139 1,933 0 - ------------------------------------------------------------------------------------------------------------------------- Partners Select 929 893 776 898 898 871 2,278 925 867 Value -- total Amount deferred 0 0 0 392 0 0 554 925 0 - ------------------------------------------------------------------------------------------------------------------------- Partners Small Cap 479 460 399 462 462 449 1,175 476 447 Equity -- total Amount deferred 0 0 0 202 0 0 286 476 0 - ------------------------------------------------------------------------------------------------------------------------- Partners Small Cap 1,311 1,254 1,079 1,267 1,265 1,231 3,207 1,301 1,220 Value -- total Amount deferred 0 0 0 548 0 0 796 1,301 0 - ------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government -- total 1,483 1,441 1,262 1,437 1,438 1,389 3,670 1,486 1,392 Amount deferred 0 0 0 637 0 0 851 1,486 0 - ------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage -- total 764 740 647 740 739 715 1,879 764 716 Amount deferred 0 0 0 326 0 0 442 764 0 - ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity -- total 2,682 4,351 N/A 2,552 2,855 2,775 5,583 2,632 2,447 Amount deferred 0 0 1,130 0 0 1,606 2,632 0 - ------------------------------------------------------------------------------------------------------------------------- Real Estate -- total 401 641 N/A 384 425 414 849 395 367 Amount deferred 0 0 169 0 0 245 395 0 - ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------- Cash 7,831 11,960 969 7,491 7,827 7,827 15,148 7,491 7,077 Management -- total Amount deferred 0 0 0 3,240 0 0 4,402 7,491 0 - ------------------------------------------------------------------------------------------------------------------------- Disciplined 4,147 6,259 552 3,964 4,124 4,124 8,033 3,964 3,743 Equity -- total Amount deferred 0 0 0 1,711 0 0 2,337 3,964 0 - ------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity -- total 75 67 23 72 70 70 170 72 67 Amount deferred 0 0 0 29 0 0 51 72 0 - ------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value -- total 36 32 8 34 33 33 84 34 32 Amount deferred 0 0 0 14 0 0 25 34 0 - ------------------------------------------------------------------------------------------------------------------------- Floating Rate -- total 873 1,059 136 835 845 845 1,895 835 780 Amount deferred 0 0 0 348 0 0 560 835 0 - ------------------------------------------------------------------------------------------------------------------------- Growth -- total 6,225 10,084 633 5,955 6,267 6,267 11,761 5,955 5,648 Amount deferred 0 0 0 2,604 0 0 3,400 5,955 0 - ------------------------------------------------------------------------------------------------------------------------- Income Opportunities -- total 626 1,026 61 599 632 632 1,183 599 569 Amount deferred 0 0 0 262 0 0 342 599 0 - ------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities -- total 553 862 77 531 553 553 1,038 531 502 Amount deferred 0 0 0 230 0 0 301 531 0 - ------------------------------------------------------------------------------------------------------------------------- Large Cap 13,514 23,263 1,243 12,902 13,751 13,751 24,507 12,902 12,290 Equity -- total Amount deferred 0 0 0 5,710 0 0 7,035 12,902 0 - ------------------------------------------------------------------------------------------------------------------------- Large Cap 187 307 19 179 188 188 350 179 170 Value -- total Amount deferred 0 0 0 78 0 0 101 179 0 - ------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond -- total 287 480 30 275 289 289 528 275 261 Amount deferred 0 0 0 121 0 0 152 275 0 - -------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 158
AGGREGATE COMPENSATION FROM FUND ------------------------------------------------------------------------------------------------ TAUNTON- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY - ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------- California Tax- Exempt -- total 325 473 47 311 329 329 655 311 295 Amount deferred 0 0 0 135 0 0 190 311 0 - ------------------------------------------------------------------------------------------------------------------------- Diversified Bond -- total 5,229 7,563 793 5,000 5,279 5,279 10,572 5,000 4,748 Amount deferred 0 0 0 2,171 0 0 3,071 5,000 0 - ------------------------------------------------------------------------------------------------------------------------- Minnesota Tax- Exempt -- total 620 903 87 593 626 626 1,247 593 563 Amount deferred 0 0 0 258 0 0 362 593 0 - ------------------------------------------------------------------------------------------------------------------------- New York Tax- Exempt -- total 128 189 18 122 130 130 255 122 116 Amount deferred 0 0 0 53 0 0 74 122 0 - ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------- Balanced -- total 2,015 2,758 484 1,923 2,039 2,039 4,261 1,923 1,825 Amount deferred 0 0 0 815 0 0 1,249 1,923 0 - ------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth -- total 44 42 35 44 42 42 94 44 42 Amount deferred 0 0 0 18 0 0 28 44 0 - ------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income -- total 13,740 17,680 3,684 13,164 13,732 13,732 29,971 13,164 12,473 Amount deferred 0 0 0 5,519 0 0 8,830 13,164 0 - ------------------------------------------------------------------------------------------------------------------------- Mid Cap Value -- total 3,987 4,948 1,144 3,827 3,958 3,958 8,837 3,827 3,623 Amount deferred 0 0 0 1,595 0 0 2,610 3,827 0 - ------------------------------------------------------------------------------------------------------------------------- Strategic 3,251 3,980 976 3,122 3,219 3,219 7,227 3,123 2,956 Allocation -- total Amount deferred 0 0 0 1,299 0 0 2,137 3,123 0 - ------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation -- total 68 63 48 65 65 65 163 65 63 Amount deferred 0 0 0 26 0 0 49 65 0 - ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income -- total 164 170 63 161 159 159 411 161 153 Amount deferred 0 0 0 66 0 0 122 161 0 - ------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity -- total 470 451 269 457 453 453 1,223 457 437 Amount deferred 0 0 0 184 0 0 366 457 0 - ------------------------------------------------------------------------------------------------------------------------- Emerging Markets 176 186 88 173 173 173 441 173 165 Bond -- total Amount deferred 0 0 0 71 0 0 131 173 0 - ------------------------------------------------------------------------------------------------------------------------- Global Bond -- total 874 1,047 260 861 883 883 2,055 861 817 Amount deferred 0 0 0 361 0 0 606 861 0 - ------------------------------------------------------------------------------------------------------------------------- Global 297 344 93 292 297 297 709 292 277 Technology -- total Amount deferred 0 0 0 122 0 0 209 292 0 - ------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth -- total 1,092 1,212 378 1,069 1,081 1,081 2,636 1,069 1,013 Amount deferred 0 0 0 442 0 0 781 1,069 - ------------------------------------------------------------------------------------------------------------------------- Partners International Select Value -- total 4,207 4,742 1,382 4,129 4,178 4,178 10,111 4,129 3,912 Amount deferred 0 0 0 1,711 0 0 2,994 4,129 0 - ------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap -- total 207 238 68 203 207 207 492 203 193 Amount deferred 0 0 0 84 0 0 146 203 0 - ------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging 1,124 1,282 377 1,105 1,120 1,120 2,700 1,105 1,049 Markets -- total Amount deferred 0 0 0 459 0 0 799 1,105 0 - ------------------------------------------------------------------------------------------------------------------------- Threadneedle European 232 265 74 228 231 231 556 228 6,216 Equity -- total Amount deferred 0 0 0 95 0 0 164 228 0 - -------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 159
AGGREGATE COMPENSATION FROM FUND ------------------------------------------------------------------------------------------------ TAUNTON- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY - ------------------------------------------------------------------------------------------------------------------------- Threadneedle Global 1,377 1,598 432 1,354 1,378 1,378 3,273 1,354 1,284 Equity -- total Amount deferred 0 0 0 564 0 0 967 1,354 0 - ------------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity -- total 1,203 1,390 370 1,183 1,202 1,202 2,868 1,183 1,122 Amount deferred 0 0 0 492 0 0 848 1,183 0 - ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------- Intermediate Tax- 147 163 55 145 143 143 351 145 135 Exempt -- total Amount deferred 0 0 0 59 0 0 105 145 0 - ------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth -- total 2,083 2,367 795 2,051 2,032 2,032 4,957 2,050 1,916 Amount deferred 0 0 0 838 0 0 1,474 2,050 0 - ------------------------------------------------------------------------------------------------------------------------- Tax-Exempt 1,376 1,509 531 1,356 1,330 1,330 3,293 1,356 1,265 Bond -- total Amount deferred 0 0 0 552 0 0 981 1,356 0 - ------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High 5,211 5,715 1,998 5,132 5,038 5,038 12,467 5,132 4,789 Income -- total Amount deferred 0 0 0 2,090 0 0 3,713 5,132 0 - ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market -- total 226 208 114 222 211 211 556 222 208 Amount deferred 0 0 0 89 0 0 167 222 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 31. 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 37.17% -- Schwab) a brokerage firm in San Class R4 69.59% Francisco, CA ------------------------------------------------------------------------------------------ RiverSource Investments, LLC Class R4 30.41% -- (RiverSource Investments), Minneapolis, MN - -------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Charles Schwab Class A 40.95% -- Class R4 81.85% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 18.15% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 160
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 40.97% -- Class R4 52.46% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 47.54% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Charles Schwab Class R4 92.45% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 7.55% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class A 8.26% -- Conservative Class R4 58.40% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 41.60% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Charles Schwab Class R4 90.06% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 9.94% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 84.04% -- Moderate Aggressive ------------------------------------------------------------------------------------------ Fifth Third Bank TTEE, Cincinnati, OH Class R4 14.66% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 64.07% -- Moderate Conservative ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 35.93% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 93.54% -- Total Equity ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 6.46% -- - -------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index Charles Schwab Class D 100.00% -- Class E 18.11% ------------------------------------------------------------------------------------------ Wachovia Bank NA (Wachovia Bank), Class E 81.89% 63.64% Charlotte, NC - -------------------------------------------------------------------------------------------------------------------------------- Small Company Index Charles Schwab Class A 7.91% -- ------------------------------------------------------------------------------------------ GWFS Equities Inc.(GWFS Equities), Class R4 7.21% -- Greenwood Village, CO ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 88.29% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------------------------------------- Equity Value Charles Schwab Class A 8.14% -- ------------------------------------------------------------------------------------------ John C. Mullarkey, Willowbrook, IL Class C 5.00% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class R3 96.77% -- Class R4 98.43% - -------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Charles Schwab Class A 9.73% -- Class R4 98.42% ------------------------------------------------------------------------------------------ RiverSource Investments Class R2 100.00% 30.92%(a) Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.83% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 21.96% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.92% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.78% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.96% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 161
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 14.27% -- Class R4 98.39% ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- ------------------------------------------------------------------------------------------ John E. Bridgman, Minneapolis, MN Class C 6.51% -- ------------------------------------------------------------------------------------------ Richard L. Venable and Susan Angela Class C 7.76% -- Venable, Argyle, TX - -------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Charles Schwab Class A 9.73% -- Class R4 97.75% ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R3 100.00% Class R5 100.00% - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Charles Schwab Class A 52.74% -- ------------------------------------------------------------------------------------------ Donald W. and Donna M. Hardeman, Miami, Class B 4.51% -- FL ------------------------------------------------------------------------------------------ Jeffrey and Karen E. Leopardi, Boca Class C 6.00% -- Raton, FL ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R5 100.00% - -------------------------------------------------------------------------------------------------------------------------------- 130/30 U.S. Equity Charles Schwab Class A 61.36% -- ------------------------------------------------------------------------------------------ Donald W. and Ann F. Orminski, Yakima, Class B 5.21% -- WA ------------------------------------------------------------------------------------------ Beverly Smith, Leesburg, VA Class C 7.13% -- ------------------------------------------------------------------------------------------ Jennifer A Cobe, Natick, MA Class C 6.37% -- ------------------------------------------------------------------------------------------ Pedro L. and Lynn A. Lugo, Loomis, CA Class C 6.03% -- ------------------------------------------------------------------------------------------ Kathleen McCarthy Kirby, Andover, MA Class C 5.95% -- ------------------------------------------------------------------------------------------ Timothy J. and Patricia A. Turbak, St. Class C 5.66% -- Charles, IL ------------------------------------------------------------------------------------------ Michael Selig, Arlington, VA Class C 5.10% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% 43.30% Class R5 100.00% - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 RiverSource Investments Class R2 100.00% -- Class R3 100.00% -- Class R4 100.00% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.40% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 98.55% -- ------------------------------------------------------------------------------------------ In-Core, Decatur, GA Class A 12.42% -- ------------------------------------------------------------------------------------------ Jagdish N. and Madhuri J. Sheth, Class A 12.19% -- Atlanta, GA - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 RiverSource Investments Class R2 100.00% -- Class R3 100.00% -- Class R4 100.00% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ In-Core, Decatur, GA Class A 7.58% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.31% -- ------------------------------------------------------------------------------------------ Wachovia Bank NA, Charlotte, NC Class Y 99.20% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 162
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 RiverSource Investments Class R2 100.00% -- Class R3 100.00% -- Class R4 100.00% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 99.37% -- - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 RiverSource Investments Class R2 100.00% -- Class R3 100.00% -- Class R4 100.00% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 99.43% -- - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 RiverSource Investments Class R2 100.00% -- Class R3 100.00% -- Class R4 100.00% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 99.37% -- ------------------------------------------------------------------------------------------ John C. Bukowski, Suffern, NY Class A 17.47% -- ------------------------------------------------------------------------------------------ Stephen T. and Teresa T. Bockian, Class A 5.27% -- Orlando, FL - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 RiverSource Investments Class R2 100.00% -- Class R3 100.00% -- Class R4 100.00% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 98.51% -- ------------------------------------------------------------------------------------------ Gary L. and Karen L. Fournier, Class A 11.08% -- Vicksburg, MS ------------------------------------------------------------------------------------------ Richard and Stefanie A. Nelson, Hot Class A 7.93% -- Springs, SD ------------------------------------------------------------------------------------------ William Crossen, Tuckahoe, NY Class A 6.53% -- - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 RiverSource Investments Class R2 100.00% -- Class R3 100.00% -- Class R4 100.00% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 97.06% -- - -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 RiverSource Investments Class R2 100.00% -- -- Class R3 100.00% -- Class R4 100.00% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 97.29% -- ------------------------------------------------------------------------------------------ Anthony D. And Rebecca H. Marken, Class A 5.96% -- Lexington, MA - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 163
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 Ameriprise Financial Class R2 52.98% -- Class R3 100.00% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.94% -- Inc. Minneapolis, MN ------------------------------------------------------------------------------------------ Charles Schwab Class A 9.51% -- Class R4 79.90% -- ------------------------------------------------------------------------------------------ GWFS Equities Inc. Class R4 20.05% -- ------------------------------------------------------------------------------------------ ING Life Insurance and Annuity, Class R2 47.02% -- Hartford, CT ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 11.04% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 42.91% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 42.52% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth Ameriprise Financial Class R2 5.96% -- Class R3 100.00% -- Class R4 12.33% -- Class R5 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class R4 82.97% -- ------------------------------------------------------------------------------------------ GWFS Equities Inc. Class R2 94.04% -- ------------------------------------------------------------------------------------------ MLP Fenner & Smith, Inc., Jacksonville, Class C 11.01% -- FL ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.74% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.22% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.86% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.83% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.77% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Charles Schwab Class A 14.29% -- Class R4 98.39% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.73% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.30% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.87% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.86% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.69% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners Select Value Ameriprise Financial Class R4 14.56% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.07% -- Class R4 85.44% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.74% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.22% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.84% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.86% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.76% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity Ameriprise Financial Class I 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.52% -- Class R4 8.69% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 90.97% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 164
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Charles Schwab Class A 14.80% -- Class R4 93.84% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.62% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.13% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 32.04% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.78% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.79% -- ------------------------------------------------------------------------------------------ Ameriprise Financial Class R3 56.42% -- ------------------------------------------------------------------------------------------ Hartford Life Insurance Company Class R2 99.11% -- (Hartford Life), Weatogue, CT Class R3 43.58% -- ------------------------------------------------------------------------------------------ JP Morgan Chase Bank, Kansas City, MO Class R5 99.96% -- ------------------------------------------------------------------------------------------ - -------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Charles Schwab Class A 11.76% -- ------------------------------------------------------------------------------------------ Government GWFS Equities Inc. Class R4 17.39% -- ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 29.71% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 15.82% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate aggressive Class I 22.71% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 32.29% -- Fund ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 81.54% -- ------------------------------------------------------------------------------------------ Ameriprise Financial Class W 100.00% -- - -------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Charles Schwab Class A 18.44% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 38.42% 56.31%(a) ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 12.55% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 49.03% -- ------------------------------------------------------------------------------------------ Wells Fargo Bank, Minneapolis, MN Class R4 99.88% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity RiverSource Investments Class W 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 23.55% -- Class R4 100.00% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 10.47% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 21.32% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 36.57% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 6.24% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 6.30% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 10.10% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 7.04% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 165
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Real Estate RiverSource Investments Class R4 8.28% 38.09%(a) Class W 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 16.35% -- Class R4 91.72% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 6.22% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 13.76% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 17.20% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 10.56% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 17.24% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 21.14% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 9.77% -- - -------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------------- Cash Management RiverSource Investments Class R5 100.00% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.99% -- Inc. ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 41.56% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 13.61% -- ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 14.03% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 15.48% -- Fund ------------------------------------------------------------------------------------------ Stanson Nimiroski, Branford, CT Class C 7.31% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 95.15% -- - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.99% -- Inc. ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 6.17% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 13.86% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.05% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 9.16% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 14.57% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 10.17% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2020 Class I 5.29% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2025 Class I 5.24% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2030 Class I 5.12% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.69% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 166
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 50.89% 52.21%(a) Mid Cap Equity Class C 5.54% Class R4 67.87% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.99% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 11.08% -- Class R4 32.13% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 10.94% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 11.16% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 17.54% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 12.27% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2020 Class I 7.86% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2025 Class I 8.56% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2030 Class I 8.40% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2040 Class I 6.22% -- ------------------------------------------------------------------------------------------ Deanna L. Rose, Punta Gorda, FL Class C 9.54% -- ------------------------------------------------------------------------------------------ William E. and MaryLou K. Carroll, Class C 8.20% -- Punta Gorda, FL ------------------------------------------------------------------------------------------ Contemporary Gardens, Honolulu, HI Class C 6.43% -- ------------------------------------------------------------------------------------------ Mary Ruth Neal, Sacramento, CA Class C 6.05% -- ------------------------------------------------------------------------------------------ Don M. and Barbara A. Warner, Class C 5.68% -- Fair Oaks, CA ------------------------------------------------------------------------------------------ Claude V. and Julianna K. Neighbors, Class C 5.48% -- Lynchburg, VA ------------------------------------------------------------------------------------------ Kenneth E. and Elaine M. Jacobsen, Class C 5.45% -- Madison, SD ------------------------------------------------------------------------------------------ Heidi and Norbert Schuchbauer, Class C 5.00% -- Fair Oaks, CA - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 167
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value RiverSource Investments Class A 73.83% 89.88%(a) Class C 14.89% Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ David G. and Sharon M. Michaud, Class B 7.49% -- Gorham, ME ------------------------------------------------------------------------------------------ Joanne and David J. Thorpe, Lakeville, Class B 7.05% -- MA ------------------------------------------------------------------------------------------ David J. Heck, Clermont, FL Class B 6.72% -- ------------------------------------------------------------------------------------------ Keith and Sandra Crowell, Class C 30.65% -- Huntersville, NC ------------------------------------------------------------------------------------------ Dale T. and Jennie I. Metzgar, Class C 15.84% -- Shavertown, PA ------------------------------------------------------------------------------------------ Ronald E. and Linda F. Dearing, Class C 11.35% -- Fort Wayne, IN ------------------------------------------------------------------------------------------ Douglas E. and Cynthia A. Thompson, Class C 10.91% -- Churubusco, IN ------------------------------------------------------------------------------------------ Robert and Lynn M. Schuster, Class C 6.88% -- Richardson, TX ------------------------------------------------------------------------------------------ Robert W. and Wanda J. Jordan, Class C 6.71% -- Beverly Hills, MI ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 29.69% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 31.02% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 39.25% -- - -------------------------------------------------------------------------------------------------------------------------------- Floating Rate RiverSource Investments Class W 100.00% 28.27%(a) ------------------------------------------------------------------------------------------ Charles Schwab Class A 55.60% -- Class R4 96.93% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 8.06% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 37.18% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 52.66% -- - -------------------------------------------------------------------------------------------------------------------------------- Growth RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 9.00% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.72% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 19.97% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.81% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.09% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 22.16% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 47.89% -- ------------------------------------------------------------------------------------------ Ameriprise Trust Company Class R4 43.02% -- ------------------------------------------------------------------------------------------ New York Life Trust Company, New York, Class R4 5.67% -- NY - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 168
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Income Opportunities Charles Schwab Class A 17.46% -- Class R4 93.49% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 11.18% 28.33%(a) ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 59.65% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 24.81% -- Fund ------------------------------------------------------------------------------------------ RiverSource Life Insurance Company Class R4 6.51% -- - -------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities RiverSource Investments Class W 100.00% 78.59%(a) ------------------------------------------------------------------------------------------ RiverSource Life Insurance Company Class R4 65.66% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 19.90% -- Class R4 34.34% ------------------------------------------------------------------------------------------ Mary and George Forsman, Class C 5.23% -- Minneapolis, MN ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 6.36% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.90% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 30.84% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 36.64% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.38% -- Fund - -------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% ------------------------------------------------------------------------------------------ The Bank of New York Class R5 99.98% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.71% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.04% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.71% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.09% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 22.19% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.89% -- - -------------------------------------------------------------------------------------------------------------------------------- Large Cap Value RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 30.36% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.75% -- Class R4 69.64% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.56% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 19.96% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.92% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.16% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 22.11% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 169
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond RiverSource Investments Class W 12.19% 52.48%(a) ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 87.81% -- Inc. ------------------------------------------------------------------------------------------ RiverSource Life Insurance Company Class R4 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 18.56% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 60.09% -- ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 39.90% -- ------------------------------------------------------------------------------------------ John W. and Cecelia E. Kramar, Class C 17.08% -- Hacienda Heights, CA ------------------------------------------------------------------------------------------ Mary Loretta Jacobsmeyer, Riverside, CA Class C 8.07% -- ------------------------------------------------------------------------------------------ Michael N. Stanley, Palm Springs, CA Class C 7.88% -- ------------------------------------------------------------------------------------------ Rita R. and Lawrence E. Dale, Barstow, Class C 6.52% -- CA ------------------------------------------------------------------------------------------ John B. Mudd, Riverside, CA Class C 5.00% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Linda A. Wochnik, Sierra Madre, CA Class B 10.88% -- ------------------------------------------------------------------------------------------ Wells Fargo Bank Class C 7.91% -- ------------------------------------------------------------------------------------------ Robert P. and Diane E. Minger, Huntley, Class C 6.03% -- IL ------------------------------------------------------------------------------------------ Yu Chuan Chen, Tyan Yue Hwu and Vanessa Class C 5.88% -- Hwu, Walnut, CA - -------------------------------------------------------------------------------------------------------------------------------- Diversified Bond RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.99% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 6.99% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R4 5.01% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Fund Class I 7.35% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 8.27% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 38.13% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 28.74% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 10.16% -- Fund ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 93.57% -- - -------------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None None N/A -- - -------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Charles Schwab Class A 7.81% -- ------------------------------------------------------------------------------------------ Joan Sabbatini, E. Northport, NY Class B 6.27% -- ------------------------------------------------------------------------------------------ Ena S. Ryan, Brooklyn, NY Class C 7.69% -- ------------------------------------------------------------------------------------------ Ottoviano Asarese, Buffalo, NY Class C 5.34% -- ------------------------------------------------------------------------------------------ Arthur and Sandra Ezersky, Woodbury, NY Class C 5.29% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------------- Balanced Wachovia Bank Class R4 99.81% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 170
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Charles Schwab Class A 36.15% -- ------------------------------------------------------------------------------------------ Joyce S. Tsuji and Laurence Lance, Class B 8.39% -- Renton, WA ------------------------------------------------------------------------------------------ Fred A. and Christine F. Fox, Clarkston, Class B 6.71% -- MI ------------------------------------------------------------------------------------------ Neocles G. and Karen S. Athanasiades, Class B 5.47% -- East Setauket, NY ------------------------------------------------------------------------------------------ Michael L. and Melissa M. Gunderson, Class C 28.22% -- Marschall, MN ------------------------------------------------------------------------------------------ Robert M. and Patricia A. Smith, Class C 19.30% -- Camarillo, CA ------------------------------------------------------------------------------------------ Paul L. and Denise B. Powell, North Class C 13.14% -- Hampton, NH ------------------------------------------------------------------------------------------ Marilyn S. and Thomas S. Araki, Wailuku, Class C 7.17% -- HI ------------------------------------------------------------------------------------------ Robert L. Veeneman, Sarasota, FL Class C 5.13% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.35% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 19.96% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.39% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.10% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 21.89% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class C 27.04% 95.01%(a) Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% - -------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Charles Schwab Class A 26.75% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.61% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.13% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.66% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.15% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 22.18% -- ------------------------------------------------------------------------------------------ Hartford Life Class R2 89.67% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R2 7.71% -- Class R3 97.47% Class R5 16.22% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 47.97% -- ------------------------------------------------------------------------------------------ Wells Fargo Bank Class R4 31.13% -- ------------------------------------------------------------------------------------------ American Century Investments, Kansas Class R4 5.28% -- City, MO ------------------------------------------------------------------------------------------ Ameriprise Trust Company Class R5 84.09% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class W 100.00% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 171
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 39.47% -- ------------------------------------------------------------------------------------------ First Clearing L.L.C., Glen Allen, VA Class C 7.09% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.51% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.11% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.78% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.20% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 22.12% -- ------------------------------------------------------------------------------------------ Hartford Life Class R2 98.90% -- ------------------------------------------------------------------------------------------ JP Morgan Chase Bank Class R3 37.46% -- ------------------------------------------------------------------------------------------ Hartford Securities, Hartford, CT Class R3 29.81% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R3 27.61% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 39.95% -- ------------------------------------------------------------------------------------------ John Hancock Life Insurance Company, Class R4 31.22% -- Buffalo, NY ------------------------------------------------------------------------------------------ ING Life Insurance and Annuity Class R4 13.53% -- ------------------------------------------------------------------------------------------ National Financial Services Corp., New Class R4 6.03% -- York, NY ------------------------------------------------------------------------------------------ Matrix Capital Bank, Denver, CO Class R5 90.25% -- ------------------------------------------------------------------------------------------ Securian Financial Services, St. Paul, Class R5 9.41% -- MN - -------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation Charles Schwab Class A 14.68% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 78.72% -- ------------------------------------------------------------------------------------------ Charles Schwab Class R4 21.28% -- - -------------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation RiverSource Investments Class A 39.42% 36.02%(a) ------------------------------------------------------------------------------------------ Charles Schwab Class A 22.87% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency RiverSource Investments Class B 100.00% 77.27%(a) Income Class R4 17.62% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 61.36% -- Class R4 82.38% ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 11.62% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 21.09% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 9.81% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.53% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 16.10% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 19.12% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 8.82% -- ------------------------------------------------------------------------------------------ H&R Block Financial Advisors, Inc., Class C 8.16% -- Detroit, MI ------------------------------------------------------------------------------------------ Mark and Elizabeth Fiorini, San Hose, CA Class C 6.92% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 172
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity American Enterprise Investment Services, Class W 99.99% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 21.88% -- Class R4 80.72% ------------------------------------------------------------------------------------------ Linda A. O'Donnel, West Chester, OH Class C 5.52% -- ------------------------------------------------------------------------------------------ Chester and Jewel Carter, Sacramento, CA Class C 5.48% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 19.28% 28.45%(a) ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 16.65% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 19.16% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 7.16% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 6.65% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 6.92% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 10.78% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 7.52% -- - -------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond American Enterprise Investment Services, Class W 99.99% -- Inc. ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 55.69% 76.82%(a) Class C 5.81% ------------------------------------------------------------------------------------------ Charles Schwab Class A 23.52% -- Class R4 44.31% ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 35.97% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 46.47% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 16.50% -- ------------------------------------------------------------------------------------------ First Clearing L.L.C., Rochester, NY Class C 33.66% -- ------------------------------------------------------------------------------------------ Jeffrey L. and Cherl K. George, Canton, Class C 6.75% -- OH ------------------------------------------------------------------------------------------ Barbara J. and Paul E. Johnson, West Class C 5.60% -- Valley, UT ------------------------------------------------------------------------------------------ Steven C. and Beverly Glover, draper, UT Class C 5.56% -- - -------------------------------------------------------------------------------------------------------------------------------- Global Bond American Enterprise Investment Services, Class W 99.99% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.15% -- Class R4 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 6.22% 32.51%(a) ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 5.76% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 14.46% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 26.70% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 32.51% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 9.44% -- Fund - -------------------------------------------------------------------------------------------------------------------------------- Global Technology RiverSource Investments Class I 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 17.06% -- Class R4 99.68% - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 173
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Partners International Select Charles Schwab Class A 16.57% -- Growth Class R4 13.95% ------------------------------------------------------------------------------------------ New York Life Trust Company Class R4 80.44% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.45% 35.19%(a) ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.34% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.59% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.21% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 22.03% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners International Select Value Charles Schwab Class A 22.71% -- Class R4 98.85% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.46% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.33% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.59% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.22% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 22.01% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap RiverSource Investments Class R4 12.05% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 20.56% -- Class R4 87.89% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.48% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.45% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.45% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.20% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 21.98% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Charles Schwab Class A 15.34% -- Class R4 77.63% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.80% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.56% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.97% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.28% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 22.35% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 22.37% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity RiverSource Investments Class I 100.00% -- Class R4 9.13% ------------------------------------------------------------------------------------------ Charles Schwab Class A 14.22% -- Class R4 90.87% - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 14.66% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R4 10.89% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 85.99% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - July 30, 2008 Page 174
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle International RiverSource Investments Class R2 100.00% -- Opportunity Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.21% -- Class R4 52.52% ------------------------------------------------------------------------------------------ GWFS Equities Class R4 47.48% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 19.46% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.32% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.59% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.21% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 22.02% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Charles Schwab Class A 8.27% -- ------------------------------------------------------------------------------------------ John T. and Robin L. Lawrence, Beverly, Class B 5.63% MA ------------------------------------------------------------------------------------------ Jesse M. Annoye, Germantown, WI Class C 6.71% - -------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth Portfolio Builder Aggressive Fund Class I 19.39% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.43% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.65% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.28% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 21.93% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 69.55% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R4 25.26% -- - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond J. Haley Stephens, Calhoun, GA Class C 8.84% -- - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Lawrence Garner, Woodstock, GA and Class A 6.32% -- Ronald J. Garner, Wyckoff, NJ - --------------------------------------------------------------------------------------------------------------------------------
(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 RiverSource 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. Statement of Additional Information - July 30, 2008 Page 175 INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendant's motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on Aug. 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Board of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements for the fiscal year 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 KPMG LLP. 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, 2008 Page 176 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, 2008 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, 2008 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, 2008 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, 2008 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, 2008 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, 2008 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. S-6500 AL (7/08) Statement of Additional Information - July 30, 2008 C-1 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- MAY 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (84.3%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) U.S. GOVERNMENT OBLIGATIONS & AGENCIES (21.0%) Federal Farm Credit Bank 10-10-08 4.25% $6,015,000 $6,054,994 Federal Home Loan Bank 11-21-08 4.63 6,500,000 6,564,370 12-29-08 5.13 24,390,000 24,752,776 Federal Home Loan Mtge Corp 06-15-08 3.88 4,010,000 4,012,798 08-23-17 5.50 5,500,000 5,863,666 Federal Natl Mtge Assn 10-15-08 4.50 10,615,000 10,701,204 04-09-13 3.25 18,880,000 18,223,070 11-15-30 6.63 1,945,000 2,289,487 U.S. Treasury 04-30-10 2.13 12,430,000(b) 12,318,329 05-31-10 2.63 21,705,000(e) 21,698,228 12-15-10 4.38 10,550,000 10,962,938 05-15-18 3.88 4,300,000 4,239,869 U.S. Treasury Inflation-Indexed Bond 01-15-14 2.00 17,330,475(g) 18,161,406 01-15-15 1.63 22,353,000(g) 22,869,258 --------------- Total 168,712,393 - ------------------------------------------------------------------------------------ ASSET-BACKED (1.8%) Capital Auto Receivables Asset Trust Series 2006-SN1A Cl A4B 03-20-10 2.59 3,250,000(d,i) 3,227,747 Countrywide Asset-backed Ctfs Series 2007-7 Cl 2A2 10-25-37 2.55 2,600,000(i) 2,217,314 Fannie Mae Grantor Trust Series 2005-T4 Cl A1C 09-25-35 2.54 1,054,819(i) 1,044,469 MASTR Asset Backed Securities Trust Series 2006-HE1 Cl A2 01-25-36 2.53 747,697(i) 736,131 Residential Asset Securities Series 2007-KS3 Cl AI2 04-25-37 2.57 4,050,000(i) 3,576,636
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) ASSET-BACKED (CONT.) Soundview Home Equity Loan Trust Series 2006-EQ1 Cl A2 10-25-36 2.50% $3,900,000(i) $3,447,233 --------------- Total 14,249,530 - ------------------------------------------------------------------------------------ COMMERCIAL MORTGAGE-BACKED (1.7%)(f) Federal Home Loan Mtge Corp Multifamily Structured Pass-Through Ctfs Series K001 Cl A2 04-25-16 5.65 6,364,210 6,460,078 Federal Natl Mtge Assn #360800 01-01-09 5.74 3,006,335(n) 3,029,793 Federal Natl Mtge Assn #381990 10-01-09 7.11 4,091,489 4,167,643 --------------- Total 13,657,514 - ------------------------------------------------------------------------------------ MORTGAGE-BACKED (59.8%)(f,m) Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-1 Cl 3A21 03-25-37 6.15 1,948,005(h) 1,834,751 American Home Mtge Assets Collateralized Mtge Obligation Series 2007-2 Cl A2A 03-25-47 2.56 3,293,527(h) 2,074,064 American Home Mtge Investment Trust Collateralized Mtge Obligation Series 2007-1 Cl GA1C 05-25-47 2.58 4,242,441(h) 3,289,222 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2006-9 Cl 1CB1 01-25-37 6.00 3,390,849 3,036,400 Barclays Capital LLC Trust Collateralized Mtge Obligation Series 2007-AA4 Cl 11A1 06-25-47 6.21 1,328,261(h) 1,009,969
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 14 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04-25-35 7.50% $1,496,265 $1,434,734 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-2CB Cl A11 03-25-36 6.00 5,722,243 4,940,802 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-OA11 Cl A3B1 09-25-46 2.57 4,167,120(i) 3,830,878 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-22 Cl 2A16 09-25-37 6.50 4,601,386 4,054,972 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-25 Cl 1A1 11-25-37 6.50 4,648,885 4,236,115 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OA9 Cl A2 06-25-47 2.74 5,598,315(i) 4,066,381 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09-25-47 2.89 3,863,997(i) 2,231,724 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-HYB8 Cl 4A1 12-20-35 5.62 3,215,796(h) 2,326,896 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-R2 Cl 2A1 06-25-35 7.00 4,332,761(d) 4,083,474 Countrywide Home Loans Collateralized Mtge Obligation Series 2007-17 Cl 2A1 10-25-37 6.50 4,490,811 4,445,727 Federal Home Loan Mtge Corp 06-01-38 6.00 8,000,000(e) 8,122,496 06-01-38 6.50 12,000,000(e) 12,386,257 Federal Home Loan Mtge Corp #1G2264 10-01-37 6.03 6,456,394(h) 6,627,793 Federal Home Loan Mtge Corp #1G2598 01-01-37 6.12 2,508,402(h) 2,567,548
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp #1J0614 09-01-37 5.70% $3,263,270(h) $3,332,876 Federal Home Loan Mtge Corp #783049 03-01-35 4.85 6,215,555(h) 6,177,578 Federal Home Loan Mtge Corp #A18107 01-01-34 5.50 3,002,375 2,990,459 Federal Home Loan Mtge Corp #C00351 07-01-24 8.00 246,644 267,094 Federal Home Loan Mtge Corp #C00385 01-01-25 9.00 414,461 460,109 Federal Home Loan Mtge Corp #C80329 08-01-25 8.00 69,430 75,153 Federal Home Loan Mtge Corp #E00398 10-01-10 7.00 276,032 286,386 Federal Home Loan Mtge Corp #E81240 06-01-15 7.50 3,329,809 3,485,603 Federal Home Loan Mtge Corp #E90650 07-01-12 5.50 162,692 165,774 Federal Home Loan Mtge Corp #E92454 11-01-17 5.00 2,746,660 2,749,975 Federal Home Loan Mtge Corp #G00363 06-01-25 8.00 327,088 354,045 Federal Home Loan Mtge Corp #G00501 05-01-26 9.00 612,499 680,133 Federal Home Loan Mtge Corp #G10669 03-01-12 7.50 1,388,547 1,456,539 Federal Home Loan Mtge Corp #G11243 04-01-17 6.50 12,428,837 13,032,715 Federal Home Loan Mtge Corp #G12100 11-01-13 5.00 3,122,821 3,123,802 Federal Home Loan Mtge Corp #M30074 09-01-09 6.50 62,913 64,346 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 11 Cl B 01-01-20 17.54 7,061(k) 1,670 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 237 Cl IO 05-15-36 6.60 1,112,967(k) 294,109 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2590 Cl BI 02-15-14 50.12 711,585(k) 3,908
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 15
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2783 Cl MI 03-15-25 41.88% $3,177,468(k) $97,441 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only/Inverse Floater Series 2471 Cl SI 03-15-32 25.32 1,352,658(j,k) 149,490 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2617 Cl HD 06-15-16 7.00 6,335,511 6,585,943 Federal Natl Mtge Assn 06-01-38 5.00 2,500,000(e) 2,414,845 06-01-38 5.50 9,000,000(e) 8,935,308 06-01-38 6.00 4,500,000(e) 4,564,688 06-01-38 6.50 8,000,000(e) 8,247,504 Federal Natl Mtge Assn #125032 11-01-21 8.00 137,003 148,366 Federal Natl Mtge Assn #190129 11-01-23 6.00 980,843 1,003,801 Federal Natl Mtge Assn #190353 08-01-34 5.00 6,640,863 6,436,034 Federal Natl Mtge Assn #190785 05-01-09 7.50 74,483 74,702 Federal Natl Mtge Assn #190988 06-01-24 9.00 218,093 236,626 Federal Natl Mtge Assn #254384 06-01-17 7.00 326,456 342,025 Federal Natl Mtge Assn #254454 08-01-17 7.00 560,055 586,764 Federal Natl Mtge Assn #254723 05-01-23 5.50 8,790,214(n) 8,816,672 Federal Natl Mtge Assn #254748 04-01-13 5.50 5,324,419 5,423,420 Federal Natl Mtge Assn #254757 05-01-13 5.00 7,297,931 7,332,929 Federal Natl Mtge Assn #254774 05-01-13 5.50 1,704,312 1,733,507 Federal Natl Mtge Assn #255501 09-01-14 6.00 708,141(n) 725,858 Federal Natl Mtge Assn #303885 05-01-26 7.50 445,053 480,690 Federal Natl Mtge Assn #313007 07-01-11 7.50 186,834 193,687
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #313428 12-01-08 7.50% $1,387 $1,391 Federal Natl Mtge Assn #336512 02-01-26 6.00 63,192 64,718 Federal Natl Mtge Assn #357485 02-01-34 5.50 13,184,383 13,140,299 Federal Natl Mtge Assn #407327 01-01-14 5.50 402,885 409,918 Federal Natl Mtge Assn #456374 12-01-13 5.50 772,465 785,950 Federal Natl Mtge Assn #508402 08-01-14 6.50 261,541 271,883 Federal Natl Mtge Assn #545818 07-01-17 6.00 13,082,141 13,494,774 Federal Natl Mtge Assn #545864 08-01-17 5.50 10,832,051 11,037,976 Federal Natl Mtge Assn #545910 08-01-17 6.00 2,036,532 2,101,857 Federal Natl Mtge Assn #555063 11-01-17 5.50 7,799,946 7,946,725 Federal Natl Mtge Assn #555367 03-01-33 6.00 9,501,053(n) 9,700,872 Federal Natl Mtge Assn #579485 04-01-31 6.50 2,276,125(n) 2,395,615 Federal Natl Mtge Assn #593829 12-01-28 7.00 1,553,038 1,653,441 Federal Natl Mtge Assn #601416 11-01-31 6.50 765,524 800,977 Federal Natl Mtge Assn #630993 09-01-31 7.50 2,456,543 2,652,000 Federal Natl Mtge Assn #648040 06-01-32 6.50 2,153,933 2,238,946 Federal Natl Mtge Assn #648349 06-01-17 6.00 6,867,562(n) 7,087,844 Federal Natl Mtge Assn #651284 07-01-17 6.00 1,344,458 1,387,631 Federal Natl Mtge Assn #662866 11-01-17 6.00 1,165,637(n) 1,206,366 Federal Natl Mtge Assn #665752 09-01-32 6.50 1,184,465 1,231,214 Federal Natl Mtge Assn #670782 11-01-12 5.00 266,811 268,132 Federal Natl Mtge Assn #670830 12-01-12 5.00 409,589 411,956 Federal Natl Mtge Assn #671415 01-01-10 5.00 355,123 359,014 Federal Natl Mtge Assn #678940 02-01-18 5.50 2,071,723 2,110,422
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 16 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #686227 02-01-18 5.50% $2,737,518 $2,785,960 Federal Natl Mtge Assn #696837 04-01-18 5.50 2,940,296 2,993,858 Federal Natl Mtge Assn #704610 06-01-33 5.50 10,467,533(n) 10,432,533 Federal Natl Mtge Assn #712602 06-01-13 5.00 990,669 995,418 Federal Natl Mtge Assn #722325 07-01-33 4.96 5,004,441(h) 5,060,691 Federal Natl Mtge Assn #725232 03-01-34 5.00 9,851,975(n) 9,557,339 Federal Natl Mtge Assn #725425 04-01-34 5.50 9,184,956 9,157,055 Federal Natl Mtge Assn #725431 08-01-15 5.50 7,624,692 7,757,795 Federal Natl Mtge Assn #725773 09-01-34 5.50 7,779,139 7,745,835 Federal Natl Mtge Assn #730632 08-01-33 4.06 1,759,496(h) 1,760,736 Federal Natl Mtge Assn #735212 12-01-34 5.00 5,893,524 5,711,745 Federal Natl Mtge Assn #739243 09-01-33 6.00 2,909,087 2,988,651 Federal Natl Mtge Assn #739331 09-01-33 6.00 1,491,753 1,520,796 Federal Natl Mtge Assn #743524 11-01-33 5.00 2,942,024 2,854,039 Federal Natl Mtge Assn #753508 11-01-33 5.00 3,242,414(n) 3,145,446 Federal Natl Mtge Assn #791447 10-01-34 6.00 4,619,345 4,702,061 Federal Natl Mtge Assn #797046 07-01-34 5.50 2,778,576(n) 2,766,680 Federal Natl Mtge Assn #799769 11-01-34 5.05 3,888,967(h) 3,935,868 Federal Natl Mtge Assn #801344 10-01-34 5.05 4,301,717(h) 4,369,598 Federal Natl Mtge Assn #815463 02-01-35 5.50 1,833,638 1,825,787 Federal Natl Mtge Assn #832641 09-01-35 6.00 6,316,139 6,418,382 Federal Natl Mtge Assn #849082 01-01-36 5.82 2,686,500(h) 2,739,899 Federal Natl Mtge Assn #849170 01-01-36 5.94 3,433,100(h) 3,507,282 Federal Natl Mtge Assn #878661 02-01-36 5.50 7,642,170(n) 7,538,542
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #883267 07-01-36 6.50% $4,370,983(n) $4,563,126 Federal Natl Mtge Assn #887403 07-01-36 7.00 2,643,531 2,800,308 Federal Natl Mtge Assn #888989 06-01-37 6.06 6,157,959(h) 6,333,275 Federal Natl Mtge Assn #902818 11-01-36 5.91 2,136,461(h) 2,186,582 Federal Natl Mtge Assn #919341 05-01-37 6.50 3,437,068 3,547,290 Federal Natl Mtge Assn #928771 10-01-37 8.00 6,496,596(n) 6,919,920 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 163 Cl 2 07-25-22 28.60 546,443(k) 87,636 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-26 Cl MI 03-25-23 13.70 1,647,959(k) 313,880 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-63 Cl IP 07-25-33 7.52 3,767,136(k) 953,630 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-71 Cl IM 12-25-31 9.86 1,965,795(k) 337,582 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-81 Cl LI 11-25-13 20.00 2,883,100(k) 52,001 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 36 Cl 2 08-01-18 14.00 4,306(k) 1,121 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 367 Cl 2 01-01-36 6.57 2,776,543(k) 736,903
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 17
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 379 Cl 2 05-25-37 6.52% $5,352,772(k) $1,379,848 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 70 Cl 2 01-15-20 27.28 198,839(k) 39,377 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only/Inverse Floater Series 2002-18 Cl SE 02-25-32 27.33 2,842,791(j,k) 322,419 Federal Natl Mtge Assn Collateralized Mtge Obligation Principal Only Series G-15 Cl A 06-25-21 2.49 25,970(l) 23,257 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-133 Cl GB 12-25-26 8.00 1,925,489 2,036,199 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-94 Cl QB 07-25-23 5.50 3,209,787 3,215,573 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-W11 Cl A1 06-25-33 7.28 120,425(h) 120,847 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2004-60 Cl PA 04-25-34 5.50 3,269,449 3,313,956 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2006-60 Cl JF 10-25-35 2.82 5,590,018(i) 5,506,244 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2006-90 Cl FE 09-25-36 2.84 7,117,965(i) 7,080,705 Govt Natl Mtge Assn 06-01-38 5.50 5,000,000(e) 5,000,000 Govt Natl Mtge Assn #615740 08-15-13 6.00 746,339 770,200
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Govt Natl Mtge Assn #781507 09-15-14 6.00% $3,541,731 $3,657,031 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-62 Cl IC 03-20-29 20.00 1,522,591(k) 38,160 Govt Natl Mtge Assn Collateralized Mtge Obligation Series 2006-32 Cl A 01-16-30 5.08 8,783,674 8,864,848 Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2004-4 Cl 3A 06-19-34 3.83 393,650(h) 371,823 Lehman XS Trust Series 2006-16N Cl A1B 11-25-46 2.51 2,491,877(i) 2,300,434 Merrill Lynch Alternative Note Asset Collateralized Mtge Obligation Series 2007-OAR1 Cl A1 02-25-37 2.56 5,365,533(i) 4,177,054 Morgan Stanley Mtge Loan Trust Series 2006-13AX Cl A1 10-25-36 2.48 3,857,608(i) 3,369,665 Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2006-AR3 Cl A1A 02-25-46 4.79 1,889,490(h) 1,456,722 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-10 Cl A1 10-25-35 5.00 5,648,113 5,057,321 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-14 Cl 2A1 12-25-35 5.50 2,909,683 2,775,110 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-5 Cl 2A1 05-25-35 5.50 4,159,567 4,046,481 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR12 Cl 1A1 09-25-36 6.02 1,648,683(h) 1,628,277
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR6 Cl 5A1 03-25-36 5.11% $3,575,958(h) $3,455,489 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-11 Cl A68 08-25-37 6.00 4,729,138 4,465,820 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-15 Cl A1 11-25-37 6.00 3,320,161(e) 3,234,563 --------------- Total 481,705,371 - ------------------------------------------------------------------------------------ TOTAL BONDS (Cost: $688,552,899) $678,324,808 - ------------------------------------------------------------------------------------
MONEY MARKET FUND (1.6%)(c) SHARES VALUE(A) RiverSource Short-Term Cash Fund, 2.60% 12,901,974(o) $12,901,974 - ----------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $12,901,974) $12,901,974 - -----------------------------------------------------------------------------------
SHORT-TERM SECURITIES (23.4%)(c) AMOUNT EFFECTIVE PAYABLE AT ISSUER YIELD MATURITY VALUE(A) U.S. GOVERNMENT AGENCIES Federal Home Loan Bank Disc Nts 06-02-08 1.98% $63,800,000 $63,789,628 06-06-08 2.10 50,000,000 49,979,827 06-10-08 2.07 25,000,000 24,984,417 06-18-08 2.20 35,000,000 34,959,916 06-25-08 2.22 15,000,000 14,976,275 - ------------------------------------------------------------------------------------ TOTAL SHORT-TERM SECURITIES (Cost: $188,700,839) $188,690,063 - ------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $890,155,712)(p) $879,916,845 ====================================================================================
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT MAY 31, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - ------------------------------------------------------------------------------------ U.S. Long Bond, 20-year 30 $3,405,000 Sept. 2008 $(42,240) U.S. Treasury Note, 2-year 563 118,581,875 Sept. 2008 (326,467) U.S. Treasury Note, 5-year (412) (45,641,875) June 2008 1,306,402 U.S. Treasury Note, 5-year (69) (7,585,688) Sept. 2008 41,575 U.S. Treasury Note, 10-year (440) (50,139,377) June 2008 1,569,861 U.S. Treasury Note, 10-year (266) (29,900,062) Sept. 2008 (66,965) - ------------------------------------------------------------------------------------ Total $2,482,166 - ------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 19 NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) At May 31, 2008, security was partially or fully on loan. See Note 5 to the financial statements. (c) Cash collateral received from security lending activity is invested in an affiliated money market fund/short-term securities and represents 1.9% of net assets. See Note 5 to the financial statements. The Fund's cash equivalent position is 23.1% 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, 2008, the value of these securities amounted to $7,311,221 or 0.9% of net assets. (e) At May 31, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $74,993,839. See Note 1 to the financial statements. (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) 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. (h) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on May 31, 2008. (i) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on May 31, 2008. (j) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate disclosed is the rate in effect on May 31, 2008. At May 31, 2008, the value of inverse floaters represented 0.1% of net assets. (k) 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. Interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at May 31, 2008. (l) 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, 2008. - -------------------------------------------------------------------------------- 20 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (m) Comparable securities are held to satisfy future delivery requirements of the following open forward sale commitments at May 31, 2008:
PRINCIPAL SETTLEMENT PROCEEDS SECURITY AMOUNT DATE RECEIVABLE VALUE - --------------------------------------------------------------------------------------- Federal Natl Mtge Assn 06-01-23 5.50% $9,275,000 06-17-08 $9,390,938 $9,373,547
(n) At May 31, 2008, investments in securities included securities valued at $4,297,515 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (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, 2008. (p) At May 31, 2008, the cost of securities for federal income tax purposes was $898,115,672 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $6,583,564 Unrealized depreciation (24,782,391) - ------------------------------------------------------------------------------ Net unrealized depreciation $(18,198,827) - ------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 21 FINANCIAL STATEMENTS ----------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2008 ASSETS Investments in securities, at value Unaffiliated issuers* (identified cost $877,253,738) $ 867,014,871 Affiliated money market fund (identified cost $12,901,974) 12,901,974 - ------------------------------------------------------------------------------ Total investments in securities (identified cost $890,155,712) 879,916,845 Capital shares receivable 222,847 Dividends and accrued interest receivable 3,602,881 Receivable for investment securities sold 26,814,528 - ------------------------------------------------------------------------------ Total assets 910,557,101 - ------------------------------------------------------------------------------ LIABILITIES Forward sale commitments, at value (proceeds receivable $9,390,938) 9,373,547 Dividends payable to shareholders 153,257 Capital shares payable 1,437,850 Payable for investment securities purchased 3,655,269 Payable for securities purchased on a forward-commitment basis 74,993,839 Payable upon return of securities loaned 15,243,750 Variation margin payable 132,462 Accrued investment management services fees 10,554 Accrued distribution fees 154,657 Accrued transfer agency fees 1,534 Accrued administrative services fees 1,498 Accrued plan administration services fees 1,005 Other accrued expenses 557,617 - ------------------------------------------------------------------------------ Total liabilities 105,716,839 - ------------------------------------------------------------------------------ Net assets applicable to outstanding capital stock $ 804,840,262 ==============================================================================
- -------------------------------------------------------------------------------- 22 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) MAY 31, 2008 REPRESENTED BY Capital stock -- $.01 par value $ 1,698,674 Additional paid-in capital 1,003,944,353 Excess of distributions over net investment income (195,666) Accumulated net realized gain (loss) (192,867,789) Unrealized appreciation (depreciation) on investments (7,739,310) - ------------------------------------------------------------------------------ Total -- representing net assets applicable to outstanding capital stock $ 804,840,262 ==============================================================================
Net assets applicable to outstanding shares: Class A $ 539,251,179 Class B $ 158,544,398 Class C $ 9,625,747 Class I $ 92,658,581 Class R4 $ 4,755,371 Class W $ 4,986 Net asset value per share of outstanding Class A capital stock: shares(1) 113,827,935 $ 4.74 Class B shares 33,462,620 $ 4.74 Class C shares 2,031,863 $ 4.74 Class I shares 19,540,682 $ 4.74 Class R4 shares 1,003,265 $ 4.74 Class W shares 1,053 $ 4.74 - ------------------------------------------------------------------------------------------- *Including securities on loan, at value $ 14,865,150 - -------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $4.89. 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 -- 2008 ANNUAL REPORT 23 STATEMENT OF OPERATIONS YEAR ENDED MAY 31, 2008 INVESTMENT INCOME Income: Interest $37,133,856 Income distributions from affiliated money market fund 847,869 Fee income from securities lending 174,341 - --------------------------------------------------------------------------- Total income 38,156,066 - --------------------------------------------------------------------------- Expenses: Investment management services fees 3,816,196 Distribution fees Class A 1,342,344 Class B 1,762,259 Class C 97,004 Class W 12 Transfer agency fees Class A 991,548 Class B 344,487 Class C 18,568 Class R4 2,240 Class W 10 Administrative services fees 541,748 Plan administration services fee -- Class R4 11,201 Compensation of board members 14,998 Custodian fees 78,474 Printing and postage 152,710 Registration fees 92,859 Professional fees 43,826 Other 31,484 - --------------------------------------------------------------------------- Total expenses 9,341,968 Expenses waived/reimbursed by the Investment Manager and its affiliates (1,129,574) Earnings and bank fee credits on cash balances (56,289) - --------------------------------------------------------------------------- Total net expenses 8,156,105 - --------------------------------------------------------------------------- Investment income (loss) -- net 29,999,961 - --------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions 2,483,642 Futures contracts (1,383,657) - --------------------------------------------------------------------------- Net realized gain (loss) on investments 1,099,985 Net change in unrealized appreciation (depreciation) on investments (800,569) - --------------------------------------------------------------------------- Net gain (loss) on investments 299,416 - --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $30,299,377 ===========================================================================
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 24 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED MAY 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 29,999,961 $ 34,864,001 Net realized gain (loss) on investments 1,099,985 (3,231,933) Net change in unrealized appreciation (depreciation) on investments (800,569) 13,960,710 - --------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 30,299,377 45,592,778 - --------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (21,333,414) (23,143,295) Class B (5,699,109) (8,304,295) Class C (312,941) (382,419) Class I (2,868,438) (2,092,223) Class R4 (183,760) (521,296) Class W (196) (92) - --------------------------------------------------------------------------------------- Total distributions (30,397,858) (34,443,620) - --------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 206,496,511 123,697,762 Class B shares 42,734,598 39,042,955 Class C shares 2,621,382 1,714,861 Class I shares 69,048,377 28,598,207 Class R4 shares 2,801,130 1,928,332 Class W shares -- 5,000 Reinvestment of distributions at net asset value Class A shares 19,605,781 20,974,512 Class B shares 5,406,615 7,756,733 Class C shares 299,079 362,001 Class I shares 2,844,139 2,093,754 Class R4 shares 185,296 523,566 Payments for redemptions Class A shares (200,741,788) (279,123,681) Class B shares (105,920,795) (172,096,057) Class C shares (3,568,542) (6,479,313) Class I shares (33,540,963) (38,743,791) Class R4 shares (2,086,457) (17,374,573) - --------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 6,184,363 (287,119,732) - --------------------------------------------------------------------------------------- Total increase (decrease) in net assets 6,085,882 (275,970,574) Net assets at beginning of year 798,754,380 1,074,724,954 - --------------------------------------------------------------------------------------- Net assets at end of year $ 804,840,262 $ 798,754,380 ======================================================================================= Excess of distributions over net investment income $ (195,666) $ (68,629) - ---------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 25 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. Effective March 3, 2008, Class B shares were 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, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares, and the Investment Manager owned 100% of Class W shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at - -------------------------------------------------------------------------------- 26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 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. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. 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. 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-commitments. At May 31, 2008, the Fund has outstanding when-issued securities of $71,704,061 and other forward-commitments of $3,289,778. 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. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and sell put and call options and write put and call options. This may include purchasing mortgage-backed security (MBS) put spread options and writing covered MBS call spread options. MBS spread options are based upon the changes in the price spread between a specified mortgage-backed security and a like-duration Treasury security. The Fund also may write over-the-counter options where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 27 to secure certain over-the-counter options trades. Cash collateral held by the Fund for such option trades must be returned to the counter party upon closure, exercise or expiration of the contract. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Fund will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At May 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. 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 - -------------------------------------------------------------------------------- 28 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT "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. 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 the shareholders. No provision for income or excise taxes is thus required. The Fund has adopted Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," which is effective for fiscal periods beginning after Dec. 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. 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 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 - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 29 purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $270,860 and accumulated net realized loss has been decreased by $30,907,773 resulting in a net reclassification adjustment to decrease paid-in capital by $31,178,633. The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED MAY 31, 2008 2007* - ---------------------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income......................... $21,333,414 $23,143,295 Long-term capital gain.................. -- -- CLASS B Distributions paid from: Ordinary income......................... 5,699,109 8,304,295 Long-term capital gain.................. -- -- CLASS C Distributions paid from: Ordinary income......................... 312,941 382,419 Long-term capital gain.................. -- -- CLASS I Distributions paid from: Ordinary income......................... 2,868,438 2,092,223 Long-term capital gain.................. -- -- CLASS R4 Distributions paid from: Ordinary income......................... 183,760 521,296 Long-term capital gain.................. -- -- CLASS W Distributions paid from: Ordinary income......................... 196 92 Long-term capital gain.................. -- --
* Class W is for the period from Dec. 1, 2006 (inception date) to May 31, 2007. At May 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income............................ $ 277,566 Undistributed accumulated long-term gain................. $ -- Accumulated realized loss................................ $(183,673,285) Unrealized appreciation (depreciation)................... $ (17,253,789)
- -------------------------------------------------------------------------------- 30 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after Nov. 15, 2008. As of May 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning June 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared 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. 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 - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 31 is a percentage of the Fund's average daily net assets that declines from 0.48% to 0.25% annually as the Fund's assets increase. The management fee for the year ended May 31, 2008 was 0.48% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.07% to 0.04% annually as the Fund's assets increase. The fee for the year ended May 31, 2008 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, 2008, other expenses paid to this company were $3,512. COMPENSATION OF BOARD MEMBERS Compensation of board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $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 on the Statement of Operations. - -------------------------------------------------------------------------------- 32 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT PLAN ADMINISTRATION FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as a principal underwriter and distributor to the Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A and Class W shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $522,869 for Class A, $135,750 for Class B and $1,735 for Class C for the year ended May 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended May 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) 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..................................................... 0.95
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A..................................................... $296,755 Class B..................................................... 101,099 Class C..................................................... 5,347 Class R4.................................................... 2,240
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R4.................................................... $179
The management fees waived/reimbursed at the Fund level were $723,954. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 33 The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until May 31, 2009, unless sooner terminate 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 Fund's 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
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS AND BANK FEE CREDITS During the year ended May 31, 2008, the Fund's custodian and transfer agency fees were reduced by $56,289 as a result of earnings and bank fee credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $1,431,723,484 and $1,498,300,206, respectively, for the year ended May 31, 2008. Realized gains and losses are determined on an identified cost basis. - -------------------------------------------------------------------------------- 34 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
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 - ---------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - --------------------------------------------------------------------------------------- Class A 26,249,182 4,438,028 (59,067,555) (28,380,345) Class B 8,265,255 1,641,653 (36,500,655) (26,593,747) Class C 362,929 76,605 (1,372,316) (932,782) Class I 6,032,035 442,337 (8,233,131) (1,758,759) Class R4 409,261 110,927 (3,673,601) (3,153,413) Class W* 1,053 -- -- 1,053 - ---------------------------------------------------------------------------------------
* For the period from Dec. 1, 2006 (inception date) to May 31, 2007. 5. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets (which includes collateral for securities on loan) to broker-dealers, banks, or other institutional borrowers of securities. The Fund receives collateral in the form of cash and U.S. government securities, equal to at least 100% of the value of securities loaned, which is marked to the market value of the loaned securities daily until the securities are returned, e.g., if the value of the securities on loan increases, additional cash collateral is provided by the borrower. The Investment Manager serves as securities lending agent for the Fund under the Investment Management Services Agreement pursuant to which the Fund has agreed to reimburse the Investment Manager for expenses incurred by it in connection with the lending program, and pursuant to guidelines adopted by and under the oversight of the Board. At May 31, 2008, securities valued at $14,865,150 were on loan to brokers. For collateral, the Fund received $15,243,750 in cash. Cash collateral received is invested in an affiliated money market fund and short-term securities, including U.S. government securities or other high-grade debt obligations, which are included in the Portfolio of Investments. Income from securities lending amounted to $174,341 for the year ended May 31, 2008. Expenses paid to the Investment Manager as securities - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 35 lending agent were $4,455 for the year ended May 31, 2008, which are included in other expenses on the Statement of Operations. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 6. AFFILIATED MONEY MARKET FUND The fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $359,789,119 and $360,173,991, respectively, for the year ended May 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short-Term Cash Fund at May 31, 2008, can be found in the Portfolio of Investments. 7. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 18, 2007, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Under the prior credit facility, a Fund paid interest on its outstanding borrowings at a rate equal to either the higher of the federal funds effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. The Fund had no borrowings during the year ended May 31, 2008. 8. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $183,673,285 at May 31, 2008, that if not offset by capital gains will expire as follows:
2009 2013 2014 2015 $117,356,906 $36,267,962 $20,469,230 $9,579,187
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. - -------------------------------------------------------------------------------- 36 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 37 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. - -------------------------------------------------------------------------------- 38 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 10. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .19 .15 .12 .11 Net gains (losses) (both realized and unrealized) .01 .05 (.10) (.03) (.12) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .20 .24 .05 .09 (.01) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.19) (.16) (.12) (.11) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $539 $514 $641 $894 $1,188 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.04% 1.03% 1.06% 1.01% .97% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .89% .89% .89% .93% .97% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.93% 3.99% 3.27% 2.49% 2.19% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return(g) 4.27% 5.12% 1.00% 1.92% (.24%) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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. 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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 39 CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(b) .15 .12 .08 .07 Net gains (losses) (both realized and unrealized) .01 .05 (.11) (.03) (.12) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .16 .20 .01 .05 (.05) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.15) (.12) (.08) (.07) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $159 $216 $338 $588 $963 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.80% 1.79% 1.82% 1.76% 1.72% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.68% 1.72% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.18% 3.23% 2.50% 1.73% 1.44% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return(g) 3.48% 4.34% .26% 1.16% (.99%) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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. 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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(b) .15 .12 .08 .07 Net gains (losses) (both realized and unrealized) .02 .05 (.11) (.03) (.12) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .17 .20 .01 .05 (.05) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.15) (.12) (.08) (.07) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $10 $10 $15 $24 $38 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.80% 1.80% 1.83% 1.77% 1.73% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.68% 1.73% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.18% 3.24% 2.51% 1.73% 1.44% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return(g) 3.49% 4.34% .26% 1.16% (.99%) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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. 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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 41 CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004(B) Net asset value, beginning of period $4.74 $4.69 $4.79 $4.83 $4.90 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .20(c) .20 .17 .14 .03 Net gains (losses) (both realized and unrealized) .01 .05 (.10) (.04) (.07) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .21 .25 .07 .10 (.04) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.20) (.17) (.14) (.03) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.74 $4.69 $4.79 $4.83 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $93 $55 $62 $31 $4 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .60% .59% .62% .57% .63%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .51% .54% .58% .57% .63%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.23% 4.37% 3.66% 2.98% 2.74%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return 4.45% 5.50% 1.56% 2.06% (.87%)(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to May 31, 2004. (c) Per share amount has 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. 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. (i) Not annualized. - -------------------------------------------------------------------------------- 42 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .19 .16 .13 .12 Net gains (losses) (both realized and unrealized) .02 .05 (.11) (.03) (.12) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .21 .24 .05 .10 -- - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.19) (.16) (.13) (.12) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $4 $19 $100 $115 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .90% .86% .88% .84% .81% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .76% .72% .72% .76% .81% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.06% 4.09% 3.27% 2.66% 2.35% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% 194% 169% 125% - ----------------------------------------------------------------------------------------------------------- Total return 4.41% 5.31% 1.19% 2.10% (.08%) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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. 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. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 43 CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007(B) Net asset value, beginning of period $4.73 $4.75 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18(c) .08 Net gains (losses) (both realized and unrealized) .02 (.02) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .20 .06 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.08) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $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) 1.06% 1.00%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .95% .95%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.87% 4.02%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 209% 168% - ----------------------------------------------------------------------------------------------------------- Total return 4.21% 1.42%(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to May 31, 2007. (c) Per share amount has 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 for the year ended May 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- 44 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 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, 2008, and the related statements of operations, changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial statements and financial highlights of the Fund for the periods presented through May 31, 2007, were audited by other auditors whose report dated July 20, 2007, expressed an unqualified opinion on those financial statements and financial highlights. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides a reasonable basis for our opinion. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 45 In our opinion, the 2008 financial statements and financial highlights 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, 2008, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota July 22, 2008 - -------------------------------------------------------------------------------- 46 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT PORTFOLIO OF INVESTMENTS -------------------------------------------------------------- MAY 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (126.8%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) U.S. GOVERNMENT OBLIGATIONS & AGENCIES (1.1%) U.S. Treasury Inflation-Indexed Bond 01-15-16 2.00% $4,300,920(i) $4,492,691 - ----------------------------------------------------------------------------------- ASSET-BACKED (0.8%) Countrywide Asset-backed Ctfs Series 2007-7 Cl 2A2 10-25-37 2.55 1,200,000(h) 1,023,376 Fannie Mae Grantor Trust Series 2005-T4 Cl A1C 09-25-35 2.54 471,472(h) 466,846 Renaissance Home Equity Loan Trust Series 2007-2 Cl M4 06-25-37 6.31 195,000 29,889 Renaissance Home Equity Loan Trust Series 2007-2 Cl M5 06-25-37 6.66 130,000 18,734 Renaissance Home Equity Loan Trust Series 2007-2 Cl M6 06-25-37 7.01 190,000 25,101 Residential Asset Securities Series 2006-KS1 Cl A2 02-25-36 2.53 213,201(h) 207,371 Residential Asset Securities Series 2007-KS3 Cl AI2 04-25-37 2.57 1,700,000(h) 1,501,304 --------------- Total 3,272,621 - ----------------------------------------------------------------------------------- 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 2,982,060 Credit Suisse Mtge Capital Ctfs Series 2007-C3 Cl A4 06-15-39 5.72 3,000,000 2,944,373 Federal Home Loan Mtge Corp Multifamily Structured Pass-Through Ctfs Series K001 Cl A2 04-25-16 5.65 2,139,458 2,171,686
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) COMMERCIAL MORTGAGE-BACKED (CONT.) GS Mtge Securities II Series 2007-EOP Cl J 03-06-20 3.57% $1,000,000(d,h) $883,204 Wachovia Bank Commercial Mtge Trust Series 2006-C29 Cl A4 11-15-48 5.31 6,000,000 5,804,170 --------------- Total 14,785,493 - ----------------------------------------------------------------------------------- MORTGAGE-BACKED (121.2%)(f) Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2005-12 Cl 2A1 03-25-36 5.69 612,970(c) 492,449 Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2006-1 Cl 2A1 03-25-36 5.92 164,558(c) 142,959 American Home Mtge Assets Collateralized Mtge Obligation Series 2007-2 Cl A2A 03-25-47 2.56 1,215,732(c) 765,594 American Home Mtge Investment Trust Collateralized Mtge Obligation Series 2007-1 Cl GA1C 05-25-47 2.58 1,779,088(c) 1,379,351 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11 Cl 1A1 01-25-34 6.00 528,591 447,252 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11 Cl 4A1 01-25-19 4.75 272,901 267,102 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2006-9 Cl 1CB1 01-25-37 6.00 2,543,137 2,277,300
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 14 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Banc of America Funding Collateralized Mtge Obligation Series 2006-2 Cl N1 11-25-46 7.25% $72,081(d,l) $45,051 Banc of America Funding Collateralized Mtge Obligation Series 2006-A Cl 3A2 02-20-36 5.87 666,149(c) 524,866 Banc of America Funding Collateralized Mtge Obligation Series 2007-8 Cl 1A1 10-25-37 6.00 993,220 889,398 Banc of America Mtge Securities Collateralized Mtge Obligation Series 2005-9 Cl 3A3 10-25-20 5.00 1,592,199 1,541,261 Banc of America Mtge Securities Collateralized Mtge Obligation Series 2007-3 Cl 1A2 09-25-37 6.00 945,284 863,459 Barclays Capital LLC Trust Collateralized Mtge Obligation Series 2007-AA4 Cl 11A1 06-25-47 6.21 885,507(c) 673,313 ChaseFlex Trust Collateralized Mtge Obligation Series 2005-2 Cl 2A2 06-25-35 6.50 525,395 505,036 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Interest Only Series 2007-8CB Cl A13 05-25-37 7.73 1,913,840(e) 295,210 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2003-20CB Cl 1A1 10-25-33 5.50 4,788,620 4,525,246 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-50CB Cl 2A1 11-25-35 6.00 924,601 790,967 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-54CB Cl 2A3 11-25-35 5.50 449,068 424,899
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04-25-35 7.50% $369,314 $354,127 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-2CB Cl A11 03-25-36 6.00 1,430,561 1,235,201 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-45T1 Cl 2A5 02-25-37 6.00 946,746 864,794 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-22 Cl 2A16 09-25-37 6.50 5,061,525 4,460,469 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-25 Cl 1A1 11-25-37 6.50 929,777 847,223 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OA9 Cl A2 06-25-47 2.74 1,234,609(h) 896,768 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09-25-47 2.89 1,874,154(h) 1,082,453 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-27 Cl 2A1 12-25-35 5.50 860,782 814,515 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-HYB1 Cl 6A1 03-25-35 5.11 968,704(c) 916,164 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-R2 Cl 2A1 06-25-35 7.00 453,653(d) 427,552 Countrywide Home Loans Collateralized Mtge Obligation Series 2006-HYB1 Cl 1A1 03-20-36 5.35 419,902(c) 329,552
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 15
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Countrywide Home Loans Collateralized Mtge Obligation Series 2007-HY3 Cl 4A1 06-25-47 6.00% $1,445,293(c) $1,380,794 Downey Savings & Loan Assn Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2005-AR5 Cl X1 08-19-45 5.30 2,603,432(e) 13,424 Federal Home Loan Mtge Corp 06-01-38 6.00 12,400,000(b) 12,589,868 06-01-38 6.50 20,500,000(b) 21,159,853 Federal Home Loan Mtge Corp #1B7116 08-01-36 5.89 3,958,945(c) 4,040,749 Federal Home Loan Mtge Corp #1J0149 11-01-36 6.10 2,120,228(c) 2,170,979 Federal Home Loan Mtge Corp #1J1445 01-01-37 5.89 2,298,779(c) 2,343,076 Federal Home Loan Mtge Corp #1J1621 05-01-37 5.89 3,029,389(c) 3,097,581 Federal Home Loan Mtge Corp #555140 03-01-10 8.00 8,533 8,656 Federal Home Loan Mtge Corp #555300 10-01-17 8.00 201,697 213,052 Federal Home Loan Mtge Corp #783049 03-01-35 4.85 2,952,389(c) 2,934,350 Federal Home Loan Mtge Corp #A10892 07-01-33 6.00 521,586 533,752 Federal Home Loan Mtge Corp #A15111 10-01-33 6.00 829,965 846,902 Federal Home Loan Mtge Corp #A21059 04-01-34 6.50 484,631 501,790 Federal Home Loan Mtge Corp #A25174 08-01-34 6.50 432,220 447,523 Federal Home Loan Mtge Corp #C53098 06-01-31 8.00 277,250 299,960 Federal Home Loan Mtge Corp #C53878 12-01-30 5.50 892,657 891,346 Federal Home Loan Mtge Corp #C68876 07-01-32 7.00 131,082 139,037 Federal Home Loan Mtge Corp #C69665 08-01-32 6.50 2,316,643 2,410,974 Federal Home Loan Mtge Corp #C79930 06-01-33 5.50 1,327,326 1,323,302
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp #D95232 03-01-22 6.50% $232,242 $241,454 Federal Home Loan Mtge Corp #D95371 04-01-22 6.50 272,940 284,650 Federal Home Loan Mtge Corp #E00285 01-01-09 7.00 15,586 15,816 Federal Home Loan Mtge Corp #E81240 06-01-15 7.50 659,320 690,168 Federal Home Loan Mtge Corp #E88036 02-01-17 6.50 1,012,863 1,062,212 Federal Home Loan Mtge Corp #E88468 12-01-16 6.50 265,435 281,426 Federal Home Loan Mtge Corp #E89232 04-01-17 7.00 440,549 463,453 Federal Home Loan Mtge Corp #E92454 11-01-17 5.00 1,392,418 1,394,098 Federal Home Loan Mtge Corp #E93685 01-01-18 5.50 1,148,587 1,166,933 Federal Home Loan Mtge Corp #E99684 10-01-18 5.00 349,016 349,579 Federal Home Loan Mtge Corp #G01169 01-01-30 5.50 1,466,882 1,465,644 Federal Home Loan Mtge Corp #G01535 04-01-33 6.00 1,938,097 1,997,022 Federal Home Loan Mtge Corp #G02757 06-01-36 5.00 10,930,003 10,582,633 Federal Home Loan Mtge Corp #G03419 07-01-37 6.00 4,530,646 4,604,693 Federal Home Loan Mtge Corp #G12101 11-01-18 5.00 718,363 718,332 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 237 Cl IO 05-15-36 6.60 1,669,451(e) 441,164 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2590 Cl BI 02-15-14 35.06 88,540(e) 486 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2639 Cl UI 03-15-22 6.01 1,078,623(e) 152,116
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 16 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 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 2718 Cl IA 10-15-22 0.00% $90,936(e) $512 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2795 Cl IY 07-15-17 15.27 406,810(e) 33,609 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2824 Cl EI 09-15-20 12.05 2,473,120(e) 216,011 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only/Inverse Floater Series 2471 Cl SI 03-15-32 33.06 260,114(e,g) 29,140 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only/Inverse Floater Series 2817 Cl SA 06-15-32 39.93 891,221(e,g) 69,953 Federal Natl Mtge Assn 06-01-23 6.00 3,000,000(b) 3,078,750 06-01-38 5.00 2,500,000(b) 2,414,845 06-01-38 5.50 38,500,000(b) 38,223,261 06-01-38 6.00 34,500,000(b) 34,995,937 06-01-38 7.00 10,000,000(b) 10,509,379 Federal Natl Mtge Assn #190353 08-01-34 5.00 1,560,603 1,512,468 Federal Natl Mtge Assn #252409 03-01-29 6.50 1,312,494 1,360,800 Federal Natl Mtge Assn #254759 06-01-18 4.50 1,906,486 1,873,308 Federal Natl Mtge Assn #254793 07-01-33 5.00 2,167,634 2,102,808 Federal Natl Mtge Assn #254916 09-01-23 5.50 1,747,428 1,752,688 Federal Natl Mtge Assn #256135 02-01-36 5.50 7,089,155 6,982,419 Federal Natl Mtge Assn #313470 08-01-10 7.50 123,541 126,959
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #323362 11-01-28 6.00% $2,571,227 $2,632,535 Federal Natl Mtge Assn #323715 05-01-29 6.00 475,473(j) 486,810 Federal Natl Mtge Assn #344909 04-01-25 8.00 632,862 689,044 Federal Natl Mtge Assn #357514 03-01-34 5.50 2,269,077 2,261,490 Federal Natl Mtge Assn #483691 12-01-28 7.00 1,114,067 1,203,903 Federal Natl Mtge Assn #487757 09-01-28 7.50 732,756 791,291 Federal Natl Mtge Assn #514704 01-01-29 6.00 737,157 754,734 Federal Natl Mtge Assn #545008 06-01-31 7.00 1,356,663(j) 1,451,409 Federal Natl Mtge Assn #545339 11-01-31 6.50 225,219 236,360 Federal Natl Mtge Assn #545818 07-01-17 6.00 2,350,827 2,424,976 Federal Natl Mtge Assn #545864 08-01-17 5.50 1,336,736(j) 1,362,149 Federal Natl Mtge Assn #555063 11-01-17 5.50 966,547 984,735 Federal Natl Mtge Assn #555458 05-01-33 5.50 1,599,246 1,592,753 Federal Natl Mtge Assn #555528 04-01-33 6.00 2,026,019 2,068,629 Federal Natl Mtge Assn #555734 07-01-23 5.00 698,891 684,296 Federal Natl Mtge Assn #555740 08-01-18 4.50 3,270,906 3,215,964 Federal Natl Mtge Assn #581418 06-01-31 7.00 856,388 908,832 Federal Natl Mtge Assn #583088 06-01-29 6.00 2,670,157 2,755,182 Federal Natl Mtge Assn #592270 01-01-32 6.50 729,869 768,171 Federal Natl Mtge Assn #596505 08-01-16 6.50 156,686 164,223 Federal Natl Mtge Assn #601416 11-01-31 6.50 284,642 297,825 Federal Natl Mtge Assn #624979 01-01-32 6.00 685,285 703,469
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 17
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #626670 03-01-32 7.00% $487,558 $524,520 Federal Natl Mtge Assn #627426 03-01-17 6.50 448,654(j) 470,822 Federal Natl Mtge Assn #630992 09-01-31 7.00 1,784,261(j) 1,921,590 Federal Natl Mtge Assn #630993 09-01-31 7.50 1,907,135 2,058,878 Federal Natl Mtge Assn #631388 05-01-32 6.50 1,499,570 1,577,151 Federal Natl Mtge Assn #632412 12-01-17 5.50 1,038,474 1,057,905 Federal Natl Mtge Assn #632856 03-01-17 6.00 467,362 481,322 Federal Natl Mtge Assn #633674 06-01-32 6.50 821,365 867,090 Federal Natl Mtge Assn #635231 04-01-32 7.00 74,215 79,001 Federal Natl Mtge Assn #635908 04-01-32 6.50 1,049,474 1,104,095 Federal Natl Mtge Assn #636812 04-01-32 7.00 109,906 117,565 Federal Natl Mtge Assn #640200 10-01-31 9.50 102,210(j) 115,356 Federal Natl Mtge Assn #640207 03-01-17 7.00 38,446 39,636 Federal Natl Mtge Assn #640208 04-01-17 7.50 47,347 48,563 Federal Natl Mtge Assn #644805 05-01-32 7.00 985,430 1,054,090 Federal Natl Mtge Assn #645053 05-01-32 7.00 533,370 565,313 Federal Natl Mtge Assn #646189 05-01-32 6.50 348,126 361,866 Federal Natl Mtge Assn #654071 09-01-22 6.50 537,071 557,375 Federal Natl Mtge Assn #654685 11-01-22 6.00 564,210 577,088 Federal Natl Mtge Assn #655635 08-01-32 6.50 777,047(j) 812,667 Federal Natl Mtge Assn #656514 09-01-17 6.50 1,016,455 1,066,108 Federal Natl Mtge Assn #660186 11-01-32 6.00 2,187,397 2,251,266
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #663651 10-01-17 5.50% $352,699 $358,818 Federal Natl Mtge Assn #663667 11-01-17 5.50 235,448 239,550 Federal Natl Mtge Assn #665752 09-01-32 6.50 1,109,057 1,152,830 Federal Natl Mtge Assn #667302 01-01-33 7.00 550,462(j) 587,484 Federal Natl Mtge Assn #667604 10-01-32 5.50 517,254(j) 515,686 Federal Natl Mtge Assn #670382 09-01-32 6.00 1,079,116 1,101,811 Federal Natl Mtge Assn #676683 12-01-32 6.00 1,212,942 1,238,451 Federal Natl Mtge Assn #677089 01-01-33 5.50 604,313(j) 602,481 Federal Natl Mtge Assn #677294 01-01-33 6.00 1,569,876 1,602,893 Federal Natl Mtge Assn #681080 02-01-18 5.00 826,149(j) 826,888 Federal Natl Mtge Assn #682229 03-01-33 5.50 4,246,170 4,233,299 Federal Natl Mtge Assn #684585 02-01-33 5.50 1,464,728(j) 1,463,765 Federal Natl Mtge Assn #684843 02-01-18 5.50 1,494,441 1,520,475 Federal Natl Mtge Assn #684853 03-01-33 6.50 214,672 223,581 Federal Natl Mtge Assn #688002 03-01-33 5.50 1,392,558 1,393,145 Federal Natl Mtge Assn #689026 05-01-33 5.50 373,518 372,993 Federal Natl Mtge Assn #689093 07-01-28 5.50 929,197(j) 927,832 Federal Natl Mtge Assn #694628 04-01-33 5.50 1,996,943 1,998,359 Federal Natl Mtge Assn #694795 04-01-33 5.50 2,477,920 2,479,152 Federal Natl Mtge Assn #695460 04-01-18 5.50 1,912,678 1,948,255 Federal Natl Mtge Assn #697145 03-01-23 5.50 1,159,619 1,171,711 Federal Natl Mtge Assn #699424 04-01-33 5.50 1,531,190 1,532,025
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #701101 04-01-33 6.00% $2,001,378 $2,040,343 Federal Natl Mtge Assn #704610 06-01-33 5.50 2,021,380 2,014,621 Federal Natl Mtge Assn #705655 05-01-33 5.00 705,521(j) 684,422 Federal Natl Mtge Assn #708503 05-01-33 6.00 272,500 279,523 Federal Natl Mtge Assn #708504 05-01-33 6.00 582,858 597,858 Federal Natl Mtge Assn #710780 05-01-33 6.00 217,183 221,411 Federal Natl Mtge Assn #711206 05-01-33 5.50 1,309,482 1,305,104 Federal Natl Mtge Assn #711239 07-01-33 5.50 534,394 532,607 Federal Natl Mtge Assn #711501 05-01-33 5.50 753,775 754,730 Federal Natl Mtge Assn #720378 06-01-18 4.50 1,508,816 1,482,558 Federal Natl Mtge Assn #723771 08-01-28 5.50 843,004 841,765 Federal Natl Mtge Assn #725017 12-01-33 5.50 2,792,541(j) 2,783,203 Federal Natl Mtge Assn #725232 03-01-34 5.00 1,653,725 1,604,268 Federal Natl Mtge Assn #725424 04-01-34 5.50 9,203,835 9,173,059 Federal Natl Mtge Assn #725425 04-01-34 5.50 2,638,823 2,630,807 Federal Natl Mtge Assn #725684 05-01-18 6.00 712,172 733,107 Federal Natl Mtge Assn #725773 09-01-34 5.50 1,824,074 1,816,265 Federal Natl Mtge Assn #726940 08-01-23 5.50 1,224,650 1,237,684 Federal Natl Mtge Assn #730153 08-01-33 5.50 733,862 731,408 Federal Natl Mtge Assn #733367 08-01-23 5.50 974,742 984,841 Federal Natl Mtge Assn #735212 12-01-34 5.00 8,756,092 8,486,022 Federal Natl Mtge Assn #735841 11-01-19 4.50 5,937,809 5,821,484
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #743524 11-01-33 5.00% $1,789,731 $1,736,207 Federal Natl Mtge Assn #743579 11-01-33 5.50 1,504,308 1,499,278 Federal Natl Mtge Assn #747339 10-01-23 5.50 1,142,297 1,153,659 Federal Natl Mtge Assn #753507 12-01-18 5.00 945,168(j) 947,190 Federal Natl Mtge Assn #753940 12-01-18 5.00 851,458 852,220 Federal Natl Mtge Assn #759342 01-01-34 6.50 381,121 398,596 Federal Natl Mtge Assn #761141 12-01-18 5.00 1,377,213 1,378,445 Federal Natl Mtge Assn #765760 02-01-19 5.00 849,025 849,785 Federal Natl Mtge Assn #766641 03-01-34 5.00 2,884,354 2,795,390 Federal Natl Mtge Assn #770403 04-01-34 5.00 1,451,871 1,407,090 Federal Natl Mtge Assn #776962 04-01-29 5.00 1,315,164 1,282,244 Federal Natl Mtge Assn #779676 06-01-34 5.00 2,565,088 2,485,971 Federal Natl Mtge Assn #785506 06-01-34 5.00 5,529,993 5,359,427 Federal Natl Mtge Assn #793622 09-01-34 5.50 6,137,512(j) 6,111,236 Federal Natl Mtge Assn #797232 09-01-34 5.50 6,989,979 6,960,053 Federal Natl Mtge Assn #878661 02-01-36 5.50 1,901,131(j) 1,875,352 Federal Natl Mtge Assn #881629 02-01-36 5.50 1,268,917 1,251,710 Federal Natl Mtge Assn #886020 07-01-36 6.50 1,017,385 1,053,042 Federal Natl Mtge Assn #886291 07-01-36 7.00 743,892 789,855 Federal Natl Mtge Assn #888414 11-01-35 5.00 3,923,707(j) 3,799,007 Federal Natl Mtge Assn #893101 10-01-36 6.50 2,500,343 2,581,057 Federal Natl Mtge Assn #894800 12-01-36 6.50 3,740,025(j) 3,860,758
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 19
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #902818 11-01-36 5.91% $2,825,072(c) $2,891,348 Federal Natl Mtge Assn #919341 05-01-37 6.50 3,269,493(j) 3,374,341 Federal Natl Mtge Assn #923744 04-01-37 6.50 1,654,473 1,697,107 Federal Natl Mtge Assn #928046 01-01-37 6.00 3,807,292 3,867,138 Federal Natl Mtge Assn #928146 03-01-37 6.00 5,169,503 5,250,761 Federal Natl Mtge Assn #928771 10-01-37 8.00 3,408,880 3,631,005 Federal Natl Mtge Assn #928870 11-01-37 8.50 239,415 250,050 Federal Natl Mtge Assn #959716 11-01-37 7.00 9,630,157 10,129,347 Federal Natl Mtge Assn #960606 10-01-36 5.50 3,632,841 3,617,288 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-119 Cl GI 12-25-33 7.32 488,869(e) 125,305 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-63 Cl IP 07-25-33 7.52 1,944,111(e) 492,141 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-71 Cl IM 12-25-31 9.86 436,843(e) 75,018 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2004-84 Cl GI 12-25-22 10.56 194,871(e) 26,725 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2005-70 Cl YJ 08-25-35 18.49 2,373,126(e) 324,056
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 367 Cl 2 01-01-36 6.57% $1,461,339(e) $392,232 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 379 Cl 2 05-25-37 6.52 2,812,473(e) 733,339 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-133 Cl GB 12-25-26 8.00 275,070 290,886 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2006-60 Cl JF 10-25-35 2.82 4,192,513(h) 4,129,683 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2006-90 Cl FE 09-25-36 2.84 7,117,965(h) 7,080,705 Govt Natl Mtge Assn 06-01-38 5.50 5,000,000(b) 5,000,000 06-01-38 6.00 6,000,000(b) 6,106,872 Govt Natl Mtge Assn #3931 12-20-36 6.00 4,210,058 4,289,483 Govt Natl Mtge Assn #518371 02-15-30 7.00 119,360 127,774 Govt Natl Mtge Assn #528344 03-15-30 7.00 364,144 389,812 Govt Natl Mtge Assn #556293 12-15-31 6.50 361,966 375,902 Govt Natl Mtge Assn #583182 02-15-32 6.50 561,556 582,649 Govt Natl Mtge Assn #595256 12-15-32 6.00 320,806 327,904 Govt Natl Mtge Assn #619613 09-15-33 5.00 1,279,731 1,251,497 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-AR25 Cl 3A3 09-25-36 18.17 10,587,645(e) 78,442
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 20 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2005-AR8 Cl AX1 04-25-35 4.50% $5,645,949(e) $14,997 JP Morgan Mtge Trust Collateralized Mtge Obligation Series 2004-S2 4A5 11-25-34 6.00 958,629 820,077 Lehman XS Trust Collateralized Mtge Obligation Series 2007-5H Cl 1A1 05-25-37 6.50 5,114,512 4,529,456 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-2 Cl 4A1 02-25-19 5.00 391,482 386,712 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-7 Cl 8A1 08-25-19 5.00 348,417 319,670 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-8 Cl 7A1 09-25-19 5.00 495,109 462,050 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2005-3 Cl 1A2 04-25-35 5.50 1,537,000 1,315,026 MASTR Asset Securitization Trust Collateralized Mtge Obligation Series 2004-10 Cl 1A1 10-25-19 4.50 1,096,151 1,059,156 Morgan Stanley Mtge Loan Trust Collateralized Mtge Obligation Series 2007-12 Cl 3A22 08-25-37 6.00 959,840 883,637 Structured Adjustable Rate Mtge Loan Trust Collateralized Mtge Obligation Series 2005-15 Cl 4A1 07-25-35 5.50 1,018,147(c) 966,396 Structured Asset Securities Collateralized Mtge Obligation Series 2003-33H Cl 1A1 10-25-33 5.50 1,194,641 1,130,429
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2004-CB2 Cl 6A 07-25-19 4.50% $608,834 $559,488 Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2005-AR14 Cl 2A1 12-25-35 5.28 397,597(c) 389,808 Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2006-AR10 Cl 1A1 09-25-36 5.93 1,850,585(c) 1,819,829 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-10 Cl A1 10-25-35 5.00 2,291,520 2,051,827 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-5 Cl 2A1 05-25-35 5.50 911,639 886,854 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR12 Cl 1A1 09-25-36 6.02 1,768,830(c) 1,746,937 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR12 Cl 2A1 09-25-36 6.10 2,114,520(c) 2,035,424 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR6 Cl 5A1 03-25-36 5.11 868,152(c) 838,905 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-11 Cl A68 08-25-37 6.00 945,828 893,164 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-14 Cl 1A2 10-25-37 6.00 945,044 846,257
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 21
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-15 Cl A1 11-25-37 6.00% $1,897,235(b) $1,848,322 --------------- Total 481,158,649 - ----------------------------------------------------------------------------------- TOTAL BONDS (Cost: $509,703,963) $503,709,454 - -----------------------------------------------------------------------------------
MONEY MARKET FUND (6.3%) SHARES VALUE(A) RiverSource Short-Term Cash Fund, 2.60% 24,895,772(k) $24,895,772 - ------------------------------------------------------------------------------------ TOTAL MONEY MARKET FUND (Cost: $24,895,772) $24,895,772 - ------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $534,599,735)(m) $528,605,226 ====================================================================================
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT MAY 31, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - --------------------------------------------------------------------------------------------------- U.S. Long Bond, 20-year (71) $(8,127,281) June 2008 $119,161 U.S. Treasury Note, 2-year (89) (18,745,625) Sept. 2008 40,172 U.S. Treasury Note, 5-year (43) (4,763,594) June 2008 65,769 U.S. Treasury Note, 5-year (14) (1,539,125) Sept. 2008 9,062 U.S. Treasury Note, 10-year (235) (26,778,986) June 2008 656,463 U.S. Treasury Note, 10-year (141) (15,849,281) Sept. 2008 (35,497) - --------------------------------------------------------------------------------------------------- Total $(75,803,892) $855,130 - ---------------------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) At May 31, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $137,117,630. See Note 1 to the financial statements. (c) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on May 31, 2008. (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, 2008, the value of these securities amounted to $1,355,807 or 0.3% of net assets. (e) 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. Interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at May 31, 2008. - -------------------------------------------------------------------------------- 22 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 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) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate disclosed is the rate in effect on May 31, 2008. At May 31, 2008, the value of inverse floaters represented 0.02% of net assets. (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, 2008. (i) 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. (j) At May 31, 2008, investments in securities included securities valued at $3,681,169 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (k) Affiliated Money Market Fund -- See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at May 31, 2008. (l) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities may be valued at fair value according to procedures approved, in good faith, by the Fund's Board of Directors. Information concerning such security holdings at May 31, 2008, is as follows
ACQUISITION SECURITY DATES COST - --------------------------------------------------------------------------------- Banc of America Funding* Series 2006-2 Cl N1 7.25% 2046 11-14-06 $71,453
* Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. (m) At May 31, 2008, the cost of securities for federal income tax purposes was $538,772,843 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,064,212 Unrealized depreciation (13,231,829) - ------------------------------------------------------------------------------ Net unrealized depreciation $(10,167,617) - ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 23 HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - -------------------------------------------------------------------------------- 24 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT FINANCIAL STATEMENTS ----------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2008 ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $509,703,963) $503,709,454 Affiliated money market fund (identified cost $24,895,772) 24,895,772 - ---------------------------------------------------------------------------- Total investments in securities (identified cost $534,599,735) 528,605,226 Cash 42,211 Capital shares receivable 4,042,641 Dividends and accrued interest receivable 2,093,020 Receivable for investment securities sold 6,296,673 - ---------------------------------------------------------------------------- Total assets 541,079,771 - ---------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 101,502 Capital shares payable 322,374 Payable for investment securities purchased 6,049,223 Payable for securities purchased on a forward-commitment basis 137,117,630 Variation margin payable 147,844 Accrued investment management services fees 5,155 Accrued distribution fees 29,414 Accrued transfer agency fees 597 Accrued administrative services fees 752 Accrued plan administration services fees 8,997 Other accrued expenses 102,373 - ---------------------------------------------------------------------------- Total liabilities 143,885,861 - ---------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $397,193,910 ============================================================================ REPRESENTED BY Capital stock -- $.01 par value $ 796,061 Additional paid-in capital 403,222,558 Undistributed net investment income 69,436 Accumulated net realized gain (loss) (1,754,766) Unrealized appreciation (depreciation) on investments (5,139,379) - ---------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $397,193,910 ============================================================================
Net assets applicable to outstanding shares: Class A $ 95,365,293 Class B $ 33,665,806 Class C $ 4,185,697 Class I $221,547,618 Class R4 $ 42,429,496 Net asset value per share of outstanding Class A capital stock: shares(1) 19,102,220 $ 4.99 Class B shares 6,741,320 $ 4.99 Class C shares 838,003 $ 4.99 Class I shares 44,419,486 $ 4.99 Class R4 shares 8,505,084 $ 4.99 - -------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $5.24. 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 -- 2008 ANNUAL REPORT 25 STATEMENT OF OPERATIONS YEAR ENDED MAY 31, 2008 INVESTMENT INCOME Income: Interest $21,978,182 Income distributions from affiliated money market fund 199,305 - --------------------------------------------------------------------------- Total income 22,177,487 - --------------------------------------------------------------------------- Expenses: Investment management services fees 1,958,404 Distribution fees Class A 260,643 Class B 373,486 Class C 45,007 Transfer agency fees Class A 221,852 Class B 83,847 Class C 9,870 Class R4 21,055 Administrative services fees 285,601 Plan administration services fees -- Class R4 105,276 Compensation of board members 7,704 Custodian fees 94,369 Printing and postage 97,099 Registration fees 67,153 Professional fees 40,613 Other 14,697 - --------------------------------------------------------------------------- Total expenses 3,686,676 Expenses waived/reimbursed by the Investment Manager and its affiliates (702,554) Earnings and bank fee credits on cash balances (8,343) - --------------------------------------------------------------------------- Total net expenses 2,975,779 - --------------------------------------------------------------------------- Investment income (loss) -- net 19,201,708 - --------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions 5,541,748 Futures contracts (5,686,855) Swap transactions (738,697) - --------------------------------------------------------------------------- Net realized gain (loss) on investments (883,804) Net change in unrealized appreciation (depreciation) on investments 282,877 - --------------------------------------------------------------------------- Net gain (loss) on investments (600,927) - --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $18,600,781 ===========================================================================
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 26 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED MAY 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 19,201,708 $ 12,425,612 Net realized gain (loss) on investments (883,804) 697,290 Net change in unrealized appreciation (depreciation) on investments 282,877 1,881,245 - -------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 18,600,781 15,004,147 - -------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (4,636,312) (5,407,728) Class B (1,375,945) (1,999,233) Class C (166,238) (214,172) Class I (10,669,521) (3,051,378) Class R4 (1,927,487) (1,761,395) - -------------------------------------------------------------------------------------- Total distributions (18,775,503) (12,433,906) - -------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 21,261,899 29,049,243 Class B shares 7,521,919 9,006,830 Class C shares 493,948 470,592 Class I shares 60,497,906 201,892,945 Class R4 shares 3,560,740 5,512,362 Reinvestment of distributions at net asset value Class A shares 4,221,397 4,873,804 Class B shares 1,272,184 1,827,201 Class C shares 153,418 194,782 Class I shares 10,765,444 2,900,308 Class R4 shares 1,945,056 1,758,106 Payments for redemptions Class A shares (40,583,767) (51,596,469) Class B shares (19,411,598) (31,868,944) Class C shares (1,336,741) (2,626,838) Class I shares (57,241,980) (2,611,222) Class R4 shares (2,867,441) (2,593,585) - -------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (9,747,616) 166,189,115 - -------------------------------------------------------------------------------------- Total increase (decrease) in net assets (9,922,338) 168,759,356 Net assets at beginning of year 407,116,248 238,356,892 - -------------------------------------------------------------------------------------- Net assets at end of year $397,193,910 $407,116,248 ====================================================================================== Undistributed net investment income $ 69,436 $ 239,916 - --------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 27 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, 2008, 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, 2008, the Investment Manager, RiverSource Life Insurance Company and the RiverSource affiliated funds-of-funds owned approximately 55% 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. - -------------------------------------------------------------------------------- 28 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. 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. ILLIQUID SECURITIES At May 31, 2008, investments in securities included issues that are illiquid which the Fund currently limits to 15% of net assets, at market value, at the time of purchase. Prior to July 12, 2007, the Fund limited the percent held in securities and other instruments that were illiquid to 10% of the Fund's net assets. The aggregate value of such securities at May 31, 2008 was $45,051 representing 0.01% of net assets. These securities may be valued at fair value according to procedures approved, in good faith, by the Board. According to Board guidelines, certain unregistered securities are determined to be liquid and are not included within the 15% limitation specified above. Assets are liquid if they can be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. 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-commitments. At May 31, 2008, the Fund has outstanding when-issued securities of $135,237,757 and other forward-commitments of $1,879,873. 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 - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 29 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. OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Fund may buy and sell put and call options and write put and call options. This may include purchasing mortgage-backed security (MBS) put spread options and writing covered MBS call spread options. MBS spread options are based upon the changes in the price spread between a specified mortgage-backed security and a like-duration Treasury security. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. The Fund also may write over-the-counter options where completing the obligation depends upon the credit standing of the other party. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Fund will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At May 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are - -------------------------------------------------------------------------------- 30 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. 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. At May 31, 2008, the Fund had no outstanding forward sale commitments. CMBS TOTAL RETURN SWAP TRANSACTIONS The Fund may enter into swap agreements to earn the total return on a specified security or index of fixed income securities. CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of commercial mortgage-backed securities. Under the terms of the swaps, the Fund either receives or pays the total return on a reference security or index applied to a notional principal amount. In return, the Fund agrees to pay or receive from the counterparty a floating rate, which is reset periodically based on short-term interest rates, applied to the same notional amount. The notional amounts of swap contracts are not recorded in the financial statements. Swaps are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time realized gain (loss) is recorded. Payments received or made are recorded as realized gains (losses). 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 that the counterparty will default on its obligation to pay net amounts due to the Fund. At May 31, 2008, the Fund had no outstanding CMBS total return swap contracts. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 31 GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. The Fund has adopted Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes", which is effective for fiscal periods beginning after Dec. 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. 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. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $596,685 and accumulated net realized loss has been decreased by $596,685. - -------------------------------------------------------------------------------- 32 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED MAY 31, 2008 2007 - ---------------------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income.......................... $ 4,636,312 $5,407,728 Long-term capital gain................... -- -- CLASS B Distributions paid from: Ordinary income.......................... 1,375,945 1,999,233 Long-term capital gain................... -- -- CLASS C Distributions paid from: Ordinary income.......................... 166,238 214,172 Long-term capital gain................... -- -- CLASS I Distributions paid from: Ordinary income.......................... 10,669,521 3,051,378 Long-term capital gain................... -- -- CLASS R4 Distributions paid from: Ordinary income.......................... 1,927,487 1,761,395 Long-term capital gain................... -- --
At May 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.............................. $ 2,976,198 Undistributed accumulated long-term gain................... $ -- Accumulated realized loss.................................. $ (210,465) Unrealized appreciation (depreciation)..................... $(9,488,940)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after Nov. 15, 2008. As of May 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 33 footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning June 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared 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. 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 assets increase. The management fee for the year ended May 31, 2008 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), the parent company of the Investment Manager, a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.07% to 0.04% annually as the Fund's assets increase. The fee for the year ended May 31, 2008 was 0.07% of the Fund's average daily net assets. - -------------------------------------------------------------------------------- 34 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 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, 2008, other expenses paid to this company were $1,843. COMPENSATION OF BOARD MEMBERS Compensation of board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $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 on the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as a principal underwriter and distributor to the Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 35 assets attributable to Class A shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $100,681 for Class A, $35,769 for Class B and $441 for Class C for the year ended May 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended May 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A.................................................... 0.89% Class B.................................................... 1.65 Class C.................................................... 1.65 Class I.................................................... 0.48 Class R4................................................... 0.75
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A................................................. $55,741 Class B................................................. 21,080 Class C................................................. 2,400 Class R4................................................ 12,814
The waived/reimbursed fees and expenses for the plan administration services fees were as follows: Class R4.................................................. $103
The management fees waived/reimbursed at the Fund level were $610,416. The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until May 31, 2009, 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 Fund's average daily net assets: Class A................................................... 0.89% Class B................................................... 1.65 Class C................................................... 1.65 Class I................................................... 0.48 Class R4.................................................. 0.75
* 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. - -------------------------------------------------------------------------------- 36 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT EARNINGS AND BANK FEE CREDITS During the year ended May 31, 2008, the Fund's custodian and transfer agency fees were reduced by $8,343 as a result of earnings and bank fee credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $1,846,596,271 and $1,781,798,531, respectively, for the year ended May 31, 2008. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
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 - ----------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 5,818,196 974,704 (10,325,253) (3,532,353) Class B 1,802,802 365,504 (6,386,285) (4,217,979) Class C 94,036 38,962 (525,990) (392,992) Class I 40,197,102 578,113 (521,207) 40,254,008 Class R4 1,103,924 351,589 (520,939) 934,574 - ----------------------------------------------------------------------------------------------
5. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $138,476,149 and $121,123,720, respectively, for the year ended May 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 37 of Operations and the Fund's invested balance in RiverSource Short-Term Cash Fund at May 31, 2008, can be found in the Portfolio of Investments. 6. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 18, 2007, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Under the prior credit facility, a Fund paid interest on its outstanding borrowings at a rate equal to either the higher of the federal funds effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. The Fund had no borrowings during the year ended May 31, 2008. 7. POST-OCTOBER LOSS 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, 2007 and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At May 31, 2008, the Fund had a post-October loss of $210,465 that is treated for income tax purposes as occurring on June 1, 2008. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of - -------------------------------------------------------------------------------- 38 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/ Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K 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 - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 39 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. - -------------------------------------------------------------------------------- 40 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 9. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $5.00 $4.92 $5.12 $5.03 $5.19 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(b) .22 .21 .19 .16 Net gains (losses) (both realized and unrealized) (.02) .09 (.20) .10 (.09) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .21 .31 .01 .29 .07 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.23) (.20) (.20) (.16) Tax return of capital -- -- -- -- (.01) Distributions from realized gains -- -- (.01) -- (.06) - ----------------------------------------------------------------------------------------------------------- Total distributions (.22) (.23) (.21) (.20) (.23) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.92 $5.12 $5.03 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $95 $111 $126 $159 $177 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.09% 1.17% 1.19% 1.10% 1.05% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .89% .89% .89% .95% .98% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.56% 4.45% 4.08% 3.67% 3.11% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return(g) 4.31% 6.30% .12% 5.78% 1.27% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 41 CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $5.00 $4.93 $5.12 $5.04 $5.20 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .19 .17 .15 .12 Net gains (losses) (both realized and unrealized) (.01) .07 (.19) .09 (.09) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .18 .26 (.02) .24 .03 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.19) (.16) (.16) (.12) Tax return of capital -- -- -- -- (.01) Distributions from realized gains -- -- (.01) -- (.06) - ----------------------------------------------------------------------------------------------------------- Total distributions (.19) (.19) (.17) (.16) (.19) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.93 $5.12 $5.04 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $34 $44 $64 $98 $129 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.86% 1.94% 1.95% 1.86% 1.80% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.69% 1.74% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.79% 3.70% 3.31% 2.90% 2.35% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return(g) 3.53% 5.30% (.42%) 4.78% .52% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 42 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $5.00 $4.93 $5.12 $5.04 $5.20 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .19 .17 .15 .12 Net gains (losses) (both realized and unrealized) (.01) .07 (.19) .09 (.09) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .18 .26 (.02) .24 .03 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.19) (.16) (.16) (.12) Tax return of capital -- -- -- -- (.01) Distributions from realized gains -- -- (.01) -- (.06) - ----------------------------------------------------------------------------------------------------------- Total distributions (.19) (.19) (.17) (.16) (.19) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.93 $5.12 $5.04 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $5 $7 $11 $15 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.85% 1.94% 1.95% 1.85% 1.80% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.70% 1.74% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.80% 3.70% 3.31% 2.90% 2.36% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return(g) 3.53% 5.30% (.43%) 4.79% .52% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 43 CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004(B) Net asset value, beginning of period $5.00 $4.92 $5.11 $5.03 $5.15 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .25(c) .24 .22 .20 .05 Net gains (losses) (both realized and unrealized) (.02) .08 (.19) .09 (.11) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .23 .32 .03 .29 (.06) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.24) (.24) (.21) (.21) (.06) Distributions from realized gains -- -- (.01) -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.24) (.24) (.22) (.21) (.06) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.92 $5.11 $5.03 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $222 $207 $6 $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .63% .63% .73% .66% .64%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .48% .54% .54% .62% .64%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.97% 4.90% 4.99% 3.99% 3.39%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return 4.74% 6.68% .59% 5.92% (1.38%)(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to May 31, 2004. (c) Per share amount has 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 for the year ended May 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- 44 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $5.00 $4.92 $5.11 $5.03 $5.19 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(b) .23 .21 .20 .17 Net gains (losses) (both realized and unrealized) (.01) .08 (.19) .08 (.09) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .22 .31 .02 .28 .08 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.23) (.23) (.20) (.20) (.17) Tax return of capital -- -- -- -- (.01) Distributions from realized gains -- -- (.01) -- (.06) - ----------------------------------------------------------------------------------------------------------- Total distributions (.23) (.23) (.21) (.20) (.24) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.99 $5.00 $4.92 $5.11 $5.03 - ----------------------------------------------------------------------------------------------------------- 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) .93% .99% 1.04% .94% .87% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .75% .71% .71% .77% .81% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.69% 4.63% 4.40% 3.99% 3.29% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 354% 306% 178% 137% 163% - ----------------------------------------------------------------------------------------------------------- Total return 4.46% 6.51% .49% 5.75% 1.45% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) 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 certain/reimburse 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, 2008 were less than 0.01% of average net assets. - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 45 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, 2008, and the related statements of operations, changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial statements and financial highlights of the Fund for the periods presented through May 31, 2007, were audited by other auditors whose report dated July 20, 2007, expressed an unqualified opinion on those financial statements and financial highlights. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides a reasonable basis for our opinion. - -------------------------------------------------------------------------------- 46 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT In our opinion, the 2008 financial statements and financial highlights 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, 2008, the results of its operations, changes in its net assets, and the financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota July 22, 2008 - -------------------------------------------------------------------------------- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 47 The financial statements and reports of Independent Registered Public Accounting Firm (KPMG LLP), dated July 20, 2007, for RiverSource Short Duration U.S. Government Fund and RiverSource U.S. Government Mortgage Fund are incorporated by reference to that filed in Registrant's Post-Effective Amendment No. 44 to Registration Statement No. 2-96512 on or about July 27, 2007. 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. (b) By-laws, as amended April 13, 2006 are filed electronically herewith as Exhibit (b) to Registrant's Post-Effective Amendment No. 45 to Registration Statement No. 2-96512. (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 Aug. 1, 2006, amended and restated as of Sept. 11, 2007, between Registrant and RiverSource Distributors, Inc. filed electronically on or about Oct. 30, 2007 as Exhibit (e)(2) to RiverSource Diversified Income Series, Inc. Post-Effective Amendment No. 63 to Registration Statement No. 2-51586 is incorporated by reference. (e)(2) Form of Service Agreement for RiverSource Distributors, Inc. and RiverSource Service Corporation 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) Bonus or Profit Sharing Contracts: Not Applicable. (g) Custodian Agreement, dated Oct. 1, 2005, amended and restated April 10, 2008, between Registrant and Ameriprise Trust Company filed electronically on or about April 21, 2008 as Exhibit (g)(1) to RiverSource Variable Series Trust Post-Effective Amendment No. 2 to Registration Statement No. 333-146374 is incorporated by reference. (h)(1) Administrative Services Agreement, dated Oct. 1, 2005, amended and restated June 12, 2008, between Registrant and Ameriprise Financial, Inc. filed electronically on or about July 28, 2008 as Exhibit (h)(1) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference.
(h)(2) Transfer Agency Agreement, dated Oct. 1, 2005, amended and restated June 12, 2008, between Registrant and RiverSource Service Corporation filed electronically on or about July 28, 2008 as Exhibit (h)(2) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference. (h)(3) Plan Administration Services Agreement, dated Dec. 1, 2006, amended and restated June 12, 2008, between Registrant and RiverSource Service Corporation filed electronically on or about July 28, 2008 as Exhibit (h)(3) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference. (h)(4) 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)(5) 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)(6) Master Fee Cap/Fee Waiver Agreement, dated Oct. 1, 2005, amended and restated June 12, 2008, between RiverSource Investments, LLC, Ameriprise Financial, Inc., RiverSource Service Corporation, RiverSource Distributors, Inc. and the Registrant filed electronically on or about July 28, 2008 as Exhibit (h)(5) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference. (h)(7) License Agreement, effective May 1, 2006, amended and restated as of Sept. 11, 2007, between Ameriprise Financial, Inc. and RiverSource Funds filed electronically on or about Oct. 30, 2007 as Exhibit (h)(7) to RiverSource Diversified Income Series, Inc. Post-Effective Amendment No. 63 to Registration Statement No. 2-51586 is incorporated by reference. (i) Opinion and consent of counsel as to the legality of the securities being registered is filed electronically herewith. (j)(1) Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP) is filed electronically herewith. (j)(2) Consent of Independent Registered Public Accounting Firm (KPMG LLP) is filed electronically herewith. (k) Omitted Financial Statements: Not Applicable. (l) Initial Capital Agreement: Not Applicable. (m) Plan and Agreement of Distribution, dated Aug. 1, 2006, amended and restated June 12, 2008, between Registrant and RiverSource Distributors, Inc. filed electronically on or about July 28, 2008 as Exhibit (m) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference. (n) Rule 18f - 3(d) Plan, amended and restated as of June 12, 2008, filed electronically on or about June 30, 2008 as Exhibit (n) to RiverSource Investment Series, Inc. Post-Effective Amendment No. 120 to Registration Statement No. 2-11328 is incorporated by reference. (o) Reserved.
(p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed electronically on or about Aug. 27, 2007 as Exhibit (p)(1) to RiverSource Sector Series, Inc. Post-Effective Amendment No. 39 to Registration Statement No. 33-20872 is incorporated by reference. (p)(2) Codes of Ethics adopted under Rule 17j-1 for Registrant's investment adviser, dated Jan. 2008, and 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 are incorporated by reference. (q) Directors/Trustees Power of Attorney to sign Amendments to this Registration Statement, dated Sept. 11, 2007, is filed electronically herewith as Exhibit (q) to Registrant's Post-Effective Amendment No. 45 to Registration Statement No. 2-96512.
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, Advisory Capital Partners LLC Dissolved Anti-Money Laundering Officer (resigned Anti-Money Laundering 5/23/06) Officer Advisory Capital Strategies Group Anti-Money Laundering Officer Inc. Advisory Convertible Arbitrage LLC Dissolved Anti-Money Laundering Officer (resigned 5/23/06) Advisory Select LLC Dissolved Anti-Money Laundering Officer (resigned 5/1/07) American Enterprise Investment 70400 AXP Financial Anti-Money Laundering Officer Services Inc. Center, Minneapolis, MN 55474 American Enterprise Life Insurance Dissolved Anti-Money Laundering Officer (resigned Company 12/30/06) American Enterprise REO 1 LLC Dissolved Anti-Money Laundering Officer (resigned 6/13/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned Alabama Inc. 6/29/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned Arizona Inc. 6/29/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned Idaho Inc. 6/29/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned Maryland Inc. 7/27/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned Massachusetts Inc. 8/18/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned Nevada Inc. 6/29/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned New Mexico Inc. 6/29/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned Oklahoma Inc. 6/29/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned Texas Inc. 7/29/07) American Express Insurance Agency of Dissolved Anti-Money Laundering Officer (resigned Wyoming Inc. 7/2/07) American Partners Life Insurance Dissolved Anti-Money Laundering Officer (resigned Company 12/30/06) Ameriprise Auto & Home Insurance 3500 Packerland Drive Anti-Money Laundering Officer Agency, Inc. De Pere, WI 54115 Ameriprise Certificate Company 70100 Ameriprise Anti-Money Laundering Officer (resigned Financial Center, 8/24/07) Minneapolis, MN 55474 Ameriprise Financial, Inc. 200 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Anti-Money Laundering Officer Financial Center, Minneapolis, MN 55474
Name and Title Other Companies Address* Title within other companies - --------------------- ------------------------------------ ------------------------ ------------------------------------------ Ameriprise Trust Company 200 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN 55474 Boston Equity General Partner LLC Anti-Money Laundering Officer IDS Capital Holdings Inc. Anti-Money Laundering Officer IDS Management Corporation Anti-Money Laundering Officer RiverSource Distributors, Inc. 50611 Ameriprise Anti-Money Laundering Officer Financial Center, Minneapolis, MN 55474 RiverSource Life Insurance Company 829 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN 55474 Patrick Thomas Ameriprise Trust Company 200 Ameriprise Financial Director, Senior Vice President Bannigan, Center, Minneapolis, MN Director and Senior 55474 Vice President - Asset Management, RiverSource Distributors, Inc. 50611 Ameriprise Vice President Products and Financial Center, Marketing Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Director Center, Minneapolis, MN 55474 Walter S. Berman, Advisory Capital Partners LLC Dissolved Treasurer (resigned 5/23/06) Treasurer Advisory Capital Strategies Group Treasurer Inc. Advisory Convertible Arbitrage LLC Dissolved Treasurer (resigned 5/23/06) Advisory Select LLC Dissolved Treasurer (resigned 5/1/07) American Centurion Life Assurance Dissolved Vice President and Treasurer (resigned Company 12/30/06) American Enterprise Investment 70400 AXP Financial Treasurer Services Inc. Center, Minneapolis, MN 55474 American Enterprise Life Insurance Dissolved Vice President and Treasurer (resigned Company 12/30/06) American Enterprise REO 1 LLC Dissolved Treasurer (resigned 6/13/07) American Express Financial Advisors, Dissolved Vice President and Treasurer (resigned Japan Inc. 2/4/08) American Express Insurance Agency of Dissolved Treasurer (resigned 6/29/07) Alabama, Inc. American Express Insurance Agency of Dissolved Treasurer (resigned 6/29/07) Arizona, Inc. American Express Insurance Agency of Dissolved Treasurer (resigned 6/29/07) Idaho, Inc.
Name and Title Other Companies Address* Title within other companies - --------------------- ------------------------------------ ------------------------ ------------------------------------------ American Express Insurance Agency of Dissolved Treasurer (resigned 7/27/07) Maryland, Inc. American Express Insurance Agency of Dissolved Treasurer (resigned 8/18/07) Massachusetts, Inc. American Express Insurance Agency of Dissolved Treasurer (resigned 6/29/07) Nevada, Inc. American Express Insurance Agency of Dissolved Treasurer (resigned 6/29/07) New Mexico, Inc. American Express Insurance Agency of Dissolved Treasurer (resigned 6/29/07) Oklahoma, Inc. American Express Insurance Agency of Dissolved Treasurer (resigned 7/2/07) Wyoming, Inc. American Express Property Casualty Treasurer Insurance Agency of Kentucky, Inc. American Express Property Casualty Treasurer Insurance Agency of Maryland, Inc. American Express Property Casualty Treasurer Insurance Agency of Pennsylvania, Inc. American Partners Life Insurance Dissolved Vice President and Treasurer (resigned Company 12/30/06) Ameriprise Auto & Home Insurance 3500 Packerland Drive Treasurer Agency Inc. De Pere, WI 54115 Ameriprise Bank, FSB 9393 Ameriprise Treasurer Financial Center, Minneapolis, MN 55474 Ameriprise Captive Insurance Company Director and Treasurer Ameriprise Certificate Company 70100 Ameriprise Treasurer and Investment Committee Member Financial Center, (resigned 8/24/07) Minneapolis, MN 55474 Ameriprise Financial, Inc. 200 Ameriprise Financial Executive Vice President, Chief Financial Center, Minneapolis, MN Officer and Treasurer 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Director and Treasurer Financial Center, Minneapolis, MN 55474 Ameriprise Insurance Company 3500 Packerland Drive Treasurer De Pere, WI 54115 AMEX Assurance Company Dissolved Treasurer (resigned 3/15/07) Boston Equity General Partner LLC Treasurer IDS Cable Corporation Dissolved Treasurer (resigned 5/31/07) IDS Cable II Corporation Dissolved Treasurer (resigned 6/18/07) IDS Capital Holdings Inc. Treasurer IDS Management Corporation Treasurer IDS Partnership Services Dissolved Treasurer (resigned 6/18/07) Corporation IDS Property Casualty Insurance 3500 Packerland Drive Treasurer Company De Pere, WI 54115
Name and Title Other Companies Address* Title within other companies - --------------------- ------------------------------------ ------------------------ ------------------------------------------ IDS Realty Corporation Dissolved Treasurer (resigned 6/18/07) IDS REO 1, LLC Treasurer IDS REO 2, LLC Treasurer Investors Syndicate Development Vice President and Treasurer Corporation Kenwood Capital Management LLC 333 S. 7th Street, Suite Treasurer (resigned 9/30/06) 2330, Minneapolis, MN 55402 RiverSource CDO Seed Investments, Treasurer LLC RiverSource Distributors, Inc. 50611 Ameriprise Treasurer Financial Center, Minneapolis, MN 55474 RiverSource Distributors Ltd Dissolved Treasurer (resigned) RiverSource Life Insurance Company 20 Madison Vice President and Treasurer of New York Ave. Extension, P.O. Box 5144, Albany, NY 12005 RiverSource Life Insurance Company 829 Ameriprise Financial Vice President and Treasurer Center, Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Treasurer Center, Minneapolis, MN 55474 RiverSource Tax Advantaged Treasurer Investments, Inc. Securities America Advisors Inc. 12325 Port Grace Blvd., Director Lavista, NE 68128-8204 Securities America Financial 7100 W. Center Rd., Ste. Director Corporation 500, Omaha, NE 68106-2716 Securities America, Inc. 12325 Port Grace Blvd., Director Lavista, NE 68128 Threadneedle Asset Management 60 St. Mary Axe, London Director Holdings Ltd. EC3A 8JQ Richard N. Bush, Advisory Capital Partners LLC Dissolved Senior Vice President - Corporate Tax Senior Vice (resigned 5/23/06) President, Corporate Tax Advisory Capital Strategies Group Senior Vice President - Corporate Tax Inc. Advisory Convertible Arbitrage LLC Dissolved Senior Vice President - Corporate Tax (resigned 5/23/06) American Centurion Life Assurance Dissolved Senior Vice President - Corporate Tax Company (resigned 12/30/06) American Enterprise Investment 70400 AXP Financial Senior Vice President - Corporate Tax Services Inc. Center, Minneapolis, MN 55474 American Enterprise Life Insurance Dissolved Senior Vice President - Corporate Tax Company (resigned 12/30/06) American Enterprise REO 1 LLC Dissolved Senior Vice President - Corporate Tax (resigned 6/13/07) American Express Financial Advisors Dissolved Senior Vice President - Corporate Tax Japan, Inc. (resigned 2/4/08) American Express Insurance Agency of Dissolved Senior Vice President - Corporate Tax Alabama, Inc. (resigned 6/29/07)
Name and Title Other Companies Address* Title within other companies - --------------------- ------------------------------------ ------------------------ ------------------------------------------ American Express Insurance Agency of Dissolved Senior Vice President - Corporate Tax Arizona, Inc. (resigned 6/29/07) American Express Insurance Agency of Dissolved Senior Vice President - Corporate Tax Idaho, Inc. (resigned 6/29/07) American Express Insurance Agency of Dissolved Senior Vice President - Corporate Tax Maryland, Inc. (resigned 6/29/07) American Express Insurance Agency of Dissolved Senior Vice President - Corporate Tax Massachusetts, Inc. (resigned 6/29/07) American Express Insurance Agency of Dissolved Senior Vice President - Corporate Tax Nevada, Inc. (resigned 6/29/07) American Express Insurance Agency of Dissolved Senior Vice President - Corporate Tax New Mexico, Inc. (resigned 6/29/07) American Express Insurance Agency of Dissolved Senior Vice President - Corporate Tax Oklahoma, Inc. (resigned 6/29/07) American Express Insurance Agency of Dissolved Senior Vice President - Corporate Tax Wyoming, Inc. (resigned 7/2/07) American Express Property Casualty Senior Vice President - Corporate Tax Insurance Agency of Kentucky, Inc. American Express Property Casualty Senior Vice President - Corporate Tax Insurance Agency of Maryland, Inc. American Express Property Casualty Senior Vice President - Corporate Tax Insurance Agency of Pennsylvania, Inc. American Partners Life Insurance Dissolved Senior Vice President - Corporate Tax Company (resigned 12/30/06) Ameriprise Bank, FSB 9393 Ameriprise Senior Vice President - Corporate Tax Financial Center, Minneapolis, MN 55474 Ameriprise Financial, Inc. 200 Ameriprise Financial Senior Vice President - Corporate Tax Center, Minneapolis, MN 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Senior Vice President - Corporate Tax Financial Center, Minneapolis, MN 55474 Ameriprise Insurance Company 3500 Packerland Drive Senior Vice President - Corporate Tax De Pere, WI 54115 AMEX Assurance Company Dissolved Senior Vice President - Corporate Tax (resigned 9/30/07) Boston Equity General Partner LLC Senior Vice President - Corporate Tax IDS Cable Corporation Dissolved Senior Vice President - Corporate Tax (resigned 5/31/07) IDS Cable II Corporation Dissolved Senior Vice President - Corporate Tax (resigned 6/18/07) IDS Capital Holdings Inc. Senior Vice President - Corporate Tax IDS Futures Corporation 570 Ameriprise Financial Senior Vice President - Corporate Tax Center, Minneapolis, MN 55474 IDS Management Corporation Senior Vice President - Corporate Tax IDS Property Casualty Insurance 3500 Packerland Drive Senior Vice President - Corporate Tax Company De Pere, WI 54115
Name and Title Other Companies Address* Title within other companies - --------------------- ------------------------------------ ------------------------ ------------------------------------------ IDS Realty Corporation Dissolved Senior Vice President - Corporate Tax (resigned 6/18/07) IDS REO 1, LLC Senior Vice President - Corporate Tax IDS REO 2, LLC Senior Vice President - Corporate Tax RiverSource Life Insurance Company 20 Madison Senior Vice President - Corporate Tax and of New York Ave. Extension, Authorized Officer - Derivatives Use Plan Albany, NY 12005 RiverSource Life Insurance Company 829 Ameriprise Financial Senior Vice President - Corporate Tax Center, Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Senior Vice President - Corporate Tax Center, Minneapolis, MN 55474 RiverSource Tax Advantaged Senior Vice President - Corporate Tax Investments, Inc. Peter Arthur Gallus, Advisory Capital Partners LLC Dissolved President, Chief Operating Officer and Senior Vice Chief Compliance Officer(resigned 5/23/06) President, Chief Operating Officer and Advisory Capital Strategies Group Director, President, Chief Operating Assistant Treasurer Inc. Officer and Chief Compliance Officer Advisory Convertible Arbitrage LLC Dissolved President, Chief Operating Officer and Chief Compliance Officer (resigned 5/23/06) Advisory Select LLC Dissolved President and Chief Operating Officer (resigned 5/1/07) Ameriprise Financial, Inc. 200 Ameriprise Financial Vice President - Investment Administration Center, Minneapolis, MN 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Vice President - CAO-AEFA Investment Financial Center, Management Minneapolis, MN 55474 Boston Equity General Partner LLC President, Chief Operating Officer and Chief Compliance Officer IDS Capital Holdings Inc. Vice President and Controller Kenwood Capital Management LLC 333 S. 7th Street, Suite Board Member 2330, Minneapolis, MN 55402 Christopher Paul Ameriprise Trust Company 200 Ameriprise Financial Director, Head of Institutional Sales, Keating, Center, Minneapolis, MN Client Service and Consultant Head of Institutional 55474 Relationships Sales, Client Service and Consultant Kenwood Capital Management LLC 333 S. 7th Street, Suite Board Member Relationships 2330, Minneapolis, MN 55402 Michelle Marie Ameriprise Bank, FSB 9393 Ameriprise Director Keeley, Financial Center, Executive Vice Minneapolis, MN 55474 President - Equity and Fixed Income Ameriprise Financial, Inc. 200 Ameriprise Financial Executive Vice President - Equity and Center, Minneapolis, MN Fixed Income 55474
Name and Title Other Companies Address* Title within other companies - --------------------- ------------------------------------ ------------------------ ------------------------------------------ Ameriprise Financial Services, Inc. 5221 Ameriprise Executive Vice President - Equity and Financial Center, Fixed Income Minneapolis, MN 55474 IDS Property Casualty Insurance 3500 Packerland Drive Vice President - Investments Company De Pere, WI 54115 Kenwood Capital Management LLC 333 S. 7th Street, Suite Board Member 2330, Minneapolis, MN 55402 RiverSource CDO Seed Investments, Chairperson and President LLC RiverSource Life Insurance Company 829 Ameriprise Financial Vice President - Investments Center, Minneapolis, MN 55474 RiverSource Life Insurance Company 20 Madison Vice President - Investments of New York Ave. Extension, Albany, NY 12005 American Centurion Life Assurance Dissolved Vice President - Investments (resigned Company 12/30/06) American Enterprise Life Insurance Dissolved Vice President - Investments (resigned Company 12/30/06) American Partners Life Insurance Dissolved Vice President - Investments, Investment Company Committee Member (resigned 12/30/06) Ameriprise Certificate Company 70100 Ameriprise Vice President - Investments, Investment Financial Center, Committee Member (resigned 8/24/07) Minneapolis, MN 55474 Ameriprise Insurance Company 3500 Packerland Drive Vice President - Investments (resigned De Pere, WI 54115 9/18/06) AMEX Assurance Company Vice President - Investments (resigned 9/30/2007) Jennifer Davis Kenwood Capital Management LLC 333 S. 7th Street, Suite Chief Compliance Officer Lammers, 2330, Minneapolis, MN Chief Compliance 55402 Officer RiverSource Service Corporation 734 Ameriprise Financial Chief Compliance Officer Center, Minneapolis, MN 55474 Brian Joseph McGrane, Advisory Capital Partners LLC Dissolved Vice President and Chief Financial Officer Director, Vice (resigned 5/23/06) President and Chief Financial Officer Advisory Capital Strategies Group Vice President and Chief Financial Officer Inc. Advisory Convertible Arbitrage LLC Dissolved Vice President and Chief Financial Officer(resigned 5/23/06) Advisory Select LLC Dissolved Vice President and Chief Financial Officer(resigned 5/1/07) Ameriprise Financial, Inc. 200 Ameriprise Financial Senior Vice President and Lead Financial Center, Minneapolis, MN Officer 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Vice President and Lead Financial Officer Financial Center, - Finance Minneapolis, MN 55474
Name and Title Other Companies Address* Title within other companies - --------------------- ------------------------------------ ------------------------ ------------------------------------------ Ameriprise Trust Company 200 Ameriprise Financial Director Center, Minneapolis, MN 55474 Boston Equity General Partner LLC Vice President and Chief Financial Officer RiverSource CDO Seed Investments, LLC Board Member RiverSource Life Insurance Company 829 Ameriprise Financial Director, Executive Vice President and Center, Minneapolis, MN Chief Financial Officer 55474 Ameriprise Certificate Company 70100 Ameriprise Vice President and Chief Financial Officer Financial Center, (resigned 8/24/07) Minneapolis, MN 55474 American Enterprise Life Insurance Dissolved Director, Executive Vice President and Company Chief Financial Officer (resigned 12/30/06) American Partners Life Insurance Dissolved Director (resigned 12/30/06) Company Thomas R. Moore, Advisory Capital Strategies Group Secretary Secretary Inc. American Centurion Life Assurance Dissolved Secretary (resigned 12/30/06) Company American Enterprise Investment 70400 AXP Financial Secretary Services Inc. Center, Minneapolis, MN 55474 American Enterprise Life Insurance Dissolved Secretary (resigned 12/30/06) Company American Enterprise REO 1 LLC Dissolved Secretary (resigned 6/13/07) American Express Insurance Agency of Dissolved Secretary (resigned 6/29/07) Alabama, Inc. American Express Insurance Agency of Dissolved Secretary (resigned 6/29/07) Arizona, Inc. American Express Insurance Agency of Dissolved Secretary (resigned 6/29/07) Idaho, Inc. American Express Insurance Agency of Dissolved Secretary (resigned 7/27/07) Maryland, Inc. American Express Insurance Agency of Dissolved Secretary (resigned 8/18/07) Massachusetts, Inc. American Express Insurance Agency of Dissolved Secretary (resigned 6/29/07) Nevada, Inc. American Express Insurance Agency of Dissolved Secretary (resigned 6/29/07) New Mexico, Inc. American Express Insurance Agency of Dissolved Secretary (resigned 6/29/07) Oklahoma, Inc. American Express Insurance Agency of Dissolved Secretary (resigned 7/2/07) Wyoming, Inc. American Express Property Casualty Secretary Insurance Agency of Kentucky, Inc. American Express Property Casualty Secretary Insurance Agency of Maryland, Inc.
Name and Title Other Companies Address* Title within other companies - --------------------- ------------------------------------ ------------------------ ------------------------------------------ American Express Property Casualty Secretary Insurance Agency of Pennsylvania, Inc. American Partners Life Insurance Dissolved Secretary (resigned 12/30/06) Company Ameriprise Bank, FSB 9393 Ameriprise Secretary Financial Center, Minneapolis, MN 55474 Ameriprise Captive Insurance Company Assistant Secretary Ameriprise Financial, Inc. 200 Ameriprise Financial Vice President, Chief Governance Officer Center, Minneapolis, MN and Corporate Secretary 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Secretary Financial Center, Minneapolis, MN 55474 Ameriprise Insurance Company 3500 Packerland Drive Secretary De Pere, WI 54115 Ameriprise Trust Company 200 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 AMEX Assurance Company Dissolved Secretary (resigned 9/30/07) IDS Cable Corporation Dissolved Secretary (resigned 5/31/07) IDS Cable II Corporation Dissolved Secretary (resigned 6/18/07) IDS Capital Holdings Inc. Secretary IDS Futures Corporation 570 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 IDS Management Corporation Secretary IDS Property Casualty Insurance 3500 Packerland Drive Secretary Company De Pere, WI 54115 IDS Realty Corporation Dissolved Secretary (resigned 6/18/07) IDS REO 1, LLC Secretary IDS REO 2, LLC Secretary Investors Syndicate Development Secretary Corporation RiverSource CDO Seed Investments, Secretary LLC RiverSource Distributors, Inc. 50611 Ameriprise Secretary Financial Center, Minneapolis, MN 55474 RiverSource Life Insurance Company 20 Madison Secretary of New York Ave. Extension, Albany, NY 12005 RiverSource Life Insurance Company 829 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Secretary Center, Minneapolis, MN 55474
Name and Title Other Companies Address* Title within other companies - --------------------- ------------------------------------ ------------------------ ------------------------------------------ RiverSource Tax Advantaged Secretary Investments, Inc. Securities America Financial 7100 W. Center Rd., Ste. Secretary (resigned 11/19/07) Corporation 500, Omaha, NE 68106-2716 Scott Roane Plummer, Ameriprise Financial, Inc. 200 Ameriprise Financial Vice President - Asset Management Chief Legal Officer Center, Minneapolis, MN Compliance and Assistant 55474 Secretary Ameriprise Financial Services, Inc. 5221 Ameriprise Vice President and Chief Counsel - Asset Financial Center, Management Minneapolis, MN 55474 RiverSource Distributors, Inc. 50611 Ameriprise Chief Counsel Financial Center, Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Vice President, Chief Legal Officer and Center, Minneapolis, MN Assistant Secretary 55474 Ameriprise Certificate Company 70100 Ameriprise Vice President, General Counsel and Financial Center, Secretary (resigned 8/24/07) Minneapolis, MN 55474 William Frederick Advisory Capital Strategies Group Director 'Ted' Truscott Inc. Chairman, Chief Investment Officer Ameriprise Certificate Company 70100 Ameriprise Director, President and Chief Executive and President Financial Center, Officer (resigned 8/24/07) Minneapolis, MN 55474 Ameriprise Financial, Inc. 200 Ameriprise Financial President - U.S. Asset Management, Center, Minneapolis, MN Annuities and Chief Investment Officer 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Senior Vice President and Chief Investment Financial Center, Officer Minneapolis, MN 55474 Ameriprise Trust Company 200 Ameriprise Financial Director Center, Minneapolis, MN 55474 IDS Capital Holdings Inc. Director and President Kenwood Capital Management LLC 333 S. 7th Street, Suite Board Member 2330, Minneapolis, MN 55402 RiverSource Distributors, Inc. 50611 Ameriprise Chairman and Chief Executive Officer Financial Center, Minneapolis, MN 55474 Threadneedle Asset Management 60 St. Mary Axe, London Director Holdings Ltd. EC3A 8JQ
* Unless otherwise noted, address is 50605 Ameriprise Financial Center, Minneapolis, MN 55474 Item 27. Principal Underwriter (RiverSource Distributors, Inc.) (a) RiverSource Distributors, Inc. acts as principal underwriter for the following investment companies: 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. (b) As to each director, principal officer or partner of RiverSource Distributors, Inc.
Name and Principal Business Address* Positions and Offices with Underwriter Positions and Offices with Fund - -------------------------------- -------------------------------------- ----------------------------------- Neysa M. Alecu Anti-Money Laundering Officer None Gumer C. Alvero Director and Vice President None Patrick Thomas Bannigan Vice President President Timothy V. Bechtold Director and Vice President None Walter S. Berman Treasurer None Paul J. Dolan Chief Operating Officer and Chief None Administrative Officer Jeffrey P. Fox Chief Financial Officer Treasurer Jeffrey Lee McGregor, Sr. President None Thomas R. Moore Secretary None Scott Roane Plummer Chief Counsel Vice President, General Counsel and Secretary Julie A. Ruether Chief Compliance Officer None William Frederick 'Ted' Truscott Chairman and Chief Executive Officer Board Member and Vice President
* Business address is: 50611 Ameriprise Financial Center, Minneapolis, MN 55474 (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, duly authorized, in the City of Minneapolis, and the State of Minnesota on the 28th day of July, 2008. 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 28th day of July, 2008.
Signature Capacity - --------- ------------------ /s/ Stephen R. Lewis, Jr.* Chair of the Board - ------------------------------------- Stephen R. Lewis, Jr. /s/ Kathleen A. Blatz* Director - ------------------------------------- Kathleen A. Blatz /s/ Arne H. Carlson* Director - ------------------------------------- Arne H. Carlson /s/ Pamela G. Carlton* Director - ------------------------------------- Pamela G. Carlton /s/ Patricia M. Flynn* Director - ------------------------------------- Patricia M. Flynn /s/ Anne P. Jones* Director - ------------------------------------- Anne P. Jones /s/ Jeffrey Laikind* Director - ------------------------------------- Jeffrey Laikind /s/ Catherine James Paglia* Director - ------------------------------------- Catherine James Paglia /s/ Alison Taunton-Rigby* Director - ------------------------------------- Alison Taunton-Rigby /s/ William F. Truscott* Director - ------------------------------------- William F. Truscott
* Signed pursuant to Directors/Trustees Power of Attorney, dated Sept. 11, 2007, filed electronically herewith as Exhibit (q) to Registrant's Post-Effective Amendment No. 45 to Registration Statement No. 2-96512, by: /s/ Scott R. Plummer - ------------------------------------- Scott R. Plummer CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 45 TO REGISTRATION STATEMENT NO. 2-96512 This Post-Effective Amendment contains 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 (b) By-laws, as amended April 13, 2006. (i) Opinion and consent of counsel as to the legality of the securities being registered. (j)(1) Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP). (j)(2) Consent of Independent Registered Public Accounting Firm (KPMG LLP). (q) Directors/Trustees Power of Attorney to sign Amendments to this Registration Statement, dated Sept. 11, 2007.
EX-99.(B) 2 c26445bexv99wxby.txt BY-LAWS Exhibit (b) Effective: June 12, 1986 Amended: 5/14/87, 1/12/89, 1/10/96, 9/8/99, 1/11/01, 11/15/02, 4/13/06 BY-LAWS OF RIVERSOURCE GOVERNMENT INCOME SERIES, INC. 11/15/02 4/13/06 ARTICLE I Corporate Seal The corporate seal shall bear the inscription "Seal." 9/8/99 ARTICLE II Meeting of Shareholders Section 1. No regular meeting of shareholders need be held, however, a majority of directors present at a duly held meeting may call a regular meeting of shareholders by fixing the date, time and place for a meeting. A regular meeting of the shareholders shall include an election of directors. No meeting shall be considered a regular meeting unless specifically designated as such in the notice of meeting. Regular meetings may be held no more frequently than once per year. If a regular meeting of shareholders has not been held during the immediately preceding 15 months, a shareholder or shareholders holding three percent or more of the voting power of all shares entitled to vote may demand a regular meeting of shareholders by written notice of demand given to the chief executive officer or chief financial officer of the Fund. Within 30 days after receipt of the demand by one of those officers, the Board of Directors shall cause a regular meeting of shareholders to be called and held on notice no later than 90 days after receipt of the demand, all at the expense of the Fund. If the Board fails to cause a regular meeting to be called, the shareholder or shareholders making the demand may call the regular meeting by giving notice as required by the laws of Minnesota at the expense of the Fund. Section 2. The holders of at least ten percent (10%) of the shares outstanding and entitled to vote, present in person or by proxy, shall constitute a quorum, but the holders of a smaller amount may adjourn from time to time without further notice, other than by notice at the time, until a quorum is secured at any such adjourned meeting. In case a quorum is not present, the meeting may be adjourned from time to time without notice other than by notice at the meeting. At any adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. Section 3. At each meeting of the shareholders, the polls may be opened and closed, the proxies and ballots may be received and taken in charge, and all questions touching the qualification of voters, the validity of proxies, and acceptances or rejections of votes may be decided by two (2) inspectors of election. Inspectors may be appointed by the Board of Directors before or at the meeting. If no such appointment shall have been made or if any inspector be absent or fails to act, the presiding officer at the meeting shall appoint a person or persons to fill such vacancy. Inspectors shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. -1- Section 4. Special meetings of the shareholders may be called at any time as provided for by the laws of the State of Minnesota. Section 5. Shareholders shall take action by the affirmative vote of the holders of a majority of the voting power of the shares present and entitled to vote except where a larger portion is otherwise required. ARTICLE III Directors Section 1. An organizational meeting of the Board of Directors shall be held as soon as convenient to a majority of the directors, after the final adjournment of each regular meeting of the shareholders, and no notice shall be required. Other meetings of the Board of Directors may be previously scheduled or called by the Chair of the Board or any two directors. Notice of 9/8/99 specially called meetings shall be sufficient if given to each director 4/13/06 at least five days prior thereto by mail or one day prior thereto by telephone, telegraph or in person, unless such notice period is waived by each director. Section 2. The Board of Directors shall fix and change, as it may from time to time determine, by majority vote, the compensation to be paid the directors, officers and all employees appointed by the Board of Directors. Section 3. A director may give advance written consent or opposition to a proposal to be acted on at a Board meeting. If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as a vote in favor of or against the proposal and shall be entered in the minutes of the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. Section 4. A majority of the directors shall constitute a quorum, but a smaller number may adjourn from time to time without notice, other than by announcement at the meeting, until a quorum is secured; and, likewise, in case a quorum is present, the meeting may be adjourned from time to time without notice other than by announcement at the meeting. At any adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. Section 5. The Board of Directors may, by resolution passed by a majority of the whole Board, designate an Executive Committee of two or more directors, which may meet at stated times or on notice to all by any of their number during intervals between meetings of the Board. The Executive Committee shall advise with and aid the officers of the Fund in all matters concerning its interests and the management of its business, and generally perform such duties and exercise such powers as may be delegated to it from time to time by the Board of Directors. Vacancies in the membership of such Executive Committee shall be filled by the Board of Directors. Section 6. From time to time the Board of Directors may, by resolution passed by a majority of the whole Board, appoint any other committee or committees for any purpose or purposes, which committee or committees shall have such powers as shall be specified in the resolution of appointment. Section 7. The quorum for such committee established by the Board of Directors is two members regardless of the number of members serving on the committee. Section 8. Any action required or permitted to be taken at any meeting of the Board of Directors or of a duly appointed committee of the Board of Directors may be taken in any manner -2- permitted by law. Section 9. The Board of Directors shall elect one independent member to serve a Chair of the Board whose duties shall include serving as the 1/11/01 lead independent director. ARTICLE IV Officers Section 1. The Fund shall have a President, a Treasurer and may have such other officers as the 1/11/01 Board of Directors may choose from time to time. 9/8/99 Section 2. The Treasurer shall be the chief financial officer of the Fund, shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the Fund, and shall perform such other duties as the Board of Directors may from time to time prescribe or require. Section 3. Any person designated by the Board of Directors as Assistant Vice President shall perform those duties as may be prescribed by the Board of Directors. Any person designated by the Board of Directors as Vice 4/13/06 President shall be vested with all the powers and required to perform all the duties of the President in the President's absence or disability; shall 9/8/99 at all times be vested with the same powers as the President to sign and 1/11/01 deliver in the name of the Fund any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the Fund; and shall perform such other duties as may be prescribed by the Board of Directors. Section 4. Any person designated by the Board of Directors as Secretary shall attend all meetings of the shareholders of the Fund, the Board of Directors, and such other meetings as may be designated by the Board of Directors. The Secretary shall record all of the proceedings of such meetings in a book or books to be kept for that purpose; shall have custody of the seal, stock certificate books and minute books of the Fund; may affix the seal of the Fund to any instrument and perform such additional duties as shall be assigned by the Board of Directors. Section 5. The officers of the Fund shall hold office until their successors are chosen and qualify in their stead. Any officer chosen and appointed by the Board of Directors may be removed either with or without cause at any time by the Board of Directors. ARTICLE V Capital Stock Shares of capital stock shall be uncertificated. 1/12/89 ARTICLE VI Transfers 1/12/89 Section 1. Shares of stock of the Fund shall be transferred on the books of the Fund at the request of the holder thereof in person or of her or his duly authorized attorney upon surrender of the certificate or certificates therefor, if any, or in their absence by a request for transfer in a form acceptable to the Fund that may include the request be in writing, and be signed by the registered holder or by his duly authorized attorney in the manner specified by the Fund. No transfer or assignment of shares shall affect the right of the Fund to pay any dividend due upon the shares, or to treat the holder of record as the holder in fact, until such transfer or assignment is registered on the books of the Fund and the Fund shall be entitled to treat the holder of record of any of its shares as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to, or interest in, such shares on the part of any person whether or not it shall have express or other notice thereof, save as may be expressly -3- provided by law. Section 2. The Board of Directors shall have power and authority from time to time to appoint one or more transfer agents and/or clerks and registrars for the securities issued by the Fund and to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of such securities. Section 3. If any security issued by the Fund be lost, stolen, mutilated or destroyed, the security may be transferred upon giving of a satisfactory bond of indemnity in an amount which, in the judgment of the Board of Directors, is sufficient to indemnify the Fund against any claim that may result therefrom. ARTICLE VII Definitions For all purposes of the Articles of Incorporation and these By-Laws, the term "business day" shall be defined as a day with respect to which the New York Stock Exchange is open for business. ARTICLE VIII Custodian or Trustee Agreements The Fund shall enter into a custodian or trustee agreement with a bank or trust company having aggregate capital, surplus and undivided profits of not less than $2,000,000 for the custody of the Fund's securities and other assets. All securities and cash assets owned or acquired by the Fund shall be held by such custodian or trustee pursuant to the terms of such agreement and the Fund shall deposit or cause to be deposited with such custodian or trustee all such securities and cash assets. The agreement between the Fund and the custodian or trustee may be terminated at any time by a vote of a majority of the outstanding shares of the Fund. ARTICLE IX Miscellaneous Section 1. The fiscal year of the Fund shall begin on the first day of June in each year and end on the thirty-first day of May following. 1/10/96 Section 2. If the sale of shares issued by the Fund shall at any time be discontinued, the Board of Directors may in its discretion, pursuant to resolution, deduct from the value of the assets an amount equal to the brokerage commissions, transfer taxes, and charges, if any, which would be payable on the sale of such securities if they were then being sold. ARTICLE X Indemnification 5/14/87 Section 1. Each person made or threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding whether civil, criminal, administrative, arbitration, or investigative, including a proceeding by or in the right of the Fund by reason of the former or present capacity as a director or officer of the Fund or who, while a director or officer of the Fund, is or was serving at the request of the Fund or whose duties as a director or officer involve or involved service as a director, officer, partner, trustee or agent of another organization or employee benefit plan, whether the basis of any proceeding is alleged action in an official capacity or in any capacity while serving as a director, officer, partner, trustee -4- or agent, shall be indemnified and held harmless by the Fund to the full extent authorized by the Minnesota Business Corporation Act, as the same or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Fund to provide broader indemnification rights than the law permitted the Fund to provide prior to such amendment, or by any other applicable law as then in effect, against judgments, penalties, fines including, without limitation, excise taxes assessed against the person with respect to an employee benefit plan, settlements and reasonable expenses, including attorneys' fees and disbursements, incurred in connection therewith and such indemnification shall continue as to any person who has ceased to be a director or officer and shall inure to the benefit of the person's heirs, executors and administrators provided, however, in an action brought against the Fund to enforce rights to indemnification, the director or officer shall be indemnified only if the action was authorized by the Board of Directors of the Fund. The right to indemnification conferred by this Section shall be a contract right and shall include the right to be paid by the Fund in advance of the final disposition of a proceeding for expenses incurred in connection therewith provided, however, such payment of expenses shall be made only upon receipt of a written undertaking by the director or officer to repay all amounts so paid if it is ultimately determined that the director or officer is not entitled to indemnification. Section 2. Each person who upon written request to the Fund has not received payment within thirty days may at any time thereafter bring suit against the Fund to recover any unpaid amount and, to the extent successful, in whole or in part, shall be entitled to be paid the expenses of prosecuting such suit. Each person shall be presumed to be entitled to indemnification upon filing a written request for payment and the Fund shall have the burden of proof to overcome the presumption that the director or officer is not so entitled. Neither the determination by the Fund, whether by the Board of Directors, special legal counsel or by shareholder, nor the failure of the Fund to have made any determination shall be a defense or create the presumption that the director or officer is not entitled to indemnification. Section 3. The right to indemnification and to the payment of expenses prior to any final determination shall not be exclusive of any other right which any person may have or hereinafter acquire under any statute, provision of the Articles of Incorporation, by-law, agreement, vote of shareholders or otherwise and notwithstanding any provisions in this Article X, the Fund is not obligated to make any payment with respect to any claim for which payment is required to be made to or on behalf of the director or officer under any insurance policy, except with respect to any excess beyond the amount of required payment under such insurance and no indemnification will be made in violation of the provisions of the Investment Company Act of 1940. -5- EX-99.(I) 3 c26445bexv99wxiy.txt OPINION AND CONSENT OF COUNSEL Exhibit (i) July 28, 2008 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 Funds EX-99.(J)(1) 4 c26445bexv99wxjyx1y.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Exhibit (j)(1) 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 22, 2008 on the financial statements of the RiverSource U.S. Government Mortgage Fund and the RiverSource Short Duration U.S. Government Fund of the RiverSource Government Income Series, Inc. included in the Annual Reports for the period ended May 31, 2008, as filed with the Securities and Exchange Commission in Post-Effective Amendment No. 45 to the Registration Statement (Form N-1A, No. 2-96512) of the RiverSource Government Income Series, Inc. /s/ Ernst & Young LLP Minneapolis, Minnesota July 25, 2008 EX-99.(J)(2) 5 c26445bexv99wxjyx2y.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Exhibit (j)(2) Consent of Independent Registered Public Accounting Firm The board and shareholders RiverSource Government Income Series, Inc.: RiverSource Short Duration U.S. Government Fund RiverSource U.S. Government Mortgage Fund We consent to the use of our reports dated July 20, 2007 incorporated by reference and to the references to our Firm under the headings "Financial Highlights" in Part A and "Independent Registered Public Accounting Firm" in Part B of the Registration Statement. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota July 28, 2008 EX-99.(Q) 6 c26445bexv99wxqy.txt DIRECTORS/TRUSTEES POWER OF ATTORNEY Exhibit (q) DIRECTORS/TRUSTEES POWER OF ATTORNEY City of Minneapolis State of Minnesota Each of the undersigned, as directors and trustees of the below listed open-end investment companies that previously have filed registration statements and amendments thereto pursuant to the requirements of the Securities Act of 1933 and/or the Investment Company Act of 1940 with the Securities and Exchange Commission:
1933 Act 1940 Act Reg. Number Reg. Number ----------- ----------- RiverSource Bond Series, Inc. 2-72174 811-3178 RiverSource California Tax-Exempt Trust 33-5103 811-4646 RiverSource Dimensions Series, Inc. 2-28529 811-1629 RiverSource Diversified Income Series, Inc. 2-51586 811-2503 RiverSource Equity Series, Inc. 2-13188 811-772 RiverSource Global Series, Inc. 33-25824 811-5696 RiverSource Government Income Series, Inc. 2-96512 811-4260 RiverSource High Yield Income Series, Inc. 2-86637 811-3848 RiverSource Income Series, Inc. 2-10700 811-499 RiverSource International Managers Series, Inc. 333-64010 811-10427 RiverSource International Series, Inc. 2-92309 811-4075 RiverSource Investment Series, Inc. 2-11328 811-54 RiverSource Large Cap Series, Inc. 2-38355 811-2111 RiverSource Managers Series, Inc. 333-57852 811-10321 RiverSource Market Advantage Series, Inc. 33-30770 811-5897 RiverSource Money Market Series, Inc. 2-54516 811-2591 RiverSource Sector Series, Inc. 33-20872 811-5522 RiverSource Selected Series, Inc. 2-93745 811-4132 RiverSource Series Trust 333-131683 811-21852 RiverSource Short Term Investments Series, Inc. N/A 811-21914 RiverSource Special Tax-Exempt Series Trust 33-5102 811-4647 RiverSource Strategic Allocation Series, Inc. 2-93801 811-4133 RiverSource Strategy Series, Inc. 2-89288 811-3956 RiverSource Tax-Exempt Series, Inc. 2-57328 811-2686 RiverSource Tax-Exempt Income Series, Inc. 2-63552 811-2901 RiverSource Tax-Exempt Money Market Series, Inc. 2-66868 811-3003 RiverSource Variable Portfolio-Income Series, Inc. 2-73113 811-3219 RiverSource Variable Portfolio-Investment Series, Inc. 2-73115 811-3218 RiverSource Variable Portfolio-Managed Series, Inc. 2-96367 811-4252 RiverSource Variable Portfolio-Managers Series, Inc 333-61346 811-10383 RiverSource Variable Portfolio-Money Market Series, Inc. 2-72584 811-3190 RiverSource Variable Portfolio-Select Series, Inc. 333-113780 811-21534 RiverSource Variable Series Trust * *
* To be assigned. hereby constitutes and appoints Steven R. Lewis, Jr., any other member of the Boards who is not an interested person of the investment manager, and Scott R. Plummer or any one of these persons individually as her or his attorney-in-fact and agent to file and sign for her or him in her or his name, place and stead any and all further amendments to said registration statements with all exhibits and other documents thereto pursuant to said Acts and any rules and regulations thereunder and grants them the full power and authority to do and perform each and every act required and necessary to be done in connection therewith. Dated the 11th day of September, 2007. /s/ Kathleen A. Blatz /s/ Jeffrey Laikind - ------------------------------------- ---------------------------------------- Kathleen A. Blatz Jeffrey Laikind /s/ Arne H. Carlson /s/ Stephen R. Lewis, Jr. - ------------------------------------- ---------------------------------------- Arne H. Carlson Stephen R. Lewis, Jr. /s/ Pamela G. Carlton /s/ Catherine James Paglia - ------------------------------------- ---------------------------------------- Pamela G. Carlton Catherine James Paglia /s/ Patricia M. Flynn /s/ Alison Taunton-Rigby - ------------------------------------- ---------------------------------------- Patricia M. Flynn Alison Taunton-Rigby /s/ Anne P. Jones /s/ William F. (Ted) Truscott - ------------------------------------- ---------------------------------------- Anne P. Jones William F. (Ted) Truscott -----END PRIVACY-ENHANCED MESSAGE-----